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In today’s evolving ‘Knowledge Economy’, intellectual property (IP) and intangible assets are emerging as the key drivers of business value. As aptly stated by Mark Getty, founder of Getty Images, “Intellectual property is the oil of the 21st century.” The richest individuals today have amassed their wealth through leveraging their intellectual property, underlining the shift from physical to knowledge-based assets.
This shift is evident in companies like Apple, where its net assets stood at $96.5bn at the end of June 2019, yet its market value was a staggering $904.6bn. This stark difference arises from the fact that conventional accounting rules have not fully adapted to the realities of modern business. Current regulations lack clear guidelines for valuing and unlocking the potential of IP and intangible assets such as trademarks, patents, copyrights, processes, databases, and trade secrets.
While accountants can easily assign value to physical assets like buildings, equipment, and raw materials, accounting standards require self-developed IP and intangibles to be accounted for purely as costs on a balance sheet. IP and intangible assets a company buys from another company must be recorded at the price the acquirer has paid, and this value must be written down. Arguably neither actually reflect the increasing revenue these intangibles may generate.
However, the landscape is shifting. Governments, financial institutions, and the accountancy profession are collaborating to develop methods that allow companies, particularly SMEs, to leverage the value of their IP and intangible assets without selling them. Notably, China and Singapore have introduced programs supporting borrowing against IP, and major global lenders have developed specialist lending products. In the UK, HSBC and Lombard have both provided finance packages for SMEs using IP as collateral.
For instance, in 2022, UK femtech brand Elvie secured an eight figure finance facility from HSBC UK through the bank’s new Intellectual Property lending product. The British Business Bank also launched its Enterprise Finance Guarantee (EFG) in 2009, which supports lending to companies with non-traditional assets, including IP and intangibles. This initiative has been temporarily replaced by the Coronavirus Business Interruption Loan Scheme (CBILS), providing lenders with a government-backed guarantee to encourage them to lend against IP.
In conclusion, don’t overlook the value that may be buried in your IP and intangible assets. It’s time to unearth your hidden treasures and leverage them to drive your business forward.
You can find out more about IP lending here: Inngot | IP based lending – Raise finance using intellectual property
Watch Inngot CEO, Martin Brassell, discuss IP finance and how Inngot sit front and centre with lenders to offer scale ups and growth companies access to IP finance.
