Innovate UK Innovation Loans – what are they and how can businesses apply?

Innovate UK may have paused its Smart Grants programme, but its Innovation Loans remain a viable option for companies engaged in late-stage R&D. By offering flexible, patient capital they help businesses to bridge the gap between development and market readiness.  

For businesses looking to apply, the process can be daunting given the level of detail required and time involved. Engaging an adviser to support the process can help alleviate those concerns.  

ForrestBrown’s experienced grants team has supported Innovation Loan applications and can make the process seamless – adding value even to those businesses with in-house grant writing capabilities. 

What are Innovate UK Innovation Loans?

Innovation Loans is a scheme run by Innovate UK to help businesses fund the late stage of a project between R&D and commercialisation, when a feature or capability might be being finalised. They are suitable for businesses with technologies that can be commercialised within two to three years and demonstrate a strong financial trajectory.  

The loan rate is competitive – 7.4% – and it can cover up to 100% of eligible project costs, including labour and some capital costs. The loans are repayable over a seven-year period and range in size from £100k to £5 million. 

To secure the loans, security over the company’s assets is taken in the form of a mortgage debenture. Unlike other company loans, Innovation Loans don’t require any personal guarantees from founders, company directors or shareholders. 

Which businesses are eligible?

Innovation Loans are aimed exclusively at SMEs and all applicants must be able to demonstrate a clear development pathway to commercialisation. This will provide the confidence that the loan can be repaid. 

As part of this, Innovate UK stipulate several covenants. Notably, a liquidity ratio of 1.1x throughout the loan period and a debt service coverage ratio of 1.2x throughout the repayment period. 

ForrestBrown can assist companies by establishing at an early stage whether these covenants can be met.  

Which projects are eligible?

Applicants need to align with one of four future economy areas:  

• net zero, including: energy, impact of industrial processes and use of materials, agriculture and food and other sources of emissions, and capital intensity. 

• health and wellbeing, including: tackling ill health, enhancing wellbeing, and diet and food. 

• next generation digital technologies; and 

• technology families, including: advanced materials and manufacturing, artificial intelligence, digital and advanced computing, bioinformatics and genomics, engineering biology, electronics, photonics and quantum technologies, energy and environment technologies, and robotics and smart machines. 

We have supported businesses with applications across the full range of future economy areas. 

How do the loans work?

The loans are split between a project period and a repayment period, up to a maximum of seven years. Interest on the loan can be deferred to the repayment period, with 3.7% interest payable during the project period and 3.7% interest during the repayment period. 

As an example, if the R&D and any pre-commercialisation activities are projected to take two years, the maximum repayment period will be four years. 3.7% interest will be payable on the amounts withdrawn in the first two years and a further 3.7% in years 3-6, totalling 7.4%. 

Funds are withdrawn on a quarterly basis during the project period as the expenditure is incurred. The interest during a period is only incurred on the funding withdrawn up to that stage and not the entire facility. 

How can businesses apply for an Innovate UK Innovation Loan?

Applicants must go through a formal application process with Innovate UK, which evaluates applications based on the quality of the project and impression of the business. 

The application itself is split into two components. The first commercial, with questions about the business and an accompanying spreadsheet for detailing the financial information. The second focuses on the innovation itself and covers the Gantt chart, project plan, risk and route to market. 

Assessors will review the proposal and score it, then undertake an initial credit evaluation. A panel will review the score and credit evaluation, then proceed to determine next steps. If successful, a detailed credit evaluation will be undertaken before funding is made available. 

Benefits

Given the high-risk nature of R&D, projects can be difficult to secure private or commercial funding for, particularly when they aren’t commercialised. Even where loans can be agreed, rates can be expensive – around 10 or 11% – making such loans prohibitively expensive for SMEs. The Innovate UK Innovation loans provide the solution for this.  

The way that the innovation loans are structured also means that interest accrues when the funds have been withdrawn rather than immediately. This ensures that interest isn’t being accrued before the funding is utilised. 

When can I apply for an Innovate UK Innovation Loan?

Businesses that are working on late-stage R&D in one of the eligible fields such as net zero, can apply for a loan. The scheme has featured multiple funding rounds, with round 23 currently open until 7 January 2026. A further round is likely to open soon after. 

Once the application has been submitted, it usually takes around two months to receive the outcome. Applicants can then expect to undergo a detailed credit check, which typically takes a further two months. 

How ForrestBrown can support your Innovate UK Innovation Loan application

ForrestBrown’s experienced grants team, led by Karim Budabuss, can support your Innovate UK Innovation Loan application. Whether you need financial modelling, project management or a pre-submission application review, we can help. 

Our experts offer tailored advice on how to strategically position your project to increase its chance of success. We also draft all the necessary documents and set up a collaborative online workspace to enhance information sharing among stakeholders. 

By combining previous experience of preparing Innovate UK applications with specialist audit expertise, we cover all bases, maximising your chances of success. So, whether you’re new to funding applications or your in-house grant writing team needs greater resource, we can support you. 

FAQs

What projects would be considered late-stage R&D? 

• Typically, this might be where you have a prototype that works, but further testing or integration is required. That might include conducting customer trials or making final modifications. 

What technology readiness level are Innovation Loans aimed at?

• Businesses will generally be at TRL 5 and aiming to reach TRL 8 or 9 by the end of the loan.