Innovation loans briefing events open september 2019 slides to share

Innovation Loans
September 2019 Open Competition
Briefing Slides
21st October – 8th November 2019

Seeking clarity? Please contact us…
1. Read our guidance:
Innovation Loans Overview:
https://www.gov.uk/guidance/innovation-loans-what-they-are-and-how-to-apply
Innovation Loans General Guidance:
https://www.gov.uk/guidance/innovation-loans-general-guidance-for-applicants
Competition Scope:
https://apply-for-innovation-funding.service.gov.uk/competition/411/overview
Competition Guidance for Applicants:
https://www.gov.uk/government/publications/innovation-loans-july-2019-open-competition-
guidance-for-applicants
2. For clarification around competition scope / Part A of application:
Contact Customer Support Service
Clarification through Competitions teams
3. For clarification around Part B of application / Early Metrics survey:
Contact Customer Support Service
Clarification through Innovation Loans team, including by conference call
Email support@innovateuk.gov.uk
Customer Support Service: 0300 321 4357 (Mon-Fri, 9am-5:30pm)

We can’t stop
thinking about
the future
The UK’s innovation agency
Innovate UK drives productivity and
growth by supporting businesses to
realise the potential of new technologies,
develop ideas and make them a
commercial success.
To stay competitive as an advanced
economy, we need to do things that
others cannot do, or to do things in
different and better ways.

8,500unique
organisations
involved
Up to
£6-7for every
£1 we’ve
invested
£2.5bnsince 2007
We’ve funded around
11,000projects
Up to
£18bnin added value
to the economy
Investment of Industry match funding
taking
the total value of
projects above
£4.3bn
70,000jobs created in total
9 jobs
for each
organisation
involved
5
Investing for Impact

7
Challenge Led
Industrial Strategy
Challenge Fund
Responsive
Smart Grants
Business Growth Pilots: Innovation Loans & Investment Accelerator
Knowledge Transfer Partnerships
Managed Programmes: Procurement, DMCS & CCAV, Late-stage (e.g APC)
How do we fund?

8
AI and data
economy
Ageing
society
Clean
growth
Future of
mobility
Putting the UK at
the forefront of the
artificial intelligence
and data revolution
Harnessing the power
of innovation to help
meet the needs of an
ageing society
Maximising the
advantages for UK
industry from the global
shift to clean growth
Becoming a world
leader in shaping the
future of mobility
Industrial Strategy Challenge Fund:
Grand Challenges

9
Smart
For businesses in any sector

Innovation loans
For businesses on the edge of greatness
We are running an extended pilot programme of loan
competitions to the end of 2019. The programme is aiming to
ensure that businesses can access funding at all stages of
innovation.
Up to £75 million available
for business innovation
projects near to market
(£50m initial pilot and £25m
extension)
Offered through competitions
to UK SMEs that want to scale
up by developing new services
Can be used for late-stage
R&D projects not yet at the
point of commercialization
Delivered by Innovate UK
Loans Ltd, a wholly-owned
subsidiary of Innovate UK

Single
Applicant
SMEs only
Up to 100% of
project costs
Later stage
R&D
Loan size
£100k to £1m
Affordable, flexible and patient
Below-market
interest
rate
7.4%
Flexible & patient
Up to 10 years
years
10
Innovation Loans

Innovation loans summary
• For businesses (SME):
• Innovative
• Growth oriented
• “Scaling” not “starting”
• Credit constrained
• Later stage R&D project (experimental
development) with clear route to commercial
success
• Risky project / company
For projects:
• Loan structured for project / commercial success
– Availability period (up to 3 years)
– Extension period (up to 2 years)
– Repayment period (up to 5 years)
• £100k to £1m for eligible project costs
• Below-market interest rate (7.4%)
– Availability / Extension periods 3.7% payable +
3.7% deferred
– Repayment period 7.4%
• Reasonable collateral / ‘senior subordinated’
– Mortgage debenture
– Specific charge over assets purchased / IP
developed with proceeds of loan
• Appropriate covenants
Summary heads of terms in
competition guidance

What will Innovation Loans be?
Innovation loans ARE.. Innovation loans ARE NOT..
Complementary to grants A replacement for grants
A new later stage R&D project For match funding a grant
A Pilot programme (£75m over 3 years) Core competitions
Repayable Free money, contingent or success based
On beneficial terms (State Aid)
- Below-market interest rate (7.4%)
- Interest-only period (up to 3 yr project / up to 2 yr to
get to market)
- Repayment period (up to 5 yr)
Typical commercial terms
- Limited availability
- High rates
Overdrafts or revolving facilities
‘Reasonably’ collateralised Unsecured (or PGs)
Available to single SMEs only Available to sole traders, large companies, universities,
collaborative consortia
Competitive, for the most innovative projects Always open, for any purpose, for the ‘easy stuff’
For suitable borrowers (scaling) For borrowers who can’t afford it (start ups, who need
equity)
For SMEs needing public support For those who can / should borrow commercially

Application process
Answer 11 questions
(+ appendices)
Complete Project
finances
Complete high growth
start up index survey
Scope / eligibility
check
Innovation
Assessment (Part A)
Credit Evaluation
(Part B)
Assessment Review
& Notification
Detailed credit analysis
Due diligence & loan
documentation
Feedback
Submit by deadline
Complete Business
financials
IFS Early Metrics

Key Dates
Time line Dates
Competition Opens 23rd September 2019
Briefing Events 21st October – 8th November 2019
Submission Deadline 27th November 2019 (Noon)
Initial notification to applicants 24th January 2020
Expected project start May 2020

