Intangible assets work as loan collateral

I have been arguing for a number of years that intangible assets can be valuable in securing a loan. In a number of reports (and posting on this blog), we have discussed examples of intangibles being used as loan collateral (for example, see Maximizing Intellectual Property and Intangible Assets: Case Studies in Intangible Asset Finance and Intangible Asset Monetization: The Promise and the Reality). In fact, I like to point out that this has been going on for a long time. The first trade secrets case in the United States involved the debt on a bond secured in part by a secret chocolate-making process in 1837. In 1884, Ara Shipman loaned Lewis Waterman $5,000 to start a pen-manufacturing business, secured by Waterman’s patent.
One of the lesser know recent example was the use by Ford of its iconic blue oval logo to backstop a loan pacakage. Now come word, via a New York Times story, that Ford has met the terms of the 2006 loan and reclaimed the logo. No word in the story about what the logo was valued at.
Such deals, however, continue to be closer to “one-off” activities. Intangibles should be part of the routine loan evaluation. One important step would be developing sound, industry-wide, underwriting standards for intangible-backed debt. A step in that direction would be for the Treasury Department, the Small Business Administration (SBA) and other entities that administer government loans and loan guarantees to work with commercial lenders to develop standards for using intangible assets as collateral. Creating a common intangible-backed loan underwriting standard would go a long way to routinizing the use of intangibles.

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