Using IPRs to Raise Capitals
One of the major problems that SMEs around the world face is access to capitals to finance their business endeavours. This is particularly true, when they are just commencing their activities and they don’t have yet a successful commercial track-record.
Banks and financial institutions around the globe are reluctant to lend money to individuals or small companies that don’t possess assets that can be used as collaterals, to guarantee their loans. SMEs and start-ups normally don’t have large bank accounts and often their physical assets (such as land, real estate, machineries, vehicles, inventories, etc.) are very limited. As a consequence, they might face significant challenges when trying to obtain a loan from a bank. Similar considerations are applicable when SMEs try to entice investors to finance part of its business.
However, innovative SMEs that own registered (or, at times also unregistered) IPRs may find themselves in a better position, as more and more banks and financial institutions now accept IPRs as a form of guarantee for their clients’ loans, in case of default. Similarly, more and more investors pay attention to the IP portfolio of a company before investing their funds. In other words, if you own some IPRs, you may be able to use them as collateral to get a loan from your bank, and you can certainly be more appealing and persuasive to potential investors! Obviously, your bank and potential investor will have to quantify the value of your IPR, particularly in terms of future revenues that may be derived from your IP assets when commercialized (see previous Section A.3).
However, in many countries banks and financial institutions are still somewhat afraid to grant loans on the basis of intangible collaterals. This means that you might have to persuade them, by simplifying their job and making your IPRs more “attractive”. By way of example, you could:
- Carry out a Valuation of your IPRs, clearly indicating the criteria on which you based your assessment (see Section A.3 on IP Valuation);
- Describe all future potentialities linked to the exploitation of your IPRs, such as the size and growth expectations of the markets for your IPRs;
- Provide indications as to the potential liquidation value.
In addition to the these “IP-Backed Loans” where IPRs are used as collaterals, companies may also obtain funds by selling to banks and financial institutions their expected future cash inflows deriving from the exploitation of an IPR, in exchange for an anticipated amount of money. In technical terms, this is known as “IP securitization”. Banks and financial institutions are in general even more sceptical to lend funds to companies on the basis of “securitization”, in view of the inherent difficulties in predicting the stable income that may be derived from the commercialisation of the IPRs in question.
As a final piece of advice: make sure that before you approach a bank or financial institution to obtain a business loan or before you contact a potential investor, you have appropriate and comprehensive documentation in place. By way of example, you should have:
- A comprehensive list of all your registered or applied for IPRs.
- The results of novelty/availability searches to prove that your IPRs don’t infringe prior rights.
- Possible responses from IP offices to prove that your IPRs are valid.
- All contractual arrangements that you already have to commercialize your IPRs (e.g.: licenses).
- Possible valuation of your IPRs.
Next page: Protecting IPRs at Home
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