Innovation Continuity Loans – Package of Support Available

Innovation Continuity Loans
Applicant Briefing
9th December 2020
Nigel Walker – Deputy Director, Lending & Investor Partnerships
Scott O’Brien – Deputy Director, Credit
Victoria Meredith – Portfolio Manager
Hemaxi Bhatt – Programme Lead, Innovation Loans

Content
• Innovate UK Coronavirus Support
• Innovation Continuity Loans – overview
• Innovation Continuity Loans – application
process
• Application – business information
• Application – financial submission
• Our approach to credit
• Application – project proposal
• Project finances
• Project assessment
• Decisions
• Operating your innovation continuity loan
• Question and Answers

Innovate UK
Coronavirus Support

We work with the government to invest over £7 billion
a year in research and innovation by partnering with
academia and industry to make the impossible,
possible. Through the UK’s nine leading academic
and industrial funding councils, we create
knowledge with impact.
Innovate UK drives productivity and growth by supporting
businesses to realise the potential of new technologies, develop
ideas and make them a commercial success
Innovate UK is aiming to sustain existing and continuing
innovation in the UK’s R&D intensive companies through the
current Covid-19 challenges and the resulting longer-term
economic impact.
UK Research and Innovation
Innovate UK

£750,000,000of targeted support for the most R&D intensive SMEs across the UK
£100,000,000Total Innovate UK ‘Covid Recovery’ investment
Announced in April by the Chancellor, Innovate UK was charged with distributing
By September we had already delivered

919Companies Supported
Fast-Start Competition
£43.4mAwarded and Delivered
8,600Companies Applied 101From the Creative Industries
10 to 4
Reduced Application
Questions from
6 Weeks
Reduced Application
Processing to Just
22From Agri-Food

Continuity
Grants
638Companies Awarded
£57.7mInvestment Made
Continuity
Loans
145Applications Made
£26m
Loans Approved
Sustainable
Innovation Fund
555Companies Awarded
£90m
Investment Made
Enterprise Europe
Network
250Innovation Advisors
1,500
Advised Companies

26,000Applications across all of
our award programmes
50%Was Non-COVID
Related

Innovate UK Covid-19 Response Offer
Expanded Business Support (EEN)
I have a new ‘Sustainability’
project
Fast Start
Global COVID
Response
Sustainable
Innovation
Fund
I have a funding gap
between £50k &
£100k
Competitions Closed
I have a new
COVID19-related
project
I have a
funding gap up
to £50k
Support for innovation continuity
(both Innovate UK & other)
I have a challenge in
continuing my existing
project
Between £250,000 and £1.6m available
Innovation
Continuity
Loan Strand 1
Innovation
Continuity
Loan Strand 2
I am continuing innovation
by following on from a
recently completed project
with an Innovate UK award
Available Now
I have a funding gap over £250,000
Available Now
I have a challenge in
continuing my existing
project
Continuity
Grant
I have a funding gap under £250, 000
I am continuing innovation
that has not recently had an
Innovate UK award
Innovation
Continuity
Loan Strand 3
Available NowCompetition Closed
Support for innovation continuity
(Innovate UK award holders)

Innovation Continuity
Loans:
Overview

Innovation
Continuity
Loans
Innovation
• Funding for costs of R&D (up to 31st March 2022)
• Adefined project
• Assessed as high innovation quality
Continuity
• Threat to innovation activity stalling or ceasing
• From the economic impact of Covid-19 pandemic
Loans
• £250k to £1.6m for up to 7 years
• Interest payable quarterly
• Repayment required
• For suitable SMEs

Single Applicants:
SMEs & 3rd sector
organisations
Eligible project
costs /
Additional
reasonable
R&D costs
Loan size
£250k to £1.6m
Funding for applicants to continue and complete innovation activity despite
the impact of the COVID-19 pandemic
Below-market
interest
rate
7.4%
Flexible & patient
Up to 7 years
years
7

What
are we
looking
for?
We are looking for businesses who can demonstrate that their innovation activities
have the best potential for the future
Your application will be evaluated on:
• The quality of your project
• Our judgement on the suitability of your business to receive a loan
We look for applications that show:
• an appropriate and evidenced borrowing proposal from a suitable business
• a clear route to commercial success
• a strong management team
• why you need additional public funding in order to be able to carry out your
project
• evidence of loss or damages due to the COVID-19 pandemic such as
reduced access to capital, cancelled orders or increases to your costs
• why you are unable to fund the project from your own resources or other
forms of private-sector funding amidst the current financing disruptions
caused by the COVID-19 pandemic
• confirmation and evidence that you were not an undertaking in difficulty as of
31 December 2019 or that you are exempt as a micro / small company
• that this funding will enable the project to continue and complete during the
COVID-19 pandemic.

