How IP Assets for Financing Aid India?
Working on escalating the deteriorating economic condition, India is trying every possibility to boost up its economic status. The current scenario indicates that the country should aim at developing an intellectual property financing ecosystem. It is evident that India is facing challenges in IP licensing and lacks uniformity in the valuation of IPs. The IP backed financing refers to mortgaging IP assets to obtain credit. Across the globe, several organizations ranging from SMEs to MNCs are utilizing their IP assets as collateral to obtain loans from lending institutes.
The organizations could use their physical assets such as machinery, inventories or land to secure loans. But, pledging the IP assets could fetch more credit amount. Through these IP funding, the organizations could easily gain access to more financial assistance and the chances of acquiring loans successfully are high. According to CII-Duff & Phelps report, IP debt financing has been drastically reduced across the world for the past five years. Yet, the financial transaction which uses acquired IP assets as the chief collateral and pledging these IP assets under a distress situation have gained wider traction.
IP Finance Collateral Benefits
At times, the customer would prefer to borrow more money than the pledging asset's worth would permit them to borrow. In those situations, these intangible assets come to aid and increase the loan value, with increased security as well. Usually, the IP asset of the established business' value would rise with time, but this is not the case with physical property, whose value may fluctuate. Thus, these IP funding would increase the loan amount based on the IP asset worth and not on the borrower’s creditworthiness.
Furthermore, IP financing can protect assets from bankruptcy. If any charges are placed on an organization’s intangible property then it would be floating rather than fixed which would reduce its assistance in the difficult times of the business. But, pledging IP assets gives a stronghold to banks, thus, IP funding provides some facilities to the businesses to stay away from risks. Alongside, these intangible properties tend to serve as the core of the business and they offer commendable incentives to the borrowers as a tribute to their repayment commitment.
The intangible assets also come as an additional source of security; this would solve the lender’s problem of alternative personal guarantees which they usually request for the business transactions. These IP assets would be directly linked to the business and not to any individual. Thus, would be foolproof security to the lenders.
“IPR should be central in a meaningful manner for companies to be able to compete in the global arena,” states Arvind Thakur, Chairman, CII National Committee on IP.
The country could leverage IP financing with its present economic status, as this would aid in driving productivity and economic growth. In addition, setting the focus on the performance of an entity, information and technology which has taken IP towards the core of the business would aid India in establishing new financing environment across the country and would help the businesses to grow quickly.