Everything you need to know about Innovate UK Innovation Loans
We’ve put together what we are calling our ‘innovation loan cheat sheet’ to help people quickly understand if an IUK Innovation Loan might be the right funding option for their venture.
Quick facts
- Eligibility: Loans are available to UK-registered SMEs with the potential for commercial success, needing public sector support.
- Loan Amount: Borrowing ranges from £100,000 to £1 million, covering up to 100% of eligible project costs.
- Loan Term: Maximum of 7 years, divided into three stages: up to 3 years for drawdowns, up to 2 years extension (no drawdowns), and up to 5 years for repayment.
- Interest Rate: 7.4% per annum. During the drawdown and extension periods, 3.7% is payable, with the remaining deferred until the repayment period.
- Use of Loan: It funds late-stage R&D projects, including capital equipment needed for the project. Sales, marketing, and refinancing are not eligible.
The guidance for applicants describes ‘eligible costs’ in detail: Guidance for Applicants and Project Finance Guidance
- Security: Loans are secured by a debenture over company assets, with no personal guarantees required from founders or directors. IP / intangible assets do not need to be valued. The innovation loan does not depend on the value of the assets as security.
- Financial Covenants: Borrowers must maintain liquidity and debt service ratios. Financial and project performance is monitored quarterly.
Liquidity Ratio of 1.1x throughout the loan. This means the business’ current assets exceed its current liabilities by 10% and shows the business is able to meet the interest payments in in the availability and extension periods and thereafter meet loan repayments.
Debt Service Coverage Ratio of 1.2x throughout the repayment period. This shows your earnings before interest, tax, depreciation and amortisation (EBITDA), effectively your free cash flow, will be 1.2X your interest and repayments.
- Drawdown and Repayment: Drawdowns are staged and tied to project milestones. Loans can be repaid early without penalty.
- Assessment: Applications are reviewed based on the quality of the innovation and the financial strength of the business.
- No Appeals: Decisions are final, and unsuccessful applicants cannot appeal.
- Limitations: Loans cannot be used for collaborative R&D or refinancing debt, and are not available to consortia or non-UK entities.
- Other Requirements: Borrowers must provide detailed financial information, including forecasts, and comply with financial covenants throughout the loan period.
- Regulation: Innovate UK Loans Ltd is not regulated by the FCA.
Please ensure for submission you fill in all the questions both within the proposal dashboard and the “Business and Financial Information”. Get in touch if you’d like to discuss your innovation funding options.
