Intellectual Property Financing (IPF)
Also known as Intellectual Property Funding, this method of asset finance looks at using a company’s IP assets as collateral in exchange for loan payments.
IP is generally categorized as ‘informal’ or ‘formal’, with informal IP including company knowledge, branding, supplier relationships, and business processes. These forms of IP must be well articulated, and the company has to demonstrate a bankable value in order to leverage these for investment.
By calculating the value of IP and incorporating their value proposition into a long term business plan, companies can structure their value into loans, sale-leaseback, legal finance, and royalty securitization.
This allows for companies who are light on tangible assets to apply for asset-based financing, and can attract lenders who may be using a credit-enhancement structure.
The downsides of IPF, is that it’s generally based on the liquidation value of the assets, so can lead to lesser borrowing yield, and depending on the contract – IPF could prove to be more expensive than other alternative financing options.
It may also be difficult to determine a correct value for assets, where there is little secondary market interest or established value for them.
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Why Should You Choose Your Financing Carefully?
These financing options are only the tip of the iceberg, there are dozens of different methods for raising funds for your business – from taking out loans, investing in other businesses, or redistributing profits into growth – and the right path is going to be different for every business.
Seeking expert advice from a licensed and trusted third party should always be the first step for consideration when exploring the possibility of raising funds for your business, in order to fully understand where the business is, what it needs to be doing, and where it aims to be by the time the financing obligations are handled.