Leveraging Your Intellectual Property to Secure Debt Financing

US Capital Partners recognizes the value of IP assets, and helps lower middle market businesses leverage their patents, trademarks, and brands to secure well-structured debt financing.

Why should CEOs and business owners care about IP assets? Because they cannot afford to do otherwise. Not only are IP rights valuable assets, but they can facilitate access to credit, or help in negotiating greater availability and lower interest rates on credits.

Can You Bank on Your IP?

Tangible and intangible assets

Intangible assets are now estimated to represent at least 84% of the market value of S&P 500 companies. Today’s most promising companies are built on intangible assets, especially their patents, trademarks, and brands. In many cases there is more value in the IP of a business than in its tangible assets.

Nonetheless, commercial lending practices still favor businesses rich in tangible assets (such as machinery, raw materials, land, and buildings) to use as security. This is gradually changing. Increasingly, alternative lenders are willing to use IP assets as collateral for loans. The collateralization of IP often also helps increase the amount of credit available.

One Reason Many Smaller Businesses Remain “Underbanked”

Many smaller entrepreneurial companies struggle to secure the financing they need to grow. According to the 2017 Pepperdine Private Capital Markets Report, nearly 88% of privately owned businesses report having the enthusiasm to execute growth strategies; yet just 51% report having the necessary financial resources to successfully execute growth strategies.

One reason for this shortfall in financing has been ongoing regulatory pressures on banks. Another reason that is often overlooked is that our economy has been gradually shifting to one in which intangible assets represent a greater share of the overall value of job-creating companies. Many lenders are still catching up to this reality.

How US Capital Partners Can Help

US Capital Partners provides IP-backed growth-capital term loans of $5 million upwards to pre-revenue companies and enterprises with negative cash flow, if their IP collateral is sufficient and their projected cash flow can meet debt service in a 12–18 month period.

Valuing IP assets can be a complex, uncertain, and time-consuming task. US Capital Partners is also able to offer insurance on IP defensibility, thereby effectively underwriting the IP valuation. As a result, if patents are held to be invalid or fail to reach a minimum valuation on a sale, the insurer will pay out on a proportion of the valuation. This helps “de-risk” IP assets as collateral.

Unlike many traditional lenders, US Capital Partners recognizes the value of IP assets and will assist IP-rich businesses overcome barriers at all stages of financing, by helping them leverage their IP assets.

Jeffrey Sweeney