IP as lending collateral

SMEs urged to use IP as lending collateral

The UK government agency, Innovate UK, has awarded Intellectual Property (IP) platform Ingott a £250,000 grant to develop the use of IP as collateral for lending.

This new award will fund research to help SMEs in the knowledge-based sector to obtain growth funding by demonstrating the recoverable value of their IP and other intangible assets.

Lending against physical assets - an age-old practice

Of course, using business assets to support lending is an age-old practice. Your company borrows against physical assets, such as buildings, machinery and equipment. Your lender will gain comfort from the knowledge that, if you struggle to make repayments, then they can recover the debt by disposing of those assets.
But what if your company is ‘knowledge-based’? What if you don’t own sufficient tangible assets? Historically, in these cases, borrowing finance for growth has been almost impossible. Because of the difficulty of ascertaining their recoverable value, intangible assets, such as IP, haven’t been viable for use as lending collateral. Until now.

Valuing intangible assets

Ingott’s government-funded research will, amongst other research, look into reliable ways of valuing intangible assets and how they can be leveraged for finance.
Increasingly, IP issues are becoming central to key policy decisions.
– Businesses nowadays invest one-third more in intangibles than they do in ‘hard’ tangibles.
– Less than 20% of company value is now attributable to physical assets.
– Between 30 and 40% of business sale values are routinely attributed to identifiable intangibles (before considering goodwill)
– IP licensing incomes in growth economies are rising by $billions per annum
Sources: Imperial College/IPO, Ocean Tomo, Deloitte/KPMG, World Bank

£130 billion spent on intangible assets

Martin Brassell is CEO of Inngot. Martin says, ‘The economic gains to be made by addressing the IP collateral issue are very substantial. UK businesses spend over £130bn annually on intangible assets, very little of which is leveraged for finance.

‘Unlocking intangible value will improve the flow of capital to SMEs, the companies with the greatest potential for innovation and growth, and enable lenders to successfully acquire new business with less risk, significantly reducing their cost of capital.’

‘Banks lack confidence in whether IP has recoverable value if a business fails because they are unused to dealing in it. Our project will gather and analyse data that will demonstrate to lenders, insurers and policymakers how intangible assets genuinely provide a means to recover value, provided they are appropriately screened,’ added Brassell.

Find out more about the role of IP and other intangible assets in business lending. Take a look at two government publications –
1. Hidden Value looks at the reluctance of companies to routinely examine the financial value of their intellectual property and intangible assets. The report examines the structure of the market, the drivers for IP valuation, the barriers to more efficient functioning, and potential solutions to overcome them.
2. Banking on IP? investigates the role of IP in business finance.

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This legal information is not the same as legal advice and you may not rely on our post as a recommendation of any particular legal understanding. Please, consult an attorney if you’d like to get advice on your interpretation of this article.

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