Innovation Loans Future Economy Competition

Overview

Innovate UK is offering up to £25 million in loans to micro, small and medium sized enterprises (SMEs). Loans are for highly innovative late stage research and development (R&D) projects with the best potential for the future. There should be a clear route to commercialisation and economic impact.

Your project must lead to new products, processes or services that are significantly ahead of others currently available or propose an innovative use of existing products, processes or services. It can also involve a new or innovative business model.

Innovate UK are particularly interested in projects that focus on the future economy areas included in the Innovate UK plan for action.

You must be able to show that you:

need public funding
can cover interest payments
will be able to repay the loan on time

The funding available will be allocated across a series of competitions with the next round opening on the day the previous round closes. This is round 4, the final round in the current series.

Scope

This competition offers loans to help businesses overcome barriers to their innovations becoming a successful, commercial reality. The aim is to make a considerable economic impact which results in significant, sustainable business growth.

Innovate UK is looking for businesses who can demonstrate that their projects have the best potential for the future.

Your idea must lead to innovative products, processes or services that are significantly ahead of others currently available. It can also involve a new or innovative business model.

Your proposal must demonstrate:

a clearly expressed and compelling innovative idea
a robust and deliverable business plan that addresses and evidences market potential and needs
a team with the necessary skills and experience to run and complete the project successfully and on time, and take the outputs forward
awareness of all the main risks the project and business will face, with realistic plans to manage, mitigate and minimise the impact of each of these
sound, practical financial plans and timelines that represent good value for money and ability to repay the loan
why you are unable to fund the project from your own resources or other forms of public or private-sector funding
a clear, evidence based plan to deliver significant economic impact, return on investment (ROI) and growth through commercialisation, as soon as possible after project completion

Your project can include:

prototyping
demonstrating
piloting
testing
validation

These can be in environments that represent real life operating conditions.

Your application will be evaluated on our:

assessment of the quality of your project proposal
judgement on the suitability of your business to take on a loan

Innovate UK will decline loans for businesses which:

we consider unable to afford the interest and repayments on the loan
have not demonstrated that they are unable to obtain finance from other sources on suitable terms

Innovate UK are looking to fund a portfolio of projects and businesses, across a variety of technologies and markets, with a particular focus on future economy areas set out in the Innovate UK plan for action.

Specific Themes

Your project must focus on one or more of the following themes or sub-themes:

Net Zero

energy
impact of industrial processes and use of materials
agriculture and food and other sources of emissions
capital intensity

Health and Wellbeing

tackling ill health
enhancing Wellbeing
diet and food

Next generation digital technologies

Technology families

advanced materials and manufacturing
artificial intelligence
digital and advanced computing
bioinformatics and genomics
engineering biology
electronics, photonics and quantum technologies
energy and environment technologies
robotics and smart machines

Innovate UK are also particularly interested in receiving applications from diverse businesses; those involving communities that are typically under-represented, including from regions outside the “Golden Triangle” (London, Oxford and Cambridge) or with, for example, female, ethnic minority and diverse-ability founders.

Eligibility

You can apply for a loan of between £100,000 and £2 million to fund your project’s eligible costs.

Projects can last up to 5 years, including both the R&D and commercialisation phases. Projects are expected to start by 30th January 2023.

To receive an innovation loan for a new project you must:

be a UK registered micro, small or medium-sized enterprise (SME)
carry out your project from or in the UK
intend to exploit the results from or in the UK
give evidence that your business is suitable to take on a loan

Innovate UK will evaluate whether your business is suitable to receive an offer of a loan for your project.

Individuals, large companies, not for profits, charities, academic institutions, and research organisations are not eligible for innovation loans.

Only single businesses can receive loans, so collaboration with other organisations cannot be funded in this competition.

Under current restrictions, this competition will not fund any procurement, commercial, business development or supply chain activity with any Russian entity as lead, partner or subcontractor. This includes any goods or services originating from a Russian source.

Subcontractors are allowed in this competition.

Subcontractors can be from anywhere in the UK and you must select them through your usual procurement process.

You can use subcontractors from overseas but must make the case in your application as to why you could not use suppliers from the UK.

Your business can only submit one application per round of this competition. If you submit more than one application, only the first application will be considered for assessment.

You can use a previously submitted application to apply for this competition.

Exclusions

In this competition we are not providing grant funding.

Innovate UK will not provide funds to match the grant funding of any projects.

Innovate UK will not fund commercial activities such as marketing and sales.

Innovate UK are not funding projects that are:

dependent on export performance
dependent on domestic inputs usage

Funding Costs

Innovate UK has allocated up to £25 million to fund innovation projects across the four rounds of this competition.

Innovate UK will offer loans of between £100,000 and £2 million, based on your project proposal and our judgement of the suitability and affordability of a loan for your business. The Innovate UK Loans Ltd credit committee will decide the final terms, amount and length of the loan offer.

Innovation loans will be:

Available for up to 3 years when the project is under way, but the exploitation has not yet started (the ‘availability period’). You can borrow in stages (‘drawdowns’) during this period and will pay interest at 3.7% per annum on anything you borrow, with additional interest at 3.7% accrued and deferred until the repayment period.
Extended until the first commercial sales from the results of the project, up to a maximum of 2 further years (the ‘extension period’) after the end of the availability period. You will not be able to make further drawdowns during this period. You will not have to make repayments but you will pay interest on the amount you have borrowed at 3.7% per annum, with additional interest at 3.7% accrued and deferred until the repayment period.
Repayable over a maximum of 5 years (the ‘repayment period’) after the availability and extension periods. You will have to repay anything you have borrowed, including interest accrued and deferred from the availability and extension periods, on a quarterly schedule. You will pay interest at 7.4% per annum on the outstanding loan amount.

These are the longest periods we will consider and, since the overall term of the loan must not exceed 7 years, your application should propose how long your project (which includes the availability and extension periods) will last and how long the repayment period should be. These should be based on the needs of your business. We will consider the suitability of your proposed timings in any loan offer that we make to you.

Innovate UK expect to take security in the form of a debenture. We will not require personal guarantees.

More details of our approach, including a summary ‘heads of terms’ document setting out the main terms and conditions of the loan, is in the terms and conditions for this competition.

You can get a loan of up to 100% of your eligible project costs. Since the loan will have favourable terms (particularly a below-market rate of interest) the value of this benefit over the life of the loan will be the equivalent of a grant. The gross grant equivalent will be the present value, at the date of commitment of the loan, of the difference between the market cost of interest and fees of a similar loan (using reference rates for interest) and the cost of an innovation loan. For experimental development projects this grant equivalent, as a proportion of the eligible project costs, can be:

up to 45% if you are a micro or small business
up to 35% if you are a medium-sized business

Innovate UK expect that most innovation loans will meet this requirement.

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Innovation Loans Future Economy Competition – Round 5