Application progress “waterfall”
393
Applications
• 68 ineligible
325 eligible
/ in scope
120
progressed
(£82m)
88 loan offers
(£60m)
73 loans complete /
in final documentation /
meeting conditions
(£50m)
• 8 failed to meet
conditions (£5m)
• 7 withdrawn by client
(post offer) (£5m)
• 205 declined on
innovation quality /
credit suitability
• 27 declined by Credit
Committee (£19m)
• 5 withdrawn by client
(pre-offer) (£2m)

Open Competition objectives
• This competition aims to help businesses overcome barriers to the best cutting edge, game changing
innovations becoming a successful commercial reality. This includes making a considerable economic
impact and/or resulting in significant, sustainable business growth.
• Innovation loans are for highly innovative late stage projects (experimental development) with the
best game changing and/or disruptive ideas or concepts. There should be a clear route to
commercialisation and economic impact.
• Projects should aim to develop new products, processes or services (or innovative use of existing
ones) believed to be significantly ahead of anything similar in the field.
• Your proposal can come from any technology (including arts, design, media or creative industries) and
any part of the economy.
• Projects must focus on commercialisation, growth or scale up. Priority is given to proposals likely to
lead to growth, gains in productivity and/or access to new overseas markets through export.

“Experimental development”
• Acquiring, combining, shaping and using existing scientific, technological, business and other relevant
knowledge and skills with the aim of developing new or improved products, processes or services.
This may also include, for example, activities aiming at the conceptual definition, planning and
documentation of new products, processes or services;
• May comprise prototyping, demonstrating, piloting, testing and validation of new or improved
products, processes or services in environments representative of real life operating conditions where
the primary objective is to make further technical improvements on products, processes or services
that are not substantially set.
This may include the development of a commercially usable prototype or pilot which is necessarily the
final commercial product and which is too expensive to produce for it to be used only for demonstration
and validation purposes.
• Does not include routine or periodic changes made to existing products, production lines,
manufacturing processes, services and other operations in progress, even if those changes may
represent improvements

©KTN All rights reserved. | www.ktn-uk.org October 19 21
Answering the
assessors’ prayer
“Oh Lord, send me a good one!”
@KTNUK #InnovationLoans

Like all exams, the keywords and
answers are contained in the questions.
A lot of technique for individual Qs
but also requires a compelling narrative.
Essentially 10 scored questions
(+ 3 appendices) requiring answers of
no more than 400 words each, giving you
4400 words to convince them…
It’s an exam and a story …

… when you include the
Project Summary
Please provide a short summary of your project.
We will not score this summary. (400 words)
This is the first thing they read. They need to read
it and say: ‘Wow! I get this and I like this’
Top tip: ‘Economist’ editorial style. 9 word
sentences, active tense.
@KTNUK #InnovationLoans ©KTN All rights reserved. | www.ktn-uk.org October 19 23

Please describe your project in a way that is
understandable to the general public.
 This is only published if successful
 Mandatory, but the text will not be
assessed
Public Description

How does this application align with the
specific competition scope?
 Read the scope first when looking to
apply for a competition
 Avoid being rejected before assessment
Gateway Question (Scope)

What is the business need, citizen challenge,
technological challenge or market opportunity
behind your innovation? (400 words)
“Here’s an unmet business need that is
costing or denying (John/s) value. We can
develop the tech/service/product to fix this
challenge and when we do (John/s) will buy
it.”
“Here’s some stuff that shows we
understand the wider context, too.”
https://horizons.innovateuk.org/
1. Need or challenge

October 19 27
Assessors crib sheet
1. Need or challenge
©KTN All rights reserved. | www.ktn-uk.org@KTNUK #InnovationLoans

What approach will you take and where
will the focus of the innovation be?
(400 words)
“We will technically solve the challenge
by x, y, z. This is better than competitors
a, b, c because … Based on earlier work
(patent searches) we have freedom to
operate. We will deliver (this/these)
outputs.”
“and here’s a picture (Appendix Q2) that
oozes ‘wow factor!’”
2. Approach and innovation

Who is in the project team and what are
their roles? (400 words)
“Our team is the best - and here’s a list of
credentials/track record that shows we
can build it and get traction in the market.
We will additionally need (these)
resources and this is where we get them”
Do not be shy!
3. Team and Resources

What does the market you are targeting
look like? (400 words)
The market looks like (this) and here’s the
trends with numbers and recent
references that show we really know our
stuff. Our target addressable market is
(sensible, conservative, argued numbers).
4. Market Awareness

How are you going to grow your business
and increase your productivity into the
long term as a result of the project? (400
words)
“The value proposition to our target
customers is (how they benefit in a
business sense and it’s worth x to them).
Our routes to market are (credible ideas,
preferably relevant to market identified in
Q4). Currently we sit (here) in the market
but this project will take us to (there).”
5. Outcomes and Route to Market

What impact might this project have
outside the project team? (400 words)
“There are external (wider) benefits to
(economic/social/environmental/greater
good stuff) attributable to this solution
being implemented and they are worth
(some sort of guestimate). Stress any
regional impacts (local economy stuff).”
6. Wider Impacts

How will you manage the project
effectively? (400 words)
“Here’s a tickety-boo project plan (work
packages, costed, research category,
description of deliverables, management
techniques and structure”.
“and here’s a funky Gantt chart
(AppendixQ7)”.
7. Project Management

What are the main risks for this project?
(400 words)
“Here’s a thorough risk assessment
(project/technical/commercial/environme
ntal/regulatory/whatever) with risk
ownership assigned and sensible
mitigation suggested along with a
description of how risk will be managed
during the project.”
“and here’s a nice initial risk register
(AppendixQ8).”
Top tip - this is a ‘graph question’, label
the axes.
8. Risks

