Are Traditional Funding Sources Saying No to Your Business?

October 13, 20160 Comments

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Raising capital is often the difference between success and failure. But finding a traditional funding source is often challenging, especially if you’re a start-up. In many cases, this type of financing is often unavailable or too expensive.

If your business owns intellectual property, it’s an asset you can use to secure a business loan. Using IP to secure a loan is not new. Take a look at the assignment records at the USPTO and you’ll find out how often it’s used. Some examples include:

  • A Pennsylvania snack food company used their brands to secure a $9 million loan.
  • A furniture company in Los Angeles used its IP to get a $6 million dollar loan.
  • And a major toy retailer used its brands to secure over $5 billion.

Similar to tangible asset financing, the lender is extending you credit (i.e. loan) based on the value of your IP (i.e. intangible assets). Your IP becomes as collateral to minimize losses in the event you default.

All types of IP, including copyrights, trademarks, patents and even trade secrets can be used for collateral. Depending on the loan amount, your it can include part or all of your IP assets.

If you can show your IP is valuable, it will qualify for the loan. Using it in the marketplace, either from revenue generating products or services, or royalty revenues from licensing agreements is valuable.

IP collateralized loans are primarily provided by specialty lenders who offer a number of financing options. These firms offer financing either directly or as intermediaries between borrowers and commercial lenders, such as banks. In recent years, a number of traditional banks and finance companies are also now getting into the IP loan market.

Here are a couple of key points to keep in mind to qualify your IP assets for a loan.

  • Make sure you’ve got an inventory of your IP assets and protected them.
  • Get a professional IP valuation that shows the value of your IP separate from your business
  • Prove the value of your IP, either through licensing agreements or products (services) in the market

IP-based loans are often a good option if your company lacks any tangible assets, has a low or no credit rating, or isn’t generating enough cash flow to qualify for conventional business loans or lines of credit.

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About the Author ()

Rand is President / CEO of Licensing Consulting Group, an intellectual property management and licensing company specializing in assisting clients in IP Management, Strategic Consulting, Acquisition of Licensing Rights, and Property Representation. Rand has licensed some of the biggest Hollywood blockbusters, including “Batman” and the “Mighty Morphin Power Rangers”, both of which generated billions of dollars in worldwide merchandise sales. He has lead various international licensing programs as both licensee and licensor, and through consulting projects focused on licensing strategy, brand development, sponsorship sales and property representation.

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