Nearly two years ago, in the 2015 Spending Review, the Chancellor announced that an exciting new initiative would soon be available to UK SMEs in the form of “innovation loans”, a form of funding support intended to aid innovative SMEs in their bid to scale up.

Until recently, there had been little noise – publicly at least – about how the initiative would be delivered or how and who it would help. Last month, Innovate UK announced that the initiative would finally be delivered in the near future, with events planned throughout the UK for Nigel Jones, Innovate UK’s Head of Innovation Lending, to go over the parameters of applying for the loans scheduled over a two-week period. As experts in the field of innovation funding, we felt compelled to attend and report back on what exactly the Innovation Loans are, and who and how they can help.

What are Innovation Loans?

Innovation Loans are a new form of government support for small businesses undertaking R&D-intensive projects, developed in accordance with the needs of SME executives across the UK and with the input of policy researchers and enterprise researchers.

Innovation Loans will be given out in a series of competitions to UK SMEs that best fit the criteria that Innovate UK is looking for in terms of the business’ needs and potential growth.

The loans will be repayable and interest bearing at a rate of 3.7%, the term being the project plus five years, emphasising “flexibility, affordability and patience”.

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.

Why are Innovation Loans being introduced?

The Innovation Loan initiative has been created to assist SMEs and deliver a positive economic impact and to make public money work harder.

Who are Innovation Loans for?

The definition of who the loans are for has been left deliberately broad, so Innovate UK can pick and choose the projects and businesses that best fit what they’re looking for in terms of “scaling up”; as Mr. Jones said, Innovate UK doesn’t care if your SME is 6 months old or 60 years old, if your project is something they feel they can help succeed with an innovation loan.

As stated in the 2016 Delivery Plan, innovation loans are best suited to businesses at a later stage in terms of their R&D, once their ideas have been proven and “de-risked” and are ready to be commercialised.

When can I apply for an Innovation Loan? 

There will be 5 loan competitions over the course of the next two years, in which up to £10 million will be available. The competitions will either be open to any form of a development innovation project or themed, in which applications must fit within specific parameters.

How do I apply for an Innovation Loan?

Unlike with a grant, the application process for an innovation loan involves a great degree of dialogue between candidates and Innovate UK, as they seek to ensure that the project they are about to invest in is “de-risked” and ready for the scale up phase, as well as seeking assurances that their loan will be repaid within the set term.

The application is composed of two parts, outlining the quality of the project and the business’ suitability for receiving a loan, as well as a legally binding declaration.

Innovate UK will be notifying businesses when competitions open for their innovation loans “within the near future”. Innovate UK plans to give out £50M over 2 years in the form of loans for between £100k and £1M to the chosen SMEs.

How does an Innovation Loan affect your business’ grants?

In his speech on Monday, Mr. Jones reiterated that Innovation loans would be complementary to grants. As he said, small businesses embarking on risky development paths for their projects should get grant funding to help them see whether their project is viable, while businesses further along in their project development could look into getting an innovation loan as they seek to scale up and commercialise.

How does an Innovation Loan affect your R&D tax credits?

This is where it gets a little bit tricky as acquiring an Innovation Loan, like acquiring grant funding, can take away your ability to claim for the project costs under the HMRC R&D tax credit scheme, potentially reducing your business’ funding.

All in all, the Innovation Loan scheme presents another opportunity for SMEs to acquire valuable funding in their attempts to scale up and commercialise their innovative projects. For more information on Innovation loans, visit Innovate UK.

To find out more about how to maximise your funding using loans, grants and tax credits, contact us at or via our site. With years of experience in innovation funding and over £7M saved for clients, we know the best way for you and your business to move forward and fund your next innovation.

Posted in Innovation, Kapitalised, Research & Development.