Innovate UK to offer innovation loans to SMEs

  • Published on 9th November 2017

Up to £10 million is available in loans to UK SMEs in a pilot programme offered by Innovate UK.

Innovate UK has announced the introduction of innovation loans for UK-based small or medium-sized enterprises (SMEs).

What are innovation loans?

Innovation loans are a financial product offered by Innovate UK. They are for UK businesses that want to scale up and grow through innovation, developing new or improved products, processes or services.

Through innovation loans, Innovate UK aims to give businesses support to gain the competitive edge and also grow the UK economy.

Loans may be offered where a business can demonstrate they are suitable and eligible.

They are for late-stage research and development (R&D) projects only. A late-stage R&D project is one which builds on a new idea but has not yet reached the point of commercialisation.

It may include activities such as prototyping, demonstrating, piloting, testing and validation in environments that are representative of real-life operating conditions.

Innovation loans are aimed at UK-based small or medium-sized enterprises (SMEs) that can 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.

Innovate UK is running a pilot programme of loan competitions over 2 years to the end of 2019. A total of up to £50 million is available for business innovation projects.

Interest will be set for the term of all loans at the opening of each loan competition, using the discount rate for financial transactions set by HM Treasury in Public Expenditure Statistical Analyses. Currently, this is 3.7% per year.

Loans will be made by Innovate UK Loans Ltd, a wholly-owned subsidiary of Innovate UK.

What you can use a loan for

You can use a 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 pay back the money you borrow 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 repayments. 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

You will need to propose the most suitable timings for your project and business in your application. These timings are the longest periods we will consider.

We expect to take security where it is available, for example over assets purchased and intellectual property developed with the proceeds of the loan. We will not require personal guarantees.

More details of our approach, including a summary ‘heads of terms’ document setting out the main terms and conditions of the loans, are included in the guidance for applicants for each loan competition.

Innovation loans and state aid

Innovation loans are a form of state aid. This is because they have favourable terms, such as the discounted rate of interest, which over the life of the loan will be equivalent to a grant. To be compliant with state aid rules, the level of this ‘grant equivalent’ for experimental development R&D activities must be: 

- below 35% of the eligible project costs if you are a medium-sized enterprise
- below 45% if you are a micro or small enterprise

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.


There will be 5 opportunities for businesses to apply for an innovation loan. 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 be spaced out over 2 years and run to the end of 2019.

Find and apply for an innovation loan

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

How to apply 

To obtain a loan you need to apply into Innovate UK’s competitive loans process. Only one application is permitted from a business per loan competition.

To apply you will need to complete a 2-part application and a legally-binding declaration. Only projects that meet the quality threshold in Part A will be considered for credit evaluation using Part B.

You will need to be successful in both parts to be offered an innovation loan. Final decisions on loan offers including terms will be made by the credit committee of Innovate UK Loans Ltd.

You should consider taking expert advice before submitting an application.

Visit Innovate UK for more information on innovation loans and the application process.

Learn more and apply

Visit Innovate UK for more information on innovation loans and the application process.