Innovation
Continuity
Loan
Strand 1
Live Innovate
UK Projects
Strand 1: Live project with an Innovate UK
award
• Innovate UK Award Holders who have a live project with
support from a current award
• SMEs and Third Sector Organisations
• Projects that were ‘on track’ before Covid-19 pandemic
• Organisations that can commit to continuing project delivery
• £250k to £1.6m for remaining project costs not covered by
the existing award and reasonable additional R&D costs
• Any continuity grant received for the live project must be
repaid and replaced by the innovation continuity loan
• For companies that can evidence loss or damage due to
Covid-19
• Suitablefor a loan

Innovation
Continuity
Loan
Strand 2
Follow on to
Innovate UK
Projects
Strand 2: Follow on to completed project
with a recent Innovate UK award
• Innovate UK Award Holders who have a project that follows
on from a successfully completed a project in the last 3
years
• £250k to £1.6m for up to 100% of project costs and
reasonable additional R&D costs
• Highly innovative project with a clear route to market and
economic impact – assessed by Innovate UK
Covid-19
• Suitable for a loan

Strand 3: Project without previous support
from Innovate UK
• Project that continues, completes or follows on from
innovation activity not supported by Innovate UK in the last 3
years
• £250k to £1.6m for up to 100% of unfunded project costs
and reasonable additional R&D costs
• Highly innovative project with a clear route to market and
economic impact – independent assessment
Covid-19
• Suitable for a loan
Innovation
Continuity
Loan
Strand 3
Projects
without
Innovate UK
support

Innovation Continuity Loans – Interest / Structure
• Availability Period Maximum 12 months (draw by 31 March 2022)
• Extension Period Maximum 2 years (or first commercial sale)
• Repayment Period Maximum 5 years
BUT
Maximum loan term 7 years
• Below-market interest rate of 7.4%, with no fees or charges
• Interest rate during Availability and Extension periods - 3.7% payable
with 3.7% deferred till Repayment Period
• Interest rate during Repayment period - 7.4%

• Template loan agreement
• Mortgage debenture / ‘senior subordinated’
• KYC/AML, corporate authorisations
• Covenants
✓ Liquidity Ratio of 1.1x throughout the loan
✓ Debt Service Coverage Ratio of 1.2x throughout the repayment period
✓ Project monitoring
✓ Quarterly management accounts
✓ Annual accounts (within 6 months of year end)
• Summary of loan agreement in Terms & Conditions: please review
Innovation Continuity Loans: Security / Covenants

Innovation Continuity
Loans:
Application process

Strands 1, 2 and 3
November Competitions Opened 6th November 2020
Submission Deadline 13th January 2021 11am
Expected notification of progress
to detailed credit evaluation
19th February 2021
First drawdown No later than 31st March 2021
Key Dates

How to
apply
3 essential elements of applications:
• Business information (all strands)
• Survey format
• Financial submission (all strands)
• Upload to survey
• Project proposal (strands 2 & 3)
• Innovation Funding Service

Application and decision process
Answer 5 questions
(+ appendices)
Complete Project
finances
Complete high growth
start up index survey
Scope / eligibility
check
Innovation
Assessment
Credit Evaluation
Lending Decision
Notification
Loan documentation, KYC/AML
checks, drawdown request
Feedback
Submit by deadline
Upload financial
submission
IFS Early Metrics
Business
(all strands)
Financial
(all strands)
Project
(strands 2&3)

How to
apply
https://ukri.innovateuk.org/ICL

Business Information
& Early Metrics high
growth start up index:
Complete Survey

Business Information
Business Overview
• What is your business, core product offering / value proposition? How will it
be impacted by this project
Loan request
• What loan amount and period do you require?
Human resources / company structure
• Who are the founders / management team, what experience do they have
and what is the management structure?
Commercial activity
• What is the past, current and forecast commercial activity / customer base /
sales channels / domestic and international?
Product development
• What is the past, current and forecast stage of development of your
technology and plans for future developments?
Finance and fundraising
• What is the financial situation for your business and why do you need
public funding?
Growth challenges
• What are the main challenges and risks to your business growth?
Introduction:
Introduction: Innovate UK can provide additional COVID-19 innovation continuity loan funding for
the continuation of planned or existing innovation activity
Innovate UK is working with Early Metrics in the application process for innovation continuity
loans. Applications will cover the eligibility and the suitability of the business to receive a loan.
These questions, including the ‘startup high growth index’ survey, will focus on the whole business
and how suitable your business is for this loan opportunity. You can download a PDF copy of the
full survey here. This survey will require you to upload historical and forecast financial information
on your business using a template so that we can evaluate if you are suitable for a loan. You must
also submit a project proposal on our Innovation Funding Service that will be evaluated by our
innovation teams. We expect that it will be helpful for you to complete the financial information
before answering the questions about the requested loan amount and period and to use this
information to help you decide whether or not to apply. Please use the following link to download
this template: http://go.innovateuk.ukri.org/ICL_finance_information Download it to Excel and
upload it when required in the survey.
Only organisations that are successful in this application will be offered an innovation continuity
loan. The final terms of any loan offer will be decided by the Innovate UK Loans Ltd credit committee
and may differ from the amount and term requested in this application.
• Survey format
• Narrative questions for evaluation
of business suitability for a loan
• Detailed information for high
growth startup index ranking

