Banking on IP: An Insider’s Perspective

Traditional asset-based lenders look to asset classes such a machinery and equipment, accounts receivable, and inventory to form the basis of their lending. Many traditional asset-based lenders could consider intellectual property (IP) as additional collateral for more lending capacity for their customers. IP as an emerging asset class includes patents, trademarks, brands (and the goodwill associated with brands), copyrighted materials (e.g. computer code), designs (e.g. industrial design of products), and trade secrets.

The valuation of this asset class uses similar market-based resale appraisal assessments that traditional lenders are accustomed to, as well as additional methods considering actual or potential royalties or lease streams, or the outright sale of the IP assets or even the company as a whole to a competitor that values the IP. In the event a traditional asset-based lender is unable to leverage this IP asset class due to leverage line restrictions or covenants, an emerging marketplace exists of specialty IP lenders that can advance against this class and leave the other assets available for senior secured financing by their traditional lending compatriots.

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Jeffrey Sweeney