What changed with Innovate UK’s Innovation Loans in 2025?
In response to the pause of the Smart Grant and an increase in lower-quality loan applications, Innovate UK has introduced key updates to its Innovation Loans programme. These changes are designed to better support UK-based scaling SMEs as they bridge the gap between late-stage R&D and early commercialisation.
This is an update on our previous insight, for core programme fundamentals and historical context, see our original article: Innovate UK Innovation Loans – How They Work and How to Apply
Key changes in Innovate UK Innovation Loans 2025
Loan size, structure and terms
- Loan size: £100k – £5m; SME applicants; single borrower
- Loan duration: up to 7 years total
- Project period: Up to 5 years (3.7% interest: 50% paid, 50% deferred)
- Repayment period: Up to 5 years (7.4% full interest + principal repayment)
- Application type: single UK-registered SME
Security and covenants
- Security: Debenture over business assets (no personal guarantees required)
- Covenants:
- Liquidity ratio: minimum 1.1x throughout;
- Debt Service Cover Ratio (DSCR) ≥ 1.2x in repayment Period.
- Monitoring requirements:
- quarterly management accounts;
- annual audited accounts
- project monitoring throughout the loan term
New to Innovation Loans? Do our eligibility quiz to see if you can/should apply
What’s new in 2025? Expanded eligible costs
Now eligible if directly tied to the exploitation of R&D. Routine or general marketing remain ineligible.
Guidance: Create a distinct pre-commercial work package with measurable KPIs and learning outcomes. Separate this from your first sales activities.
Capital assets
100% of capital expenditure is now eligible, including adaptation costs. You can draw down over the full project period if the asset supports both R&D and pre-commercial efforts.
How to implement: tie capex tranches to milestones (build -> validate -> run pilots and show throughput to first units/pilots
Tooling, materials, first units and packaging tests
These are now fundable when clearly part of a risk-reduction pathway – showing how they shorten time to market or de-risk commercialisation.
Working capital
Up to 20% of the loan can now support early market-facing tasks such as:
- Customer trials
- UX testing
- First product runs
- Discovery and pilot sales prep
Important: these activities must be pre-commercial and stop short of first revenue. Document how these tasks are evidence gathering, not revenue generating.
Eligibility criteria: Who qualifies for Innovation Loans in 2025?
The Right Applicant Profile
✔ Innovative UK-based SME
✔ Late-stage R&D project (typically TRL 6–7 and above)
✔ Path to commercialisation during or shortly after the loan term
✔ Sufficient liquidity and financial strength
✔ A solid strategy for repayment
Who It’s Not For
✘ Pre-revenue businesses
✘ Companies without an external funding plan
✘ Grant substitution seekers
✘ Applicants with weak balance sheets or poor credit history
Other changes to the Innovation Loan
You can now:
- resource early market-facing work (discovery, trials, first units, pilots, ux testing) within the loan, as long as it’s pre-commercial and integral to exploitation.
- Have a parallel plan so building pre-commercial work during R&D where needed (rather than sequential)
- Document and show that tasks stop short of first commercial sales and are evidence gathering, rather than revenue acquisition
- Strategic themes and sectors supported: Net Zero; Health & Wellbeing; Transformative technologies (AI, quantum, engineering biology, semiconductors, etc.); Foresight (anticipating future needs).
Common and nuanced FAQs
Can I use Innovation Loans for Google Ads or general advertising?
Likely ineligible as “routine/general advertising”. Only potentially in scope if clearly pre-commercial testing integral to exploitation (presenters will confirm in formal guidance).
Can I draw down capital assets early in the project?
No fixed cap, but must be justified (e.g., machinery purchase); front-loading invites closer scrutiny.
Can I apply if my product is mostly for export markets?
The majority of sales overseas is fine so long as exploitation is in/from the UK.
Can I get both a grant and a loan for the same project?
A loan and a grant cannot fund the same project or work. Follow-on projects are acceptable. Consider timing: loans can take ~3–6 months from submission to decision.
How long does the application take?
Most Innovation Loan applications take 3 to 6 months from submission to decision.
For ant other questions or to discuss Innovation loans with an expert, please get in touch.
Oliver Cressall
I help businesses unlock grant funding to fuel groundbreaking research and innovation. With expertise in both UK and European grants including Innovate UK (IUK), Eureka, Horizon Europe, UKRI, CINEA, and the European Research Council – I specialise in guiding research teams and innovation-led businesses through every stage of the grant process.
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