Eligibility for State Aid
• Innovate UK is offering funding for this competition under the Temporary Framework. This is available to eligible
UK businesses. The aid is the ‘grant equivalent’ of the beneficial terms of the loan.
• The cumulative aid that any business may receive under the Temporary Framework must not exceed €800,000 in
total.
• We can only consider funding to businesses that were not ‘undertakings in difficulty’ as at 31 December 2019.
However micro and small companies are exempt from this test unless:
• they are in insolvency proceedings
• have received rescue aid that has not been repaid
• or are subject to a restructuring plan under State aid
• ‘Undertaking in difficulty’:
• This is where more than half of a company’s subscribed share capital has disappeared as a result of accumulated
losses.
• This test only applies to companies that are more than 3 years old.
• If you have a parent company the test can be performed on your parent or holding company.
• You must make a declaration within the Early Metrics survey of the above. If you are unsure, please take legal
advice before applying.
• Further information is available on our website in the general guidance under state aid

Business
Financials:
Upload to Survey

Business
Financials
Required:
• Profit & Loss Account
• Balance sheet
• Historic (3 years if available)
and
• Forecast (must cover full
loan term)

Business
Financials
Required:
• Cashflow Forecast to cover full loan term

Business Financials
Repayment Calculator Template will populate summary sheet (P&L, B/S, CFF)

Business Financials
Sales / Cost of Sales Template is available and can populate summary sheet (P&L)

Credit Approach
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
You must be able to
show that you:
- will be able to pay
interest each quarter
- will be able to repay
the loan on time
- need public funding.

Credit Analysis
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)
• 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

Project proposal:
Innovation Funding
Service (IFS)

Search for a funding competition and
review criteria

Applicant: Sign in or create an account
Sign in with your account credentials OR
To create your account:
UK based businesses - Use Companies House
lookup as it speeds up our checks by providing your
company number. You will not be able to enter it
later.
Research organisations, academics and
Universities - Enter your information manually so
you’re not listed as a business on IFS and ensure
you receive the correct funding

Project proposal
5 Application Questions – max 800 words
+ appendices
• Project proposal
➢ What is the business need, technological challenge
or market opportunity behind your innovation?
What approach will you take and where will the
focus of the innovation be?
• Market opportunity
➢ What does the market you are targeting look like
and how are you going to grow your organisation as
a result of the project?
• Project delivery
➢ Who is in the project team, what are their roles and
how will you manage the project effectively?
• Project risks
➢ What are the main risks for this project?
• Project costs and value for money
➢ How much will the project cost and how does it
represent value for money for your organisation and
the taxpayer?
Completed on IFS
• Strand 1 – Not required, as live project
• Strand 2 – Evaluated by our Innovation
teams based on:
• the quality of your completed project
• our satisfaction with the delivery of your
completed project
• the quality of your follow-on project
proposal
• Strand 3 – Evaluated by our independent
assessors based on:
• the quality of your project proposal
• score above quality threshold required

#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@KTNUK #InnovationLoans

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

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.
The eligible cost can be funded through the loan when needed

Subcontractors
Eligible:
• Justified and quantified
• If 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 and 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
Additional costs:
• Additional, justified, R&D costs arising directly from
COVID-19 pandemic

Project Assessment – Strand 2
Your project will be assessed by an Innovation Lead, who will have reviewed your previous project,
looked at Monitoring Officer and Close Out reports before making a recommendation on your follow-on
project. Please note – they are focusing on the
innovation aspect of your project.
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
Assessment: is there any
reason NOT to recommend this
follow-on project for credit
evaluation?

Project Assessment – Strand 3
Your project will be assessed by 3 independent assessors. Please note – they are focusing on the
innovation aspect of your project.
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
Assessment:
• Scores for each question
• Only projects scoring above
threshold will be considered
• Recommend this project to
the credit committee
alongside credit evaluation?

