Backed LoansSecured credits
IP Backed Financing - What is it?
Intellectual property-based financing is referred to as a class of immaterial investment financing. First and foremost in this area of financial activity is to release the "hidden value" of intangibles. Although this is an area without large datasets, effective IP-based credit schemes are in place. Over the past few years, companies of all size have invested more in intangibles than in property, plant and equipment.
Moreover, recent bank initiative aimed at growing companies shows that traditionally held capital just doesn't really hold or loses value. There have been many instances in the asset-based credit markets of transaction where IP and intangible controls are recognized as an integrated part of an entity's overall results.
An emerging, albeit less well known, alternative for IP-based finance, known as pension-based finance, is also beginning to develop. This works by using annuities retained by shopkeepers, managers and executive staff as a means of financial support for a corporation, usually through the company's own intranet. You can do this either by purchasing a company's own Internet Protocol asset and then licensing it back from the trust to the customer, or by hedging a credit against the Internet Protocol asset itself.
Although IPR-based financing has historically been used by large enterprises, the establishment of mediators and patentbrokers such as ICAP - with whom Metis has recently collaborated - has opened up various financing schemes that can be used by SME. However, IP-based financing still poses a challenging situation for SME' looking for recapitalisation, as there is still a feeling of uncertainty about the way out and the value of IP for creditors, especially in pre-revenue enterprises.
Which are the advantages of IP-based financing? Enhanced security: Currently, any burden on a company's intellectual property and intangible asset is suspended rather than static and weakens its effect when the company gets into difficulty. The definition of intellectual property rights in a credit contract puts a banking institution in a much more powerful competitive advantage than an asset manager or receivers.
Value creation potential: The IP Assets of a well-managed company will grow in value over a period of years, while most of its fixed assets will decrease in value. Broader pools of assets: Creditors are often faced with a situation where good current clients want to take out more loans than the traditional credit metrics allow.
Value of immaterial nuclear facilities offers the possibility to loan more, but with enhanced certainty. Enhanced redemption incentives: Where immaterial fixed capital is at the heart of operations, it provides a strong stimulus for borrower to meet their redemption obligations. Alternatives to face-to-face warranties (PGs): Creditors recognize the implications of applying for a PG for operations.
Intangible and intangible assets offer an extra level of certainty and/or 'comfort' that is directly related to the business and not to a person. Which are the main issues of IP-based financing? Therefore, it is up to the director of a business to interpret and declare their intellectual property and intangible assets in the manner that a creditor will comprehend.
Improving credit decision intelligence: Insight into off-balance asset values (which typically cover most, if not all, IPs and immaterial corporate assets) gives creditors a more accurate view of a company's resource and value. Valuation: Unlisted enterprises do not have at their disposal a free trade repository to assess and prove the immaterial (off-balance sheet) value of their deal.
Realization of value: Many items of property, plant and equipment have a realizable value even if it is only a small portion of the new (originally financed) costs. However, there are currently less officialised and less secure re-sale opportunities for intellectual property and intangibles. Impairment risk: Some intangibles, such as trademarks, may be exposed to quick changes in value according to the fate of the company that owns them.
Comprehension of value: Creditors must acquire trust in the administration of the specific riskprofiles associated with these investments. These include incorporation, education and endorsement of accepted accounting policies for the intangibles subject.