Describe the impact that an injection of
public funding would have on this project.
(400 words)
“We seriously need support. It will not
happen without it. Support enables
(faster time to market; derisking to the
point where private investors will come
in) – and look at those awesome
(stakeholder and/or wider) benefits.”
9. Added Value

How much will the project cost and how
does it represent value for money for the
team and the taxpayer? (400 words)
“It’s excellent value for money - look how
modestly the work packages are costed.
Subcontracts are justified because
(they’re the best/we worked well with
them previously/etc). The return to the
tax payer comes from (increased
VAT/payroll taxes/ improved productivity/
efficiency/ contribution to govt
strategy/etc.)”
10. Costs and Value for Money

small print …
… will kill you!
Scope. If in doubt, check with lead
technologists at Innovate UK. Use
the competition help. They are
helpful.

feedback …
… will kill you, too!
Typically 5 assessors assigned:
will want to have your babies
will “I’ll give it five” (more like 7, actually)
would rather eat worms than see your
project funded
1
3
1

#Innovatio
Top Tips
1 2 3 4 5
6 7 8 9 10
Fit Scope Agree key points
with partners
Be clear and
concise
Make a
realistic plan
Be convincing
Remember risk
and innovation
Quantify and
justify
assertions
Check all
deadlines
Get advice and
feedback
Don’t leave it
too late to ask
Q and submit
©KTN All rights reserved. | www.ktn-uk.org October 19 39@KTNUK #InnovationLoans

Support for
businesses
Electronic copy available
https://ktn-uk.co.uk/news/how-to-prepare-
the-best-application-for-grant-
competitions
October 19 40@KTNUK #InnovationLoans ©KTN All rights reserved. | www.ktn-uk.org

Support for
businesses
October 19 41
Customer support service
Email support@innovateuk.ukri.org
Phone 0300 321 4357
@KTNUK #InnovationLoans ©KTN All rights reserved. | www.ktn-uk.org

Sign up for KTN
newsletters
Sign up to receive monthly KTN
newsletters about funding and other
innovation news by sector/tech area
https://ktn-uk.co.uk/register
October 19 42@KTNUK #InnovationLoans ©KTN All rights reserved. | www.ktn-uk.org

Stand out from
the Crowd!

Thank you
Register for our updates:
www.ktn-uk.org
©KTN All rights reserved. | www.ktn-uk.org October 19 44@KTNUK #InnovationLoans

Credit Triage
Why do you need
public money?
• Revenue
generating
• Operating
profits
• Surplus cash
• Additional
equity being
raised upfront
Are you highly
innovative?
• Revenue
generating
• Operating
losses
• Sufficient cash
on balance
sheet
• Follow-on
equity being
raised
Are you
innovative?
• Minimal
revenues
• Operating
losses
• Insufficient
cash on
balance sheet
• Additional
equity
required
Is a loan suitable
and responsible?
• No revenues
• Inadequate
capitalisation
• Inadequate
funding
strategy

Who and what gets supported?
Both Innovation Quality and Credit Suitability required to progress, with bias towards innovation
Risk appetite: Recommended
Innovation: Above quality line
Risk appetite: Marginal Recommend
Innovation: Top 75% above quality line
Risk appetite: Marginal Decline
Innovation: Top 25% above
quality line
Risk appetite: Marginal
Recommend
Innovation: Lower 25% above
quality line
Risk appetite: Marginal Decline
Innovation: Lower 75% above quality line
Risk decline and / or below quality line
Risk appetite: Any
Innovation: Below quality line
Risk appetite: Decline
Innovation: Any score

Credit analysis
• Character:
• Likely commitment of the business to repay
• Management team / people:
• Capability / capacity of the business as a whole
• Liquidity / affordability: suitability of business for the proposed loan
• Cashflow
• Interest and debt service coverage
• Leverage
• Sources of additional capital
• Balance sheet
• Market:
• Resilience
• Competitor / market analysis
• Innovation risk
• Political / regulatory risk
• Control culture:
• Awareness and management of risks
• Project spend control environment
The 5 ‘C’s of Credit
1. Character (credit history)
2. Capacity to repay (the financial standing of the
business)
3. Capital (the equity in the business)
4. Conditions (the terms of the transaction)
5. Collateral (your security)

“Undertaking in Difficulty” Test
For the purposes of these guidelines, an undertaking is considered to be in difficulty when,
without intervention by the State, it will almost certainly be condemned to going out of
business in the short or medium term.
Therefore, an undertaking is considered to be in difficulty if at least one of the following
circumstances occurs:
(a) In the case of a limited liability company, where more than half of its subscribed
share capital has disappeared as a result of accumulated losses. This is the case when
deduction of accumulated losses from reserves (and all other elements generally
considered as part of the own funds of the company) leads to a negative cumulative
amount that exceeds half of the subscribed share capital.
Using customer information from the application we check you don’t breach the above test or that you have
potential mitigating factors:
• Under 3 years old
• Recent management accounts
• Credible plans to raise additional capital or show reduction in accumulated losses
• Deferral / conversion of liabilities (eg Directors’ loans)
General Block Exemption Regulations

Initial decision-making process
• Initial ‘Credit triage’ of all applications by Innovate UK Loans Ltd
• “Undertaking in difficulty”?
• Affordable?
• Appropriate for debt finance?
• Supported by credible management team?
• Innovation assessment
• Independent technical & commercial assessors score Part A
• Innovation quality ‘line draw’
• Notification:
• If ‘below the line’ or ‘unsuitable’: Application declined
• If ‘highly innovative’ and ‘not unsuitable’: progress to detailed credit analysis

