The Rise of IP-Backed Financing for SMEs
In today's knowledge-driven economy, intellectual property (IP) has emerged as a critical asset for businesses, particularly small and medium-sized enterprises (SMEs). Traditionally, IP assets such as patents and trademarks were often overlooked as viable collateral for securing business loans.
However, this trend is changing, with several financial institutions now recognising the intrinsic value of IP and offering specialised IP-backed financing solutions. This shift, combined with financial incentives in the UK such as the Patent Box and IP Advance, presents a significant opportunity for SMEs to unlock the value of their intellectual property and drive growth.
The Rise of IP-Backed Financing
Historically, securing business loans required tangible assets such as real estate, equipment, or inventory. However, as intangible assets have become increasingly valuable, banks and financial institutions are beginning to offer loans secured by IP. Institutions such as Silicon Valley Bank, HSBC, Barclays, and Wells Fargo have pioneered this approach, providing a lifeline to innovative SMEs that may lack substantial physical assets but hold valuable intellectual property. Recently, NatWest Bank has joined this list, as evidenced by their first IP-backed loan to the software company Sci-Net.
Understanding IP-Backed Loans
IP-backed loans involve using a company's IP assets—such as patents or trademarks—as collateral to secure financing. This type of loan allows businesses to leverage such intangible assets to obtain the capital needed for growth and development. The process typically involves a thorough valuation of the IP assets, which helps determine the loan amount and terms. The benefits of IP-backed loans include:
- Access to Capital: Businesses that may not have substantial physical assets can still access financing based on the value of their IP.
- Flexible Financing: These loans can provide more flexible terms compared to traditional loans, tailored to the unique nature of IP assets.
- Growth Enablement: By unlocking the value of IP, companies can invest in research and development, marketing, and expansion efforts.
Examples of IP-Backed Financing Success
BDC Capital, a Canadian government investment firm, has successfully utilised IP-backed financing to support innovative companies. An example is Novarc Technologies, a Canadian-based robotics company specialising in collaborative robots for industrial applications. By leveraging its intellectual property, Novarc was able to secure financing from BDC Capital, enabling it to achieve substantial growth and expand its operations globally. This demonstrates the potential of IP-backed financing to catalyse business expansion and success.
Additional Financial Incentives: The Patent Box
Beyond securing loans, SMEs can also benefit from tax incentives like the Patent Box. The Patent Box regime allows companies to apply a lower rate of Corporation Tax to profits earned from patented inventions. This incentive encourages innovation and investment in R&D by making IP more financially rewarding. For example, a biotechnology firm with several patents on new drug formulations can take advantage of the Patent Box to reduce its tax liability significantly. This reduction frees up capital for further research and development, accelerating innovation and growth.
Government Support: IP Advance
The UK intellectual property office (UK-IPO) has recently introduced IP Advance, an initiative to support SMEs in unlocking the potential of their intellectual property. This pilot program which launched in July 2024 offers two tiers of funding:
- IP Audit: Provides part-funding of £2,250 (including VAT) towards the cost of an IP audit. The company must contribute £750 (including VAT) towards the overall cost of the audit which includes a report with recommendations and follow up meeting.
- IP Access: Offers funding of £2,250 (including VAT) for IP professional advice to implement recommendations from the IP audit or develop an IP strategy. The company must contribute a minimum of 50% towards the cost of these services.
By participating in IP Advance, SMEs can gain valuable insights into their IP portfolio, strengthen their IP position, and increase their chances of securing IP-backed financing.
Conclusion
The growing recognition of intellectual property as a valuable asset class opens new avenues for SMEs to secure financing and drive business growth. By leveraging IP-backed loans, tax incentives like the Patent Box, and government support programs such as IP Advance, businesses can access the capital needed to innovate, expand, and compete effectively in the market.
At Secerna we are dedicated to helping you unlock the full potential of your intellectual property. Contact us today to learn more about our IP services and how we can support your business’s financial and strategic goals.
For more information, please visit our website or contact our team of intellectual property experts at Secerna.
