Why seek an innovation loan?

For businesses looking to raise investment, an alternative to grant funding is Innovate UK’s loan competition, aimed at SME’s carrying out later stage R&D projects. Especially since the loan terms on offer are extremely advantageous (particularly the well below-market rate of interest) meaning that the value of this benefit over the life of the loan could be the equivalent of a grant.

These loans will offer affordable, flexible funding for later-stage research & development projects with a clear route to commercial success and will be made available for up to 100% of total eligible project costs. They were designed to meet the needs of the innovative businesses and increase later stage R&D (experimental development), encouraging businesses to take risks.

The first competition for the government-backed loans was announced at INNOVATE 2017, the UK’s flagship innovation conference at the NEC Birmingham where Innovate UK hosted 3,000 creators, innovators and investors from all over the world.

Speaking at Innovate 2017, the organisation’s chief executive, Dr Ruth McKernan CBE, said:

“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.”

This is the first time Innovate UK has offered a new funding mechanism other than matched grants. The loans will allow businesses to access between £100,000 and £1 million and loans will be secured against project output rather than linked to existing company assets.  The loan period extends for up to 10 years, but SME’s will have up to 5 years before they are required to start making loan repayments (although interest will still be repayable).

With favourable repayment terms and a low 3.7% interest rate on offer competition is likely to be tough and suitability will be established by a grant evaluation process and loan suitability due diligence.

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