Innovation Loans: An Overview
Guest blog from ForrestBrown’s Director of Grant Advisory, Karim Budabuss, on Innovate UK Innovation Loans.
Innovation Loans are a scheme offered by Innovate UK aimed at SMEs engaged in late-stage R&D. The loans are designed to help businesses bridge the gap between development and market readiness at a time when funding is often critical yet difficult to obtain from market lenders given perceived levels of risk.
Benefits
They offer several key benefits and features:
Competitive interest rate
The 7.4% interest rate is significantly lower than market interest rates.
Seven-year term
The loans offer patient capital, across a seven-year loan term. The term is split into a project period and repayment period. 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.
During repayment period. The applicant will be expected to start repaying the principle , deferred interest rate from the project period as well as an interest rate of 7.4% for the 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to take two years, the maximum repayment period will be four years. 3.7% interest will be payable on the amounts withdrawn in the first two years and a further 3.7% in years 3-6, totalling 7.4%.
Eligible project costs
Covers up to 100% of eligible project costs, including labour and some capital costs.
Variable loan amounts
Loans can vary between £100k and £5 million. Funds are withdrawn on a quarterly basis in advance during the project period . The interest during a period is only incurred on the funding withdrawn up to that stage and not the entire facility.
Security/debenture
In contrast to many commercial loans, Innovation Loans do not require personal guarantees as security. They will, however, be a senior secured debt obligation.
Covenants
Liquidity ratio of a minimum 1.1X throughout the loan, coupled with a debt service coverage ratio of 1.2X throughout the repayment period.
Eligibility
Innovation Loans are aimed exclusively at SMEs engaged in late-stage R&D and support pre-commercialisation activities such as testing and optimisation, product demonstration in controlled and real-world environments, product redesigns, consumer trials and adding components. They are not suitable for businesses working on a concept or feasibility study.
Applicants must also be able to demonstrate that the project scope is achievable and that the business can deliver the innovation within the loan duration.
Focus areas
The technology focus areas supported by Innovate UK are those that align with the UK Industrial Strategy. They fall broadly into four 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, photonics and quantum technologies.
When to apply
The scheme has multiple funding rounds, with the current round open until 7 January 2026. The next round will open on 8 January 2026 and close on 4 March 2026.
Once the application has been submitted, it usually takes around two months to receive the outcome. Applicants can then expect to undergo due diligence and a detailed credit check, which typically takes a further month or two.
How ForrestBrown can support you
ForrestBrown’s experienced grants team can support businesses across all aspects of the Innovate UK Innovation Loan application. This includes eligibility assessment, application support, project management and due diligence, financial modelling and offer letter review.
For businesses that have prepared an application themselves, we can also assist with pre-submission application review.
This article is an abridged version of a webinar presented to TechUK members by Karim Budabuss on Innovation Loans on 2 December 2025. To discuss Innovation Loans or other grant funding opportunities with Karim, please contact [email protected].
UK Tech SMEs: Driving Economic Growth and Innovation
This report illustrates the critical impact of tech SMEs across the nations and regions. techUK has combined quantitative data from Beauhurst with interviews from tech SMEs to provide both the current macroeconomic picture of tech SMEs, but also the economic and social impact made by individual tech SMEs.
President's Awards 2025 - Nominations Open!
Do you have a trailblazer in your team?
Do you work with an innovator or a problem solver?
Do you have an inspirational colleague who deserves the spotlight for their work? The President’s Awards are back for 2025 and open for nominations. All techUK members are encouraged to nominate one colleague.
Learn more and nominate
