Innovation Loans Future Economy

Frequently Asked Questions

• What is the interest rate and when is interest payable?

  The interest rate is 7.4% per annum (pa). Interest is payable in the project period at 3.7% pa on amounts drawn, with interest at 3.7% pa deferred to the repayment period. Interest is payable in the repayment period at 7.4% pa, together with repayment of amounts drawn and the deferred interest.

  We believe that innovation loans will stimulate and support innovation while also providing value-for-money for the taxpayer.

   

• What can an Innovation Loan be used for?

  The funding is available for late-stage R&D (experimental development) projects, including selected pre-commercial activities to help you bring your innovation closer to market.

  An Innovation Loan can cover up to 100% of your eligible project costs. These typically include:

  • Labour and associated costs directly related to your R&D activities
  • Pre-commercial activities that support the exploitation of R&D outcomes, such as:
    • Market testing and customer engagement
    • Product or service validation in real-world settings
    • Initial tooling, packaging, or production scale-up
  • Capital usage costs (e.g. facilities or equipment used to transition from R&D to commercial delivery)
  • An element of working capital (up to 20% of the total loan and/or commercialisation work package), where this supports exploitation of the innovation

  Please note: Funding is provided in line with the Subsidy Control Act 2022 and businesses subject to the Windsor Framework may only claim capital usage and tooling/material costs. It is your responsibility to ensure compliance with subsidy control rules.

  Full details of what qualifies as an eligible cost can be found in the Guidance for Applicants and the Project Finance Guidance, both available in the Resources section.

  Businesses subject to UK Subsidy Control Framework

  All UK businesses will be able to apply for a loan of up to £5m.

  Eligible costs will include those in GBER Article 25, in addition to:

  • labour costs of staff involved in pre-commercial sales and marketing activities to exploit the results of the R&D project.
  • the full costs of capital equipment used in the exploitation of the results of the R&D project.
  • the full costs of tooling and materials for development of demonstration / inventory to prove the results of the R&D in a fully commercial setting.
  • an element of working capital finance in the loan to support cashflow prior to fully profitable exploitation of the results of the R&D project.

  Businesses subject to State Aid Regulations under the Windsor Framework (which includes companies registered in Northern Ireland)

  All UK businesses will be able to apply for a loan of up to £5m.

  Eligible costs will remain within the current framework of those in GBER Article 25, in addition to:

  • the full costs of capital equipment used in the exploitation of the results of the R&D project.
  • the full costs of tooling and materials for development of demonstration / inventory to prove the results of the R&D in a fully commercial setting.

  The main differentiation is that pre-commercial labour costs, marketing activities and working capital will not be eligible for these businesses.

• Will the innovation loan be secured?

  We will take security over the assets of the company in the form of a mortgage debenture. The innovation loan does not depend on the value of the assets as security.

  Where there is a charge in favour of a senior secured commercial lender (now or in the future), we will expect to be subordinated and cede priority through a deed of priority. Since they can participate in the ‘upside’ of the growth of the business, we do not consider equity holders to be senior secured commercial lenders, so we would expect to have priority over any charge that they may have (for example if there is a secured convertible loan) and would require them to cede priority to us by way of a deed of priority.

  • IP / intangible assets do not need to be valued. The debenture is a fixed and floating charge over all assets of the company, without ascribing any particular value.
  • We will not require any personal guarantees from founders / directors / shareholders etc.
  • We will not take security over personal property.

• Are there any ongoing requirements during the period of the loan?

  You will be required to adhere to some covenants:

  • Liquidity Ratio of 1.1x throughout the loan. This means the business’ current assets exceed its current liabilities by 10% and shows the business is able to meet the interest payments in the project period and thereafter meet loan repayments.
  • Debt Service Coverage Ratio of 1.2x throughout the repayment period. This shows your earnings before interest, tax, depreciation and amortisation (EBITDA), effectively your free cash flow, will be 1.2X your interest and repayments. The financial Covenants are tested quarterly.
  • Project monitoring – This will be through a Project Monitoring Officer. They will make sure that your project is on track and performing well to achieve success at the end of the project.
  • Provision of quarterly management accounts
  • Provision of annual accounts (within 6 months of year-end)
  • Failing to meet the covenants would constitute a breach of the terms of the loan agreement. If not rectified within the period permitted in the loan agreement, this is likely to constitute a default, which might lead to a demand for repayment.

• Why do I have to provide so much financial information?

  You must provide historic and forecast financial information so that we can form a judgement about your suitability to take on a loan of the amount and for the period you have requested. We recognise that forecasts will involve judgements and we are interested in the assumptions that you use in your forecasts, as set out in the narrative answers to the survey questions. We want you to be sure that you can demonstrate to your own business (including for example your Board and your shareholders), as well as to us, that a loan is suitable for you.