Lending decisions / documentation
• Detailed credit analysis may lead to conditional loan offer
• Management presentation to Credit Committee:
• Project
• Wider business
• Responses to items identified by credit team
• Tour premises / meet key project team members
• Discussion of final offer terms
• Standard form loan agreement
• Pre-close due diligence:
• Verification of key information
• Know Your Customer / Anti Money Laundering / Politically Exposed Persons
• Corporate authorisations

Operating your loan
Availability period:
• First drawdown:
• Completion of loan agreement
• Satisfaction of all ‘conditions precedent’
• First drawdown notice completed
• Project baseline with Monitoring Officer
• Subsequent quarterly drawdowns
• Monitoring Officer sign off and reconciliation
• Credit Specialist sign off
• Interest quarterly in arrears (3.7% payable / 3.7% deferred), based on amount borrowed
Extension period:
• No further drawdowns permitted
• Interest quarterly in arrears (3.7% payable / 3.7% deferred), based on amount borrowed
• Monitoring by Monitoring Officer and Credit Specialist
Repayment period:
• No further drawdowns permitted
• Repayment of principal, deferred interest and interest at 7.4% (quarterly level payments)
• Monitoring by Credit Specialist

Your project AND your business
PART A – your project
• 10 questions
• appendices (optional)
• project finances
• Innovation Funding Service
PART B – your business
• startup high growth index survey
• business financials
• Early Metrics online survey

Application form
Question 1 Need or challenge
Question 2 Approach and innovation
Question 3 Team and resources
Question 4 Market awareness
Question 5 Outcomes and route to market
Question 6 Wider impacts
Question 7 Project management
Question 8 Risks
Question 9 Added value
Question 10 Costs and value for money
Question 11 Business plan and financial statements
Appendix Q3
Appendix Q7
Appendix Q8
Appendix Q2
IFS Application Questions
Detailed Guidance
Available on IFS
Appendix Q11

Complete Early Metrics survey
The survey questions include a mixture of:
• requests for specific information (for example on
monthly revenues or number of employees)
• selection of category responses (for example on the
stage of development of your product or service)
• self-assessment scoring (for example on the level of
important challenges to your growth)
• text (for example to allow you to provide a description
of your business model)
• Upload (business financials to show how you will be able
to repay the loan).
This survey should take no longer than one hour to
complete for a well-prepared applicant.

Survey Questions
• B1: Basic Information – What is your business, core product offering / value proposition?
• B2: Human resources / company structure – Who are the founders / management team, what
experience do they have and what is the management structure?
• B3: Commercial activity – What is the past, current and forecast commercial activity / customer
base / sales channels / domestic and international?
• B4: Product development – What is the past, current and forecast stage of development of your
technology and plans for future developments?
• B5: Finance and fundraising – What are your revenues / costs / cash and other current assets /
liabilities / strategy and plans for raising additional debt and equity finance?
• B6: Growth challenges – What is your self-assessment of the main challenges and risks to your
business growth?
• B7: Business financials
- summary historic profit and loss accounts and balance sheets for the past 3 years (or since
incorporation if less than 3 years)
- summary forecast cash flows, profit and loss accounts and balance sheets for the full
duration of the preferred loan conditions

Please submit your application early!
65% submitted on the last day
31% submitted in the last 2 hours

The (slightly gory)
details…
Appendix

Applicant Must be a UK-based SME
Research category Experimental development
Loan amount requested Between £100k and £1million
Project length (availability period) Up to 3 years
Project length (extension period) Up to 2 years
Repayment period Up to 5 years
IFS Application – Part A and Project Finance form +
appendices (A2, A3, A7, A8, A11)
10 marked questions
Survey – Early Metrics startup high growth index, including
business financials
6 question areas + historic / forecast
financials
Competition eligibility

Search for a funding competition and review criteria

Applicant: create an account
To create your account:
UK based businesses - Use Companies House
lookup as it speeds up our checks by providing
your company number and you are unable to
enter it at a later date
Research organisations, academics &
Universities - Enter your information manually
so you’re not listed as a business on IFS and
ensure you receive the correct funding

Project Details
• Application Team
- Contributors: Invite colleagues from your own organisation to help you complete your
application
• Application Details
- Title, Timescales, Research Category, Innovation Area & Resubmission (y/n)
• Project Summary
- Short summary and objectives of the project including what is innovative about it
• Public Description
- Description of your project which will be published if you are successful
• Scope - How does your project align with the scope of this competition?
- If your project is not in scope, it will be ineligible for funding

Application form
Question 1 Need or challenge
Question 2 Approach and innovation
Question 3 Team and resources
Question 4 Market awareness
Question 5 Outcomes and route to market
Question 6 Wider impacts
Question 7 Project management
Question 8 Risks
Question 9 Added value
Question 10 Costs and value for money
Question 11 Business plan and financial statements
Appendix Q3
Appendix Q7
Appendix Q8
Appendix Q2
Application Questions
Detailed Guidance
Available on IFS
Appendix Q11

Part A Scored Questions (each
scored out of 10)
• A1: Need or Challenge – What is the business need, technological challenge or market opportunity?
• A2: Approach and Innovation – what approach will you take and where will the focus of the innovation be?
• A3: Project team and resources – who is in the project team and what are their roles?
• A4: Market awareness – what does the market you are targeting look like?
• A5: Outcomes and route to market – how do you propose to grow your business and increase your
productivity into the long term as a result of your project?
• A6: Wider impacts – what impact might this project have outside your business? Identify these and where
possible quantify.
• A7: Project management – how will you manage the project effectively?
- Includes how the project relates to each stage of the innovation loan (availability period; extension period;
and repayment period)
• A8: Project risks – what are the main risks for this project?
• A9: Added value – describe the impact an innovation loan would have on this project
• A10: Costs and value for money – how much will this project cost; how does it represent value for money for
your business & the taxpayer?
• A11: Business plan – option to attach summary business plan as appendix (NOT SCORED)

