Businesses need capital to scale and grow. Yet when seeking finance, few businesses tap into one of their most valuable assets: their intellectual property. Lenders have traditionally taken security over borrowers’ tangible assets, for example real estate assets and equipment. However, in recent years, there has been increased recognition of the realisable value of IP assets and the growing market for IP-backed loans.
IP-backed loans are loans offered using intangible assets as collateral, as opposed to physical collateral or personal guarantees. Many smaller businesses and startups, whose value primarily lies in intangibles, can find it difficult to access capital. This can lead to a growth funding gap, particularly if they do not wish to dilute existing shareholdings through further equity investment. IP-backed lending bridges this funding gap, allowing businesses to use their IP as a ‘true asset’ to secure finance.
While the market for IP-backed lending has generally been served by a small pool of specialty lenders, traditional lenders are beginning to recognise the opportunities presented by IP-backed finance.
In the United Kingdom, Natwest and HSBC have announced lending solutions aimed at physical-asset-light businesses. Under NatWest’s “mass market” IP-backed loan solution, loan applicants who fail to meet conventional security criteria will be considered for funding on the basis of qualifying IP assets. It announced in May 2024 a £700,000 loan to Sci-Net, a business software solutions provider, to fund business growth.
The announcement aligns with broader trends in the financial sphere, where IP collateralised debt is gaining traction. However, companies need to undertake a risk benefit analysis as their IP is likely their most valuable asset. Valuation of IP assets can also prove difficult and there can be regulatory hurdles to IP backed lending in some countries.
Top tips
To effectively harness and leverage the value of their IP assets, businesses must recognise the importance of a strong IP strategy:
1. Conduct an IP Audit
This is a systematic and solution-focused review of the IP assets owned, used or acquired by a business. IP audits serve two primary purposes:
- To identify and evaluate IP assets, and
- To anticipate and manage the risks associated with IP portfolios
2. Register IP Rights
Register formal IP rights, i.e. trade marks, patents and industrial designs, with the relevant IP office. EU trade marks and Community designs provide protection across the 27 EU member states. Registered IP is particularly important when it comes to financing.
Copyright is not registrable in Ireland. It automatically arises on the creation of an original work.
3. Protect IP Rights
Ensure IP rights are adequately protected when negotiating and drafting commercial contracts by:
- Obtaining IP assignments from all third-party contractors
- Including appropriately drafted IP clauses in employment contracts, and
- Appropriately protecting IP in contracts with suppliers and customers
4. Keep an IP Register
An IP register is a schedule of IP assets owned, used, or acquired by a business. It lists information such as asset descriptions, age, type, and any valuation assessments that have been carried out. The IP register should be continuously updated for better management of the IP portfolio. It will also assist when it comes to due diligence during investment rounds and when seeking IP-based finance.
How we can help
We have extensive experience advising businesses in registering, managing, protecting and leveraging their IP assets to enhance their business. Please reach out to a member of our Intellectual Property or Banking teams should you require advice and support in this area.
People also ask
What are the main types of intellectual property? |
The main types of intellectual property are patents, trade marks, copyright, industrial designs and trade secrets. |
What is the difference between intellectual property and intangible assets |
Intangible assets are non-physical assets. The term includes intellectual property, but also other things such as goodwill, brand recognition, customer information or software. Intellectual property refers to legal rights associated with certain intangible assets e.g. patents, copyright, designs and trade marks. |
What is IP backed lending? |
IP backed lending, or IP loans allow companies to use their intangible assets, such as trade marks, patents, copyright and trade secrets as collateral for loans. |
The content of this article is provided for information purposes only and does not constitute legal or other advice.
