Unlocking capital: How IP-backed lending expands debt finance access for SMEs

On 8 May 2025, the IP Commercialisation Committee submitted CIPA’s response to the Department for Business and Trade and HM Treasury open call for evidence ‘Small Business access to (debt) finance’.[1]

Acknowledgments

The response to the government’s call for evidence was led by Dr Claudia M. Duffy Chair of CIPA’s IP Commercialisation Committee and a member of CIPA’s Public Affairs Committee. Claudia is also a member of the epi IP Commercialisation Committee and the IPO IP Finance Advisory Group. CIPA members of staff involved in working with Claudia to set-up and share the survey were Neil Lampert (Deputy Chief Executive) and Frances Bleach (Membership Officer). As part of her research Claudia had discussions with: Martin Brassell, CEO and Founder, Inngot; Neil Bellamy, Head of TMT & Services, UK Corporate Coverage, NatWest; and Finbar Hughes, Head of IP Finance and IP in Regulation, IPO.

Terminology

The terms ‘small businesses’ and SMEs (small and medium enterprises) have been used interchangeably when preparing this Response, to include micro (nine and under employees), small (between ten and 49 employees) and medium-sized (between 50 and 249 employees) enterprises.

The term ‘intangible assets’ is used to refer to non-physical assets that possess value to a business, deriving it from ideas, knowledge, innovation, and reputation. They lack physical substance, unlike tangible assets such as property or equipment. Examples of intangible assets include intellectual property (IP) such as patents, trade marks, registered designs, copyrights, design rights, trade secrets, brand recognition, goodwill and R&D initiatives.

Despite lacking physical form, intangible assets hold substantial value for a business due to their ability to generate future economic benefits. However, intangible assets are distinct and can be separated from the business if needed or arise from contractual or legal rights.

Lending implications for intangible assets

UK businesses deployed capital totalling approximately £200 billion into intangible assets in 2022, representing an unprecedented investment level, and £32.4 billion higher than investment in tangible assets in the same period.[2]

Despite this, financial institutions have historically reported challenges in valuation and underwriting against intangible assets, preferring physical collateral such as real estate for secured lending. This preference creates financing barriers and increases capital costs for IP-driven innovative SMEs, particularly those with limited tangible asset portfolios.

However, the SME financing landscape has evolved with the emergence of private equity firms and alternative lenders targeting IP-intensive businesses. Furthermore, select financial institutions[3],[4] have begun introducing innovative credit solutions that incorporate IP valuation in underwriting decisions, utilising IP within their security structures. This approach has already gained traction with a small number of England-based SMEs[5] operating in a variety of sectors, where businesses may lack physical assets, but demonstrate strong commercialisation potential for their IP.

Evidence

The response is based on evidence gathered via:

a CIPA survey targeting the innovative SME clients of CIPA members; and
a direct discussion with a major UK bank offering an IP-backed debt product to England-based SMEs

Preliminary comments – legislative constraints

In the current marketplace, IP-backed lending facilities have been exclusively available to England-based SMEs through two major financial institutions (NatWest and HSBC). However, a significant regulatory development has recently transformed the Scottish secured finance landscape.

The implementation of the Moveable Transactions (Scotland) Act 2023, which came into force on 1 April 2025, represents a fundamental transformation of the secured finance framework, modernising the regulatory infrastructure governing security interests in Scotland.

As a direct result of this legislative enhancement, innovative Scotland-based SMEs will imminently gain the capability to leverage their intangible asset portfolios, specifically their IP portfolio, as loan collateral.

These facts are demonstrated by the evidence gathered:

the survey respondents were SMEs based in England;
with the larger SMEs located in the South-East of England; and
operating in technology driven sectors such as photonics, robotics and AI, quantum, security and defence, health.

Preliminary comments – IP identification, valuation and protection

The ability to effectively leverage IP for financing is becoming increasingly important for innovative SMEs seeking growth and investment. However, challenges remain in how all the different types of IP are identified and disclosed, recognised in SMEs’ financial reporting and valued.

At present only an SME’s registrable IP rights, such as patents, trade marks, designs and supplementary protection certificates, can be disclosed by means of IP Registers maintained by the UK Intellectual Property Office – see for example the patent register.[6]

Furthermore, there is no need to register the so-called ‘automatic IP rights’ such as copyright, database right, UK design right or unregistered trademark, and many SMEs fail to recognise the existence of these IP rights, let alone apply them to the intangible assets they create – for example, assigning the copyright to software products, or an UK design right to the original appearance of a product.

The lack of a suitable register disclosing the IP of an SME is exacerbated when so-called ‘soft IP’ types are created, such the technical and commercial know-how. These types of IP have historically been neglected by an SME’s internal cataloguing of its IP and frequently disregarded by investors as ‘not being IP at all’.

The above statements are demonstrated by the evidence gathered from the survey question ‘What types of intangible assets does your business develop itself and/or contracts-out for development?’

Technology-based IP types: patented technology, research and development, computer software; unpatented technology, trade secrets.
Marketing-related IP types: trade marks, tradenames; internet domain names; non-competitor agreements.
Contract-based IP types: licencing, royalty; employment contracts.
Customer-related IP types: customer lists, customer contracts and related customer relationships; non-contractual customer relationships.

For 2011,[7] it is estimated that approximately 48% of UK market sector intangible asset investment in knowledge was protected by formal IP rights – it is estimated that 10% was in assets protected by patents; 46% in assets by copyright; 3% in assets protected by design registration; 21% in assets protected by unregistered design rights; and 21% in assets protected by trade marks.

The evidence gathered from the survey question ‘What percentage of your intangible assets is protected by appropriate IP rights? And what type of IP rights does your business own?’ posed to innovative SMEs creates a significantly compelling picture:

85% – patented technology, trade secrets, trade marks.
100% – copyright notarisation, patent pending specification, trade marks, unregistered rights.
100% – fully granted, USA, China, some Europe patents.

Additionally, IP valuation tends to be restricted to the valuation of registrable IP rights, mostly patents and trade marks, making it therefore difficult for an SME to articulate the true worth of its whole IP portfolio.

However, the evidence gathered from the survey question ‘What % of your business’ revenue is spent on developing its intangible assets?’ provides a mixed picture:

5% in fintech, security and defence.
20% in health.
75-80% in photonics, robotics and AI.

The above-mentioned different identification, disclosure and IP valuation standards are not aligned with the realities of an innovation-driven economy. Addressing these challenges will enhance transparency and build trust among SMEs and lenders