Ineligible:
•Dividends
•Bonuses
•Non productive time
Eligible:
•Staff working directly
on project.
•Paid by PAYE
•NI, pension, non-
discretionary costs.
Labour

Overheads
- Innovate UK’s definition:
- Additional costs and operational expenses incurred
directly as a result of the project. These could
include additional costs for administrative staff,
general IT, rent and utilities
- Indirect (administration) overheads
• please ensure they are additional and
directly attributable to the delivery of the
project
- Direct overheads
• E.g. office utilities, IT infrastructure, laptop
provision not covered by capital usage
• must be directly attributable to the project
• Provide detailed breakdown together with
methodology/basis of apportionment

Material costs
Please be clear on what
the materials are, just
putting consumables
doesn’t provide enough
detail and we will request
more information should
you be successful

Capital equipment usage
Eligible:
• Used in the project or shared with
day-to-day production
Calculations will need to be in line with your
accounting practices.
Even if the equipment is depreciated fully over
the life of the project this must be added under
capital equipment.

- Innovation loans can fund the Eligible Project Costs of an R&D project
- Use of capital equipment in an R&D project is an eligible project cost
- Project includes both Availability and Extension Periods
- What cost relates specifically to the project?
- Acquisition cost £100,000
- Less residual value at the end of the project £20,000
- For the proportion of use that relates to the project 75%
- Eligible cost: (£100,000 - £20,000) x 75% = £60,000
- Grant-funded project: ‘use’ is spread over the project period and reclaimed quarterly
- Innovation loan project: the full amount of the eligible project cost can be borrowed
when required to fund new equipment purchase
- Costs of installation, adaptation, testing, certification etc are covered under labour,
materials, sub-contract, overheads etc as incurred, borrowed quarterly in advance
Capital equipment usage

Sub-contractors
Eligible:
•Justified and quantified
•If using non-UK sub-contractors are
being used you will need to provide
strong justification on why an UK-based
sub-contractor is not being used
•If you’re sub-contracting to a parent or
sister company, please ensure you list
at cost and do not include profit.

Travel & Subsistence
Eligible:
Costs must be directly linked to
the project
Please breakdown your costs as
follows:
• Travel
• Accommodation
• Subsistence
If you have an annual trip to visit the parent company this is not an eligible cost

Other costs
Eligible:
•Costs that could not be added under
previous headings.
•Do not double count
•Patent filing costs for new IP – SMEs
up to £7,500

Eligible project costs
 Labour costs
 Overheads
 Materials
 Capital equipment usage
 Sub-contracts
 Travel & subsistence
 Other costs
• Other eligible costs not included in the above headings
 IP filing costs up to £7,500 (SME only)

Ineligible project costs
Χ Recoverable input or output VAT
Χ Interest charges, bad debts, profits, advertising, entertainment
Χ Hire purchase interest and associated service charges
Χ Profit earned by a subsidiary or by an associate undertaking work sub-contracted
out under the project
Χ Inflation and contingency allowances
Χ The value of existing assets such as IPR, data, software and other exploitable
assets that are contributed to the project
Χ Independent Accountant’s Report Fees

Project cost summary
All organisations can see a summary of project costs

Checking your finances are complete

Application Assessment
All applications are assessed by independent assessors drawn from industry
and academia
- What do they look for?
• Clear and concise answers
• The right amount of information
• not too much detail
• no assumptions
• Quantification and justification
• A proposal that presents a viable opportunity for growth, a level of innovation that
necessitates public sector investment and has the right team and approach to be
successful
Keep your assessors engaged
and interested in your proposal.
You want them to be fascinated
and excited by your idea!

Note on feedback
• The feedback is compiled using the written comments of the
independent assessors who review and assess the applications.
• It is intended to be constructive in nature and to highlight both the
strong as well as the weak areas of your application.
• Please bear in mind that because applications are assessed by a number
of assessors, you may receive information which appears to be
conflicting. This may reflect their different interpretations of the
proposal that you submitted.
• It must also be noted that some proposals may appear to have been
favourably assessed based on their comments, in such instances it could
be that your proposal simply fell below the funding threshold, with
others achieving a higher merit score overall.

Scoring
• We review scores and feedback to check assessors are adhering to our
guidelines and scoring fairly.
• In some cases, where we feel a score is unjust and not supported by
feedback, we may remove that score as an outlier and update the total
score for the application.
• Please be aware that both low and high outliers may be removed and as
a result scores may increase or decrease.

Application – Part B
Your business

Complete Early Metrics survey
The survey questions include a mixture of:
• requests for specific information (for example on
monthly revenues or number of employees)
• selection of category responses (for example on the
stage of development of your product or service)
• self-assessment scoring (for example on the level of
important challenges to your growth)
• text (for example to allow you to provide a description
of your business model).
This survey should take no longer than one hour to
complete for a well-prepared applicant.

