Urge government for state-funded loans to boost sector growth: Discontented UK defense industry pleads for financial assistance to secure loans
The United Kingdom is introducing a state-backed loan initiative, the Defence Innovation Loan scheme, exclusively for smaller defence companies. This program aims to address financing difficulties that these firms frequently encounter when seeking loans commercially, promoting innovation and growth in the defence sector.
The Defence Innovation Loan scheme, a collaborative effort between the Defence and Security Accelerator (DASA) and Innovate UK Loans Ltd, provides loans ranging from £100,000 to £1 million to eligible small and medium-sized enterprises (SMEs) with innovative defence solutions. Interest rates for these loans currently stand at 7.4% per annum, which is significantly lower than market rates.
Under this scheme, loans can cover up to 100% of eligible project costs, helping SMEs commercialise defence-related technologies. Applicants go through a comprehensive assessment process, assessing the desirability, feasibility, and viability of their solutions. Successful applicants will be subject to the loan terms and conditions offered by Innovate UK Loans Ltd, rather than the usual DASA terms.
The initiative is designed to help start-ups and small businesses in the defence sector secure the funding they need to compete for defence procurement contracts, thereby improving the UK's defence capabilities. Additionally, the scheme aligns with broader government goals to foster industrial strength and technological capabilities through SME participation.
Discussions are ongoing to expand and improve financing options for defence SMEs, including proposals for a government-backed defence guarantee scheme to further promote access to loans. These discussions underscore the strategic importance of such schemes to UK defence policy and industry resilience.
Parallel to the UK scheme, there is a large-scale EU-backed loan facility called the SAFE instrument, worth up to €150 billion to bolster defence investments throughout the European Union. The UK's future access to EU defence loans and projects is currently under negotiation, but post-Brexit agreements could pave the way for potential UK involvement.
The Defence Innovation Loan scheme is actively operational, with ongoing assessments and allocations underway. The latest funding competition commenced in May 2025. The scheme represents a crucial step towards enhancing the UK's defence industrial capabilities and encouraging SME participation.
- To address the financing challenges faced by smaller defense companies, the United Kingdom has introduced the Defence Innovation Loan scheme, a state-backed initiative that provides loans for investing in innovative defense solutions.
- This scheme, a collaborative effort between the Defence and Security Accelerator (DASA) and Innovate UK Loans Ltd, offers loans ranging from £100,000 to £1 million to eligible small and medium-sized enterprises (SMEs), with interest rates at 7.4% per annum, significantly lower than market rates.
- The loans can cover up to 100% of eligible project costs, helping SMEs commercialise defence-related technologies and potentially secure defense procurement contracts, thereby investing in the UK's defense capabilities.
- Beyond the Defence Innovation Loan scheme, there are ongoing discussions to expand financing options for defense SMEs, including proposals for a government-backed defense guarantee scheme, aiming to further promote access to loans and contribute to the resilience of the UK's defense industry.
