An overview of Innovate UK’s loan programme for SMEs involved in late-stage innovation projects.

What are innovation loans

Innovate UK is running a pilot programme of loan competitions over 3 years to the end of 2020. A total of up to £50 million has been committed in 5 initial competitions and an extension of the pilot will make a further £25 million available for business innovation projects in 2 further competitions.

We are working to broaden the range of innovation finance support available to businesses, so they can access funding at all stages of innovation. Innovations need different types of funding support depending on how close they are to market. The lack of funding available to innovative businesses at the right time is a barrier to their productivity and growth.

Innovation loans are, we believe, most useful for innovations near to market, whereas grants are more suitable for earlier stage, riskier innovations.

Through the pilot, innovation loans will be offered through loan competitions to UK small or medium-sized enterprises (SME) that want to scale up and grow by developing new or improved products, processes or services.

They can be used for late-stage research and development (R&D) projects that have not yet reached the point of commercialisation.

An innovation loan may be offered where an SME can demonstrate they are suitable and eligible. SMEs will need to show that they can afford the interest and repayments on the loan and that they cannot obtain finance from other sources such as banks and equity investors.

Innovation loans will be delivered by Innovate UK Loans Ltd, a wholly-owned subsidiary of Innovate UK.

Please note, Innovate UK is not a financial adviser. Please seek independent advice if you are considering applying.

What you can use a loan for

You can use an innovation loan to finance a late-stage research and development project categorised as experimental development.

Experimental development includes:

  • producing plans, arrangements and designs for your products, processes or services
  • developing commercially-usable prototypes and pilots
  • experimental production and testing of products, processes and services

Experimental development does not include routine or periodic changes to products, production lines, manufacturing processes, existing services and other operations in progress, even if such changes may represent improvements.

How an innovation loan works

You will need to successfully apply into one of the Innovate UK loan competitions to obtain an innovation loan. It is a competitive process.

You could borrow between £100,000 and £1 million, to cover up to 100% of your eligible project costs.

The loan period is up to 10 years. This breaks down as:

  • an availability period of up to 3 years. This is the period when you are drawing down money to carry out research and development. You will not need to make repayments during this period, but you will need to pay interest on the money you borrow
  • an extension period of up to 2 years, if required. This period is to enable you to establish a clear route to market and commercialisation, with up to 2 years available before you need to start repayment. You will still need to pay interest
  • a repayment period of up to 5 years. This is when you will need to repay your loan. Payments will be taken every 3 months. Interest will also be payable

Interest will be set for the duration of the innovation loan at the opening of each loan competition,. In the initial 5 pilot competitions is the rate was 3.7% per year. In the 2 competitions planned for the extension to the pilot, the overall interest rate will be higher, as we wish to understand how this may impact on demand for innovation loans.

During the availability and extension periods, interest will be payable quarterly at 3.7% per year on the money you borrow. During the availability and extension periods, interest will also be accrued quarterly at 3.7% per year on the money you borrow and will be deferred to the repayment period.

During the repayment period, interest will be payable quarterly at 7.4% per year on the money you borrow, including the deferred interest from the availability and extension periods.

We expect to take security, including an overall mortgage debenture and specific security, over assets purchased and intellectual property developed with the proceeds of the loan. We will not require personal guarantees.

More details including the main terms and conditions can be found in the detailed guidance for applying for an innovation loan and in the specific guidance for each loan competition.

Who can apply

To be eligible for an innovation loan you must:

  • be an SME
  • be UK-based
  • be planning a project that fits with the defined scope of the specific loan competition you are applying into
  • apply alone. Only single SMEs may apply

Individuals, research organisations and large companies are not eligible. Collaboration with other organisations cannot be funded through a loan.

If you’re not sure if you’re eligible, speak to customer support services on 0300 321 4357 or [email protected].

Opportunities to apply

There will be 2 further opportunities for businesses to apply for an innovation loan in the extension of the pilot. Up to £10 million will be available in each loan competition.

These pilot loan competitions may be:

  • themed, where your application will need to fit with specific scope criteria
  • open to any type of experimental development innovation project

Innovation loan competitions will run over 2 years to 2020.

More details on the loan competitions will be made available here as these are confirmed.

Find and apply for an innovation loan.

To find out about the loan competition opportunities sign up to get website updates from Innovate UK.

Find out more

For advice on applying read the the detailed guidance for applicants.

Published 8 November 2017
Last updated 8 July 2019 + show all updates

  1. Updated innovation loans info post-pilot.
  2. Streamlined this document introducing innovation loans to coincide with the publication of our detailed guidance about applying for an innovation loan, which is for use by potential applicants that are already aware of the programme and thinking of applying into a loan competition. Sections on ‘how to apply’, ‘submitting your application’ and ‘if you receive an innovation loan’ have been incorporated into this new guidance:
  3. First published.