Innovate UK Launches new £50M Innovation Loans Pilot

Author

UK Business Angels Association

30 November 2017

Small businesses with ground breaking ideas will be able to access new innovation loans from the UK’s innovation agency to support their growth. This is the first time Innovate UK has offered a new funding mechanism other than matched grants. Innovation loans will offer affordable, flexible funding for later-stage research & development projects with a clear route to commercial success.

Innovate UK’s chief executive, Dr Ruth McKernan CBE, spoke at the UKBAA Summit on 28th November, where she outlined the government’s new Industrial Strategy white paper and spoke about the opportunities in the challenge areas of the Industrial Strategy Challenge Fund. Introducing the new innovation loans, she commented:

“We know that many businesses with ground breaking ideas struggle to get them to market. Our new innovation loans will help businesses scale up, and give them a clear route from prototype to making new products and services available to customers.”

The first competition will support smart infrastructure, urban living, energy supply & systems and connected transport projects. Full details are available at: https://apply-for-innovation-funding.service.gov.uk/competition/77/overview.

Innovate UK has done extensive research to understand the needs of scale-ups and believes the loans will be especially helpful to those companies. Recently it published a report, Scaling up: the investor perspective, detailing its findings: https://www.gov.uk/government/publications/scaling-up-the-investor-perspective. Business angels and other early stage equity investors are essential providers of risk capital to businesses as they scale. Where those businesses are focused on highly innovative new products and services, this new innovation loan product aims to support their growth and complement private sector investment.

Innovation loans will allow businesses to access between £100,000 and £1 million and will be priced at the HM Treasury discount rate – currently 3.7% fixed. The loan will allow for drawdown over up to 3 years to finalise the development of the product or service, a further interest-only period of up to 2 years to commercialise and, finally, up to 5 years to repay – although typically overall terms of 5-7 years are expected.

The first 5 pilot competitions will make up to £50 million available over 2 years. If early evaluations of the pilot indicate that innovation loans are successful in these operational terms, as well as providing indications of good innovation outcomes, then consideration may be given to scaling the programme in the future.

Loans will be offered to growth-oriented SMEs that are able to demonstrate that they have a high-quality innovation project, that they will be able to afford the interest payments and subsequent repayments associated with a loan and that they need public sector support as they are unable to access finance for their project on standard commercial terms.

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