With business disruption from the pandemic lasting longer than many businesses anticipated, the UK Government’s Future Fund loans are providing welcome relief to eligible small and medium entities ("SMEs"). The British Business Bank ("BBB") has provided loans of between £125,000 and £5 million in the form of convertible loans, retaining the option to participate in the potential upside of the businesses should they be successful in future.
These loans are accounted for differently to normal bank loans, as the conversion feature may require ongoing valuations depending on the agreed terms. Movements in the fair value would impact the balance sheet and profit & loss, which could give rise to volatility of reportable earnings of participating SMEs. Investors will want to understand the current and future value implications.
If you have participated in or are considering applying for the Future Fund investment scheme, it is imperative to consider the impact it may have on your capital structure, financial reporting and potential future plans to raise further funds.
KPMG has a team of specialists experienced in offering valuation and accounting advice.
If you have any queries regarding the accounting or valuation of convertible loans, please reach out to us.