Lending decisions – by our Credit Committee
Strand 1 (live Innovate UK project):
• Is the application eligible and in scope?
• Innovation quality is known (live project has been assessed)
• Is the project proceeding satisfactorily?
• Is there a need for public sector funding?
• Is the business suitable to take on the loan requested?
Strand 2 (follow-on to recently completed Innovate UK project):
• Innovation quality is confirmed by Innovate UK (follow-on from previous project)
• Was the previous the project completed successfully?
Strand 3 (innovation activity new to Innovate UK):
• Innovation quality is independently assessed (3 external assessors)

Progression to
detailed credit
analysis
(strand 3)
Both:
▪ Innovation quality and
▪ Credit suitability required
Bias towards innovation
Risk appetite: Recommended
Innovation: Above quality line
Risk appetite: Marginal Recommend
Innovation: Top c75% above quality line
Risk appetite: Marginal
Decline
Innovation: Top c25%
above quality line
Risk appetite: Marginal
Recommend
Innovation: Lower
c25% above quality line
Risk appetite: Marginal Decline
Innovation: Lower c75% above quality line
Risk appetite: Any
Innovation: Below quality line
or
Risk appetite: Decline
Innovation: Any score

Lending Decisions and Documentation
• Innovation project quality?
• Initial credit triage?
• Progress to detailed credit analysis
• Detailed credit analysis
• May lead to a loan offer if approved by the Credit Committee
• We will use our standard loan agreement and debenture
• Execution by electronic signature, using DocuSign
• Conditions:
• Know Your Customer / Anti Money Laundering / Politically Exposed Persons
• Specific conditions may be required – before and after drawdown
• Corporate authorisations will be required to evidence that the loan agreement has been
entered into with appropriate approval

Operating your loan
(Successful Applicants)

Operating your Innovation Continuity Loan
Availability period:
• First drawdown:
• Completion of loan agreement
• Satisfaction of all ‘conditions
precedent’
• First drawdown notice completed
• Subsequent quarterly drawdowns
• Monitoring Officer sign off and
reconciliation
• Credit Specialist sign off
• All drawdowns before 31st March
2022
• Interest quarterly in arrears (3.7% payable /
3.7% deferred), based on amount borrowed
Extension period:
• No further drawdowns permitted
• Ends on earlier of agreed date and first commercial
sale from results of project
• 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

Project Set Up Successful Applicants
Project Set up: 8 steps to complete
• Applicable to all successful innovation continuity loan applicants
• Must be completed within 30 days - projects must start within 90 days or funding may
be withdrawn
• Confirmation of your bank account is required to ensure we are paying the correct
organisation you may/will be asked to provide a redacted bank statement to confirm this
• Project change requests cannot be submitted before the project starts

Submit your application early!
Be aware of the
potential for last
minute technical
issues!
65% submitted on
the last day
31% submitted in
the last 2 hours
Complete the business survey
AND
Upload the business financials spreadsheet
AND
Submit the project proposal (strands 2 & 3)
BEFORE
11am
13th January 2021

If only…
We wish applicants would:
• Read the instructions
• Prepare well in advance
• Seek financial and legal advice
• Submit ALL parts of the application
• Complete all parts of the business financials
• Profit and loss
• Balance sheet
• Cashflows
• Cover the full loan period
• Balance the balance sheet
• Match cash in the balance sheet and
cashflow
• Describe the assumptions in the financials
• Revenues – top down and bottom up
• Costs – including costs to deliver the
‘hockey-stick’
• Think about sensitivities and stress cases
• Delays always happen
• Revenues are never as high as forecast
• Costs are always higher than expected
• Is the loan affordable?
• Have adequate capital
• Have sufficient cash throughout
• Use our Customer Support Services team for
questions, but not at the last minute
• Submit all parts of the application on time
• Read the instructions

Additional
Information
Customer Support Service
Email: support@innovateuk.ukri.org
Tel: 0300 321 4357
Useful Weblinks
• Innovation Continuity Loans – Landing Page -
https://ukri.innovateuk.org/ICL
• Innovation Continuity Loans Strand 1 Ongoing Competition -
https://earlymetrics.fra1.qualtrics.com/jfe/form/SV_8Ag4hfhZTndA2Et
• Innovation Continuity Loans Strand 2 Competition November 2020 -
https://apply-for-innovation-
funding.service.gov.uk/competition/779/overview#summary
• Innovation Continuity Loans Strand 3 Competition November 2020 -
https://apply-for-innovation-
funding.service.gov.uk/competition/700/overview#summary
• Innovation Loans: General Guidance for Applicants -
https://www.gov.uk/guidance/innovation-loans-general-guidance-for-
applicants
• Innovation Loans - What they are and how to apply -
https://www.gov.uk/guidance/innovation-loans-what-they-are-and-how-
to-apply
• Innovate UK - https://www.gov.uk/government/organisations/innovate-uk

Q&A
Nigel Walker
Director, Innovate UK Loans Ltd &
Deputy Director, Lending & Investor Partnerships
Scott O’Brien
Director, Innovate UK Loans Limited &
Deputy Director, Credit
Hemaxi Bhatt
Programme Lead – Innovation Loans
Innovate UK
Victoria Meredith
Portfolio Manager
Innovate UK

Innovation Continuity Loans – Package of Support Available

Innovation Continuity Loans – Package of Support Available

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