Future London Growth Fund debt versus equity for London scaleups

The Future London Growth Fund, launched by FSE Group on 22 October 2026, will lend more than £70 million to London scaleups in loans of £1 million to £3 million. The terms are unpublished, so this explainer tests when such a loan would cost less than equity.

What FSE Group and the British Business Bank have committed

The British Business Bank has made a £20 million cornerstone commitment. Funding London, the Mayor of London's investment arm, is investing through its entity GLIF Limited as part of the London Growth Plan. FSE Group expects to lend more than £70 million in total, with repaid capital reinvested.

The fund aims to back 40 to 50 businesses across London's 32 boroughs and the City, with loans positioned between conventional bank lending and larger venture debt. FSE Group has run the £66 million debt portion of Funding London's Greater London Investment Fund since 2019 and has invested in more than 100 London businesses.

Adam Kelly, managing director of Debt and Regional Funds at the British Business Bank, said the "£20 million cornerstone commitment to the Future London Growth Fund will help address that gap". The bank's regional funds backed 877 firms, according to earlier coverage of the British Business Bank regional funds review.

Who qualifies for FSE Group venture debt

The fund targets innovative, high-growth businesses that have already shown commercial performance, generally through revenue. Profitability is not required, but a credible growth plan and a clear route to profitability are. No single sector is favoured, with healthcare, education, transport, data, enterprise software, advanced manufacturing and sustainable solutions named as examples.

There is not indication yet of an interest rate, a repayment period, security requirements or whether equity warrants are attached. Clearly those are the terms that decide what the money costs, so the headline size and ticket range say little about value to a borrower.

The Fund debt versus equity, worked through

Take a company that needs £2 million. Selling equity at an £8 million pre-money valuation gives the new investor 20 per cent of a £10 million company. A £2 million loan at an assumed 12 per cent a year, interest only for three years and repaid at the end, costs £240,000 a year, or £720,000 in interest, so £2.72 million in total. The 12 per cent is an illustration, because the fund has published no rate.

The break-even follows from one line of arithmetic. Twenty per cent of the exit value equals £2.72 million when the company sells for £13.6 million. Above that, the loan has cost less than the equity would have, and below it equity is cheaper. At an assumed 15 per cent the total repayment is £2.9 million and the break-even rises to £14.5 million.

The comparison leaves out arrangement fees, security over assets, covenants, any warrants and later dilution. It also ignores timing, because interest starts on day one while equity costs nothing until an exit. A company that fails still owes the loan, but owes an equity investor nothing.

Cash matters as much as cost. At the assumed 12 per cent, interest is £20,000 a month, which has to come from revenue. That fits the fund's focus on companies that already trade, and it is a hurdle a pre-revenue company raising equity does not face.

SEIS and EIS relief is given to investors who subscribe for shares, so it plays no part in a loan. A founder planning to raise from angels on that relief and to borrow as well should model both together, because the loan interest sits ahead of any equity return.

What to ask FSE Group before signing a loan

Founders should ask for the interest rate and whether it is fixed or floating, the repayment profile, any security over assets or personal guarantees, whether warrants or other equity rights are attached, and fees for arrangement and early repayment. Each changes the cost the comparison above is trying to capture.

The wider market gives context for the choice. Beauhurst found that first-time equity deals moved outside London for the first time since 2022, and the British Business Bank found that UK venture capital returns match the US.

This is general information, not legal, tax or investment advice. The figures in the worked comparison are illustrative assumptions, not terms offered by FSE Group.

Key takeaways

• FSE Group launched the Future London Growth Fund on 22 October 2026 to lend more than £70 million in loans of £1 million to £3 million to London scaleups.

• The British Business Bank committed £20 million as cornerstone investor, alongside Funding London through GLIF Limited.

• Interest rates, repayment periods, security and any warrants have not been published.

• On an assumed 12 per cent interest-only loan, £2 million costs £2.72 million over three years and beats a 20 per cent equity sale only if the exit exceeds £13.6 million.