Using IP as a financing instrument

For many businesses, patents, trade marks and registered designs are more than intellectual property rights. They represent company value, strengthen brand recognition and can constitute significant business assets. What is less widely known is that, under certain circumstances, these rights can also serve as collateral for bank financing.

As a matter of law, IP rights can generally be pledged or assigned by way of security. In practice, this is usually achieved by creating a security interest or security assignment in favour of the lending bank. For businesses, this can be an attractive way to obtain financing without providing additional tangible assets or personal guarantees.

Importantly, creating such security does not necessarily require registration in the relevant IP register to be effective between the parties. If the company and the bank agree, the security can often be established without any register entry. This simplifies the process and avoids disclosing financing arrangements through public registers.

In practice, however, banks frequently require the security interest or assignment to be recorded in the relevant register to enhance legal certainty. Lenders will also usually seek evidence of the commercial value of the IP. Consequently, they often request an independent valuation or, at least, a well-supported assessment of the value of the patent, trade mark or design.

Whether and how a security interest can be recorded depends on the applicable national law. The rules vary considerably between jurisdictions. While some IP registers expressly permit the recording of security interests, others impose restrictions or specific formal requirements.

These differences are particularly relevant for international IP portfolios. Where IP rights in several countries are to be used as collateral, the legal requirements and documentation should be reviewed for each jurisdiction. Existing licence, coexistence and financing agreements should also be checked, as they may restrict the granting of security or require third-party consent. Early coordination between the company, the bank and legal advisers helps avoid delays and unnecessary costs.

1. Assess your IP portfolio: Not every IP right is equally suitable as collateral. Commercial value, market recognition and remaining term of protection are key factors.
2. Clarify the bank’s requirements early: Determine whether registration of the security interest and a formal valuation will be required.
3. Consider international differences: Rules on creating and registering security interests differ from country to country.
4. Review existing agreements: Licence, coexistence and financing agreements may restrict the granting of security or require prior consent.
5. Seek legal advice early: Careful planning helps streamline the financing process and minimise costs.

IP rights are valuable not only for protecting innovation and brand identity but also as financing assets. We are happy to help companies realize the full potential of their intellectual property.