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Lending Against Intangible Assets Gaining Acceptance
August 31, 2014
Companies have obtained capital through asset based lending (ABL) for years, leveraging assets such as plant, property and equipment in the exchange for cash. Now a new form of ABL is being utilized, lending against intangible assets. Banks are now recognizing intangible assets, especially intellectual property, as valuable assets that can be liquidated if the company cannot pay their debt. This new form of ABL allows companies that do not have valuable tangible assets – such as tech companies – the ability to raise capital.
A recent article from the website, Director of Finance, summed up the banking industry's current position on intangible assets.
"Intangible asset based lending was generally an additional comfort on top of security taken on other asset classes. However, direct lending based on intangibles is now an area of great interest to many banks, although education around the benefits of this sort of lending is still lacking amongst business and knowledge of the process trails behind when compared to more traditional ABL and other forms of finance."
A document from Bank of America titled “Frequently Asked Questions About Asset-Based Lending” backs up the articles claim.
“In recent years, asset-based lenders have begun to recognize the value of intangible assets owned by a borrower. Trademarks and trade names, patents and other forms of intangibles are evaluated today. Lenders will look to third-party professionals to assist them with valuation, and will work with outside legal counsel to ensure there is a valid, perfected security interest in the intangible asset or assets in question. In the end, ABL transactions where intangible assets have been included as eligible collateral tend to involve higher quality companies with easily recognizable brands that have value outside of the underlying products that represent the brand.”
With 80% of today’s market value made up of intangible assets, banks are more willing than ever to lend against intangible assets. Increasingly more accurate valuations are also making banks take a closer look at lending against intangible assets. With ABL becoming more supportive of intangible assets, there has never been a better time to identify and grow your company’s intangible asset portfolio.
Business Intangibles, LLC assists businesses and holding companies with their Intangible Asset and Intellectual Property concerns, creating financial value and building equity. Services include assessments, value creation, valuation, and strategic planning of going concerns and new ventures.