Submitting your
application and
the way forward

Declaration
Entering into a loan agreement with us is a significant financial commitment. In applying, you:
• Confirm you have made your own assessment in relation to the suitability of the loan agreement (as outlined in the Heads of
Terms) for your business;
• Consent to all searches necessary to determine the financial status of your business and other relevant checks appropriate to
assessing credit worthiness;
• Understand that as part of our due diligence key persons, directors, beneficial owners and any relevant related persons may be
required to consent to credit reference checks;
• Understand that information provided by you in the application will form part of the loan agreement. Any information later proven
to be false or misleading may lead to a breach of the loan agreement which could result in the immediate withdrawal of the loan, a
demand for immediate repayment and the enforcement of any security granted in connection with the loan agreement;
• Acknowledge that upon entry into a loan agreement with us you will incur binding legal obligations and should seek independent
legal advice;
• Confirm you are applying to enter into a loan agreement wholly or predominantly for the purposes of a business carried on by your
or intended to be carried on by you;
• Understand you will not have the benefit of the protection and remedies that would be available to you under the Financial
Services and Markets Act 2000 or the Credit Consumer Act 1974 if this agreement were a regulated agreement under those Acts,
and;
• Confirm you are aware that if you are in any doubt as to the consequences of the agreement not being regulated by the Financial
Services and Markets Act 2000 or the Consumer Credit Act 1974, then you should seek independent legal advice.

IFS + Survey required
PART A
• Completion of IFS application
• Application questions
• Project finances
• Appendices (Optional)
PART B
• Completion of online survey
• Early Metrics startup high growth index survey
• Business financials

Project setup for successful applicants

Project set up
- You will be required to complete project set up. To avoid delays you should consider:
• Who will be the project manager?
• Who will be the finance contact?

What is an SME?
Category Headcount Turnover OR Balance
sheet
Medium <250 ≤ €50m ≤ €43m
Small <50 ≤ 10m ≤ €10m
Micro <10 ≤ €2m ≤ €2m
The main factors determining whether an enterprise is an SME:
1. staff headcount
2. either turnover or balance sheet total
These ceilings apply to the figures for individual firms only.
A firm that is part of a larger group may need to include staff headcount/turnover/balance
sheet data from that group too.
The EU User Guide to the SME Definition:
http://ec.europa.eu/DocsRoom/documents/15582/attachments/1/translations

Describe:
• the main motivation for the project; the business need, technological
challenge or market opportunity
• the nearest current state-of-the-art (including those near-market or in
development) and its limitations
• any work you have already done to respond to this need. For example, is
the project focused on developing an existing capability or building a new
one?
• the wider economic, social, environmental, cultural and/or political
motivations which are influential in creating the opportunity (for example
incoming regulations). Our Horizons tool can help
here: http://horizons.innovateuk.org/
Question A1 : Need or
challenge
What is the business need, technological challenge
or market opportunity driving your innovation?

Explain:
• how you propose to address the need, challenge or opportunity identified
• how it will improve on the nearest current state-of-the-art identified
• whether the focus of the innovation in the project will be in the application of
existing technologies in new areas, development of new technologies for existing
areas or a totally disruptive approach
• the freedom you have to operate
• how this project fits with your current product/service lines/offerings
• how it will make you more competitive
• the nature of the outputs you expect from the project, such as report, demonstrator,
know-how, new process, product or service design and how these will take you closer
to targeting the need, challenge or opportunity identified
• the current level of readiness, how it is likely to change over the life of the project,
and how it is likely to lead to project success, using appropriate readiness scales (TRL
/ MRL / CRL)
Question A2 : Approach
and innovation
What approach will you take and where will the
focus of the innovation be?
Appendix may be used to provide a graphic, diagram or image to explain the technology,
product or service innovation (up to 2 pages in PDF format)

Describe:
• the roles, skills and relevant experience of all members of the project
team in relation to the approach you will be taking
• the resources, equipment and facilities required for the project and how
you will access them
• any vital external parties, including sub-contractors, who you will need to
work with to successfully carry out the project
• any gaps in the team that will need to be filled
• the resources that are available to take the project to market after the
initial development period, which might include commercial officers
and/or sales people, as well as marketers
Question A3 : Team and
resources
Who is in the project team and what are their roles?
Appendix may be used to describe the skills and experience of the main people who will be
working on the project (up to 4 pages in PDF format)

Describe:
• the markets (domestic and/or international) you will be targeting in the project and any other
potential markets
• for the target markets:
- the size of the addressable market or markets for the project outcome or outcomes
backed up by appropriate references where available
- the structure and dynamics of the market (such as customer segmentation and market
regulation), together with predicted growth rates within clear timeframes
- the main supply or value chains and business models in operation and any barriers to
entry
- the current UK position in addressing this market
• for highly innovative projects where the market may be undeveloped:
- what its size might be
- how the project will seek to exploit the market potential
- what makes it a suitable market
• for other markets: the size and main features
Question A4 : Market
awareness
What does the market you are targeting look like?

Describe:
• your current position in the market or markets and supply or value chains outlined, and tells
us whether you will be extending or establishing your market position
• your target customers and/or end users, and the value proposition to them explaining why
they would use or buy the product or service
• your route to market
• how you are going to profit from the innovation through increased revenues or cost reduction
• the approach you will take to commercialise the outputs from the project
• how the innovation will impact your productivity and growth in the short and long-term
• how you will protect and exploit the outputs of the project for example, through know-how,
patenting, designs or changes to your business model
• your strategy for addressing the other markets identified during or after the project
• how you expect to use the results generated from the project in further research activities, if
appropriate
Question A5 : Outcomes
and route to market
How do you propose to grow your business and
increase your productivity into the long term as a
result of the project?

