Innovation funding – what you need to know

Innovate UK will be offering government-backed loans to UK businesses and research organisations via competitions. The funding can be used for research and development, testing new ideas and collaborating with other organisations.

It has not yet been officially announced when they will go live, but it is expected to be early-mid November. The first cash is expected to be drawn down on 3rd April 2018, as the funds will not be available until the next financial year.

What do we know about the competitions?

Over the next 18 – 24 months, Innovate UK will be holding one competition in each of the four Innovate UK sectors and also one open competition. It is open to growth-oriented SMEs that can demonstrate that they have a high quality innovation project and that they need public sector support.

What do we know about the loans?

The loans will be between £100k to £1m. This is a pilot programme with a £50m budget over two years. The loans are only available to ‘experimental development’ projects i.e. late stage R&D. They are targeting ‘new to market’ technologies, rather than incremental developments.

They are looking for reasonable collateral against the loan e.g. the assets purchased by the loan or the IP created from the project. The loans will rank below senior debt but above equity. There will be a monitoring officer appointed and audited financial information will be required.

The loans are state aid and would prevent an R&D claim under the SME scheme.

The loan contracts will not include any conversion clauses and there has been confirmation that they are not going to take equity interests.

The interest rate will be the treasury discount rate at the date the loan is made, which is currently 3.7%. There are not expected to be any upfront fees.

The loans cannot be used to match fund grants e.g. Horizon 2020 and they only apply to single SME companies i.e. not a consortia.

How do businesses apply?

The application process is similar to applying for a grant, but with greater credit scrutiny.

The loans will be split into three periods: availability (up to a maximum of three years), extension (up to two years) and repayment (up to five years). The first two will be interest only and the cash will be drawn down quarterly in advance of the eligible expenditure being defrayed.

The maximum total period is expected to be ten years, with 5-7 years expected to be the average.

For further information and advice about innovation loans, please contact us.