Innovate UK loans can bridge the gap between pilots and production when used alongside grants and R&D tax relief. This guide shows the order of operations, how to avoid double funding, and the evidence you need.
Scaling from a successful pilot to first production often needs more capital than a grant can cover, yet equity may be expensive. Innovate UK loans can fund tooling, trials and working capital while you maintain access to R&D tax relief. The key is sequencing, clean records and a portfolio view of public funding.
What are Innovate UK loans, in brief
Innovate UK loans provide flexible, innovation-focused debt for late-stage development and early commercialisation. Facilities typically support demonstrators, regulatory steps, early manufacturing and market entry. Repayments are designed to match the profile of an innovation project rather than a standard bank facility.
Why combine with grants and R&D relief
- Grants fund discrete R&D activities and de-risk technical uncertainty.
- Loans fund the scale-up phase, including pilots and early production.
- R&D tax relief reduces the net cost of qualifying work across the portfolio.
Stacking and sequencing: the order of operations
- Define the project boundary
Split your plan into work packages. Label activities as grant-eligible R&D, loan-funded scale-up, or business-as-usual. This avoids cost collisions later. - Use grants first for uncertainty
Assign experiments, prototypes and validation to the grant. Record uncertainties, tests and outcomes. Keep evidence that shows why the work is R&D. - Deploy the loan for pilots and productionisation
Use the facility for tooling, pre-series manufacturing, supply chain setup and working capital around early orders. Align drawdowns to milestones. - Claim R&D tax relief where eligible
Identify which tasks within the overall plan remain within the R&D definition. Some activities inside the loan period may still qualify. Keep clean time and cost records. - Avoid double funding
If a cost is covered by a grant, do not claim the same cost line again under R&D relief. Document treatment for each cost category to show clear separation.
The funding interaction matrix
| Cost item | Typical grant treatment | Typical loan use | R&D tax relief interaction |
| Experimental design and lab trials | Eligible grant R&D | Not a loan priority | Often qualifying for relief |
| Prototyping and demonstrators | Often eligible | Sometimes co-funded if scale related | Often qualifying, if not sold |
| Tooling and fixtures for first production | Usually ineligible | Core use of loan | Rarely qualifying unless directly tied to experiments |
| Regulatory and certification steps | Sometimes eligible | Common loan use | May qualify if experimental work continues |
| Working capital around pilot orders | Ineligible | Core loan use | Not qualifying |
| Software and cloud for experiments | Often eligible | Possible if for scale-up | Qualifying if directly used for R&D |
| Subcontracted tests | Often eligible | Supplementary via loan | Qualifying if aligned to R&D tasks |
Use this as a guide only. Always check competition rules and the tax definition of R&D.
Evidence alignment that satisfies both assessors and HMRC
- One project file, two views. Keep a single evidence hub for the project with tags for Grant, Loan and R&D.
- Traceability. Link each work package to tasks, people, invoices and results.
- Why this matters. Assessors want fit to scope and value for money. HMRC wants technical uncertainty, systematic work and a clear link to costs.
- Letters and end users. Secure letters of support that speak to pilot sites, orders and adoption. Keep them specific and recent.
A practical timeline from pilot to production
Month 0–2: Set the plan
- Finalise work packages and labels.
- Prepare loan application data and grant project setup.
- Build a 13-week cash flow and a three-case model.
Month 3–6: Execute the grant R&D
- Run experiments, gather data and update the evidence hub weekly.
- Start supplier qualification for tooling and certification.
Month 6–9: Mobilise the loan
- First draw aligned to long-lead items.
- Begin pilot manufacturing and regulatory submissions.
- Keep a cost map that shows which items are loan-funded.
Month 9–12: Pilot to first orders
- Complete pilots, gather user feedback and confirm manufacturing parameters.
- Prepare your R&D claim methodology.
- Plan repayment schedule to match expected receipts.
Month 12–18: Early production
- Scale volumes, track unit economics and covenant headroom.
- Finalise the R&D claim with reconciliations to accounts and loan schedules.
CFO checklist
- Clear boundary between grant tasks, loan-funded scale-up and routine activity.
- Cash flow model covering claims-in-arrears and loan repayments.
- Evidence hub with tagged documents for Grant, Loan and R&D.
- Subcontractor scopes aligned to eligible R&D tasks where relevant.
- Cost treatment note that explains why no double funding occurs.
- Covenant headroom tracked monthly, with mitigation actions defined.
Common pitfalls and fixes
- Blurry cost boundaries
Fix: Pre-tag every PO and timesheet to a work package and funding source. - Late evidence
Fix: Weekly evidence cadence with a one-page index per work package. - Overlapping claims
Fix: Run a pre-year-end review to confirm treatment of shared resources. - Cash tightness during pilot
Fix: Stagger loan drawdowns to supplier milestones and expected receipts. - Letters of support too generic
Fix: Ask supporters to state test sites, success criteria and likely adoption.
Worked example
A robotics SME completes a grant-funded pilot that proves safer human–robot collaboration in warehouses. The team secures an Innovate UK loan to buy tooling, fund certification tests and finance the first five customer pilots. R&D tax relief applies to ongoing perception algorithm development and safety validation during the pilot phase. The evidence hub contains test logs, safety case drafts, timesheet samples and supplier quotes. Costs for tooling, inventory and certification are mapped to the loan. The R&D claim excludes loan-funded routine production work, with a clear memo explaining cost treatment. The company moves to first orders within twelve months.
Actionable next steps
- Draw a one-page map of your project with Grant, Loan and R&D tags.
- Build a milestone-based draw schedule for the loan.
- Draft a cost treatment memo that explains interactions and exclusions.
- Set a weekly evidence upload and a monthly covenant review.
- Prepare the R&D claim methodology with worked samples before year end.