How To Use IP As Loan Collateral
Using IP As Loan Collateral
Intellectual Property (IP) - patents, trade marks, copyright and designs - is often overlooked as security for business financing. Up to 80% of a company’s value can lie in its IP, writes Ben Goodger.
Whatever the size of your company, IP assets can potentially be used as collateral. IP presents an opportunity to raise finance often not appreciated. In the current economic climate, is your company is using its IP assets to their full potential?
Why IP?
The financial value of IP is that it is a powerful weapon to exclude competitors from a market. As the same time, through licensing, it can be a high-value revenue stream. There is also a growing marketplace for the buying and selling of IP assets themselves (particularly patents), making them sellable. IP value is less affected by recessions than some other classes of assets.
What Do We Have, How Valuable Is It?
The first step is to identify your existing IP portfolio: does it match to your business correctly? It is surprisingly common for businesses to have an incomplete grasp of their intellectual property assets. Registrable rights include: patents, trademarks and registered designs. Non-registrable rights include: copyright, business methods, trade secrets and confidential information, domain names. It is best practice to try to maintain an inventory of your most important IP assets.
Ideally you then should address the issue of how your key IP assets stand in relation to the market place and competitors. Do you have for example key patents which give you a strong position in relation to a particular technology area? Which of your trade marked brands are number one or two in their market?
Then, based on this you can obtain a credible valuation of your IP. There are various methodologies for valuing IP. For this, the help of an expert is useful.
Getting The Financing
Armed with all the above you can make the case to a lender that this is an identifiable asset with real commercial and market value and thus is good security. Clearly if you can help the lenders get an understanding of what it is they are lending against and what they might be able to do with the assets in the event of enforcement of the debt, this will make it much easier for them to agree to the financing. And the model does not have to be just traditional debt + charge over fixed assets. A growing field is security based on the receivables (i.e. royalties) from the commercial exploitation of the IP.
It is important to understand and value your IP. If you do this right, it can be used as security for raising finance. This is something which any Finance Director or CEO should be considering as part of an overall strategy for the IP of the business.
For more information:Ben Goodger, Rouse bgoodger@iprights.com
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