Identify and where possible measure or quantify:
• the economic benefits from the project to those outside the project (for
example, customers, others in the supply chain, broader industry and the
UK economy) such as productivity increases and import substitution
• any expected social impacts, either positive or negative on for example,
the quality of life, social inclusion or exclusion, jobs (safeguarded, created,
changed, displaced), education, public empowerment, health and safety,
regulations, diversity, government priorities
• any expected environmental impacts, either positive or negative
• any expected regional impacts of the project (local, regional, national and
global).
Question A6 : Wider
impacts
What impact might this project have outside your
business?

Outline:
• the main work packages of the project, indicating the relevant research
category and the total cost of each one
• how the project relates to each stage of the innovation loan and how it
will be managed, including the availability / extension /repayment periods
• your approach to project management, identifying any key tools and
mechanisms that will be used to ensure a successful project outcome
• your approach to managing the most innovative aspects of the project
• your project’s management reporting lines
• your project plan in sufficient detail to identify any links or dependencies
between work packages or milestones
Question A7 : Project
management
How will you manage the project effectively?
Appendix may be used to submit a project plan/Gantt chart (up to 2 A4 pages in length in
PDF format)

Identify and explain:
• the key risks and uncertainties of the project, including the technical,
commercial, intellectual property, managerial, stakeholder
communication, health, safety and environmental risks, highlighting the
most significant ones and providing a risk register if appropriate
• how these risks will be mitigated
• any project inputs on the critical path to completion such as resources,
expertise, data sets
• whether the output is likely to be subject to regulatory requirements,
certification, ethical issues and so on and how you will manage this
Question A8 : Project Risks What are the main risks for this project?
Appendix may be used to submit a risk register to support this question (up to 2 A4
pages in length in PDF format)

Tell us:
• if this project could go ahead in any form without the innovation loan and
if so, the difference the loan would make, such as creating a faster route
to market or reducing risk
• the likely impact of the project on your business
• why you are not able to fund the project from your own resources or
other forms of private-sector funding and what would happen if the
application is unsuccessful
• how this project would change the nature of R&D activity you would
undertake and the related spend
Question A9 : Added Value Describe the impact that an innovation loan would
have on this project.

Justify:
• the total project cost and the loan amount being requested in terms of the
goals of the project and your business
• any sub-contractor costs and why they are critical to the project
Explain how this project:
• represents value for money for you and the taxpayer
• compares to what you would spend your money on otherwise
Question A10 : Costs and
value for money
How much will the project cost and how does it
represent value for money for your business and the
taxpayer?

Question A11 : Business
plan (NOT SCORED)
What is your business plan?
Appendix may be used to submit a summary business plan or business overview presentation to
support your application (up to 20 pages in PDF format)
You should provide a summary or overview of your business plan

Question B1: Basic information
This section of the survey contains questions which intend to capture basic information about your:
- business
- core product offering
- value proposition and business model
- target customers
- stage of maturity

Question B2: Human resources and company
structure
This section of the survey contains questions which intend to capture information about your:
- founders
- shareholders
- board of directors and advisors
- employees

Question B3: Commercial activity
- past, current and forecast commercial revenues
- past, current and forecast customer numbers
- direct and indirect sales channels
- international activities
- social media or other online presence

Question B4: Product development
- past, current and forecast stage of technical development for your core product or service
- plans for developing and launching new products or services
- resources for research and development, product development and launch
- intellectual property

Question B5: Finance and fundraising
- revenues
- costs
- cash and other current assets
- liabilities
- strategy and plans for raising additional equity and debt finance

Question B6: Growth challenges
This section of the survey contains questions which are intended to capture your self-assessment of the
main challenges and risks to your business growth, including:
- attracting and retaining employees
- implementing processes
- managing cashflow
- creating and maintaining a strong company culture
- winning trials or pilots and converting these into commercial contracts
- attracting and retaining users and customers
- entering international markets
- complying with regulations or policies and adapting to changes in regulatory environments
- protecting intellectual property
- obtaining additional finance

Financial information
You should provide:
- summary historic profit and loss accounts and balance sheets for the past 3 years (or since
incorporation if less than 3 years)
- summary forecast cash flows, profit and loss accounts and balance sheets for the full duration of
the preferred loan conditions
This information should be inputted to the Cashflow Forecast, Profit and Loss Forecast and Balance
Sheet Forecast templates and uploaded to the survey form as a PDF file.
This financial information is to enable us to make a full credit evaluation of your business and
determine whether the loan requested is suitable for your business.

State Aid (1)
• Innovation loans will be offered under Innovate UK’s Notified Scheme for Aid for Research &
Development & Innovation (Aid for research & development projects, GBER Art. 25)
• The aid offered is the “grant equivalent” of the value of the difference between our loan offer
and the ‘market rate’ for borrowers
– Lower interest rate
– Absence of fees
• The “grant equivalent” as a percentage of the eligible costs must be below the relevant
“intensity level” for experimental development projects
– 45% for micro / small businesses
– 35% for medium-sized businesses

State Aid (2)
• The aid offered is the “grant equivalent”: the value of the difference between
our loan offer and the ‘market rate’ for borrowers
• Market rate is based on actual rates, benchmarking similar SMEs, or using the
EC ‘reference rate’ as a proxy
• ‘Reference rate’ is based on
– Borrower credit rating
– Level of collateral
– Subordination of the loan
– National base rate

State Aid (3)
Rating category
Low Collateralisation Subordination UK Sovereign Ref rate
bps bps bps bps
Strong (AAA – A) 100 220 65 285
Good (BBB) 220 400 65 465
Satisfactory (BB) 400 650 65 715
Weak (B) 650 1000 65 1065
Bad/financial difficulties (CCC
and below)
1000 1000 65 1065
Reference rate:
BB rated borrower, subordinated loan with low collateral value reference rate: 7.15%
B or below rated borrower, subordinated loan with low collateral value reference rate: 10.65%
Benefit of interest rate:
BB rated: 7.15% - 3.7% = 3.45%
B or below rated: 10.65% - 3.7% = 6.95%
Benefit also in absence of arrangement, monitoring, non-utilisation fees
Grant equivalent:
Loan amount x benefit over loan term, discounted to present value at 1.65%

Summary Heads of Terms
for Innovate UK Loans Ltd
Loan Agreement

Summary Heads of Terms
Lender Innovate UK Loans Ltd
Borrower Eligible SMEs, being within the scope of the competition brief
Amount £100,000 to £1m (or up to 100% of eligible costs, subject to state aid intensity levels, whichever is lower)
Term Up to 10 years:
Stage 1: availability period of up to 3 years (drawdown of loan)
Stage 2: extension period of up to 2 years (no further drawdowns)
Stage 3: repayment period of up to 5 years
Purpose Loan to meet the eligible costs of a project that includes experimental development. This should be to
develop and commercially exploit innovation within the scope of the loan competition (as per brief)
Drawdown Staged drawdowns, quarterly, based on project milestones.
Subject to project progress, Monitoring Officer sign-off and financial and reporting covenants being met.
Full amount will not be drawn at the outset.
Fees No arrangement, commitment, non-utilisation, monitoring or security fees will usually apply.
Subject to prior agreement with the borrower, where bespoke activities or arrangements are required to
complete a transaction, the lender reserves the right to pass on or share these costs (including the
lender’s legal and valuation fees).

Summary Heads of Terms (continued)
Interest During the availability and extension periods, interest will be payable quarterly at 3.7% a year on
amounts outstanding.
During the availability and extension periods, interest will be accrued quarterly at 3.7% a year on
amounts outstanding and deferred to the repayment period.
During the repayment period, interest will be payable quarterly at 7.4% a year on amounts outstanding,
including the deferred interest from the availability and extension periods.
Fixed interest rate, subject to any restructuring or extension of the loan agreement.
The first interest period will start on the first drawdown date and the final interest period will end on the
termination date.
Repayment The final repayment structure will be determined by the lender but could include:
1. Interest-only period of up to 5 years, consisting of the agreed availability period and extension period
2. Repayment period of up to 5 years by way of quarterly repayments including interest accrued and
deferred during the availability and extension periods
Pre-conditions The pre-conditions will include at least:
1. Evidence of the borrower’s status as an eligible SME
2. Delivery of the borrower’s business plan in a form satisfactory to the lender
3. Delivery to the lender of the corporate authorisations of the borrower approving the borrower’s
entry into the loan agreement and associated documentation, and approving a specified
authorised signatory to sign for and on behalf of the borrower
4. Delivery to the lender of all relevant insurance documents
5. Delivery to the lender of all relevant financial and tax information

Security Typical security for a transaction of this nature may include, but is not limited to:
1. A debenture over the borrower’s assets (including, and without limitation, a fixed charge over key
assets and a floating charge over all other assets of the borrower).
2. A legal charge over intellectual property and specific assets financed under the loan agreement.
Where other funders are involved in a package deal, or future commercial investment is subject to
securing priority, intercreditor arrangements may be required. In this event priority over assets not
specifically scheduled in support of the innovation loan will not be unreasonably withheld.
The lender will not take personal guarantees or security over principal private residences or benefit from
the future sale thereof in the event of a realisation.

Loan covenants The covenants set on each loan will depend on the structure of the transaction and the nature of the project. It is
important to note that these covenants will consider the overall viability of the business of the borrower. They
will be relevant to the proper management of public funds, but should not prevent the borrower from delivering
their planned activity.
The lender expects the project to meet its scheduled delivery timetable with the support of the Monitoring
Officer.
For example, covenants will include, at least, the following:
Affirmative covenants
- Maintaining financial records and MI
- Compliance with UK tax obligations
- Maintenance of adequate insurance, including specific insurance in connection with the assets of the
borrower and “key person” cover
Negative covenants
- Control of “cash out”, dividends and/or withdrawal of directors’ loans
- Right of approval on change of control or business sale
- Requirement to maintain prescribed debt service cover, liquidity, leverage and/or current assets ratios
Reporting covenants
- Annual accounts: audited as appropriate and as filed at Companies House and/or draft annual accounts,
accountant-certified forecasts, regular management information, tax returns, bank statements.
Where the delivery of the project, its subsequent commercialisation and the overall viability of the business relies
on the quality of the project, the business leadership team and the individuals within it, the lender may require
“key person” clauses in addition to the items above.

Events of default The events of default will depend on the structure of the transaction and the nature of the project. The
events of default will be market standard and will include at least the following:
1. Change of control of the borrower without the lender’s prior written consent, which will not be
unreasonably withheld.
2. The departure of a “key person” from the business or the project without the lender’s prior
agreement to the proposed and timely remedy, which will not be unreasonably withheld.
3. Non-payment on repayment date.
4. The borrower’s failure to comply with its obligations under the loan agreement.
5. Insolvency of the borrower.
6. Cross-default.
7. It is or becomes unlawful for any party to perform its obligations under the loan agreement.
If the borrower defaults on its loan commitments, the lender will take steps to recover the debt in line
with standard commercial practice.

Transferability and
disclosure
The lender may freely transfer its rights under the loan agreement.
The lender may disclosure information applicable to such a transfer.
The borrower shall reasonably assist with the provision of such information.
The borrower may not assign or transfer its rights under the loan agreement.
Governing law English.
Documentation The lender’s standard form loan agreement and security documentation will be used to document
the transaction.

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