The Increasing Use Of IP Assets As Collateral For LoansFast Action Finance SEO
As survey indicates, there is an increase in the use of intellectual property (IP) to facilitate asset-based lending. This is owing to the fact that there has been an increase in the percentage of patents being pledged as collateral. The new trend where intangible assets are being pledged particularly as patents is taking hold in today’s world. The patents are used to facilitate secured financing. A good number of IP assets generate income basically from trademark licenses. This suffices to say that lenders ought to embrace the idea of having revenue-producing patents as a form of collateral. This is because of the possibility to secure the loan using actual streams of income.
Market dealings and purchase of assets
One of the major reasons for lenders today to consider patents as ideal collateral has a lot to do with the significant growth in the liquidity of the patents. Essentially, the other potential market for these patents comprises of transactions between big technology companies. The sales dwell on large patent portfolios that are based in exchange transactions. They can also be used in the place of acquisitions and mergers. Essentially, they will facilitate liquidation of patents with a salvage value using an effective approach (orderly manner) in the event of bankruptcies.
The entrance of patent aggregators has had a significant impact in the secondary market. This is because the aggregators are now becoming a significant liquidity source for small companies that are not in a position to monetize assets by themselves due to lack of legal and technical expertise. This also applies to the original inventors.
A great deal of observers agrees that the patent aggregators play a crucial role in enhancing liquidity by offering a house for clearing their patents. In particular, they have contributed to increase in liquidity. This kind of liquidity is a fundamental element that makes things work for the lenders. For these particular lenders, the major concern would actually be the value for the collateral offered.
Liquidity of patents
It is true that patents are more volatile today as compared to the past years. As such, it becomes important to put the liquidity into perspective. First of all, you need to understand that the liquidity basically applies to those that are capable of generating income. A great deal of utility ones entails methods and procedures that are unique. However, their potential to generate income is questionable. Many a times these patents are considered to be illiquid.
If these patents happen to be purchased in a big portfolio, their potential role for futuristic litigation would be used to determine their value. In that case, it is a fundamental requirement for the patents to generate high profitability or royalty income to qualify as collateral. If patents are considered illiquid, then they are of little use to an organization.
Non-lenders setting a different trend
Something else worth noting is the emergence of non-bank issuers who are basically offering loans for assets in the technologically advancing circles. Essentially, some of the parties that play a key role in this regard include institutional investors and investment banks. They play a crucial role in facilitating this kind of lending. As such, they do not have to deal with the popular regulatory constraints that mostly affect commercial banks. Moreover, they are not tied up by lending standards that are based on capital regulation and financial ratios.
Most commercial banks actually face the constraint of lending standards that are too high. These standards have contributed to the reduction of credit, which is accessible to borrowers owing to the previous financial crisis. Nonetheless, non-bank issuers have embraced practices that are unconventional, being willing to offer loans for technology startups (particularly the ones with patents that can be availed as collateral).
Nature of an asset that is intangible
The nature of these assets can be described as opaque. With its nature, it has not in any way deterred lenders. The serious lenders have found ways to structure good loans and well-crafted terms that aim at protecting principal and interest payments. In as much as loans offered happen to be high yield; they could be over-collaterized using a lien on all the assets. In that case, the collaterized asset value will be more as compared to the operating business.
The use of IP as collateral has increased significantly over the years. With the emergence of non-bank lenders, the secondary market has experienced a significant impact as well. Non-bank players play a key role in facilitating asset-based lending particularly secured loans in Mississauga. This is because their operations are not limited by higher standards and regulatory constraints, which essentially limit the operation of commercial banks. As such, non-bank lenders are in a position to come up with structured loans and well-crafted terms that aim at protecting the payment of principal and interest once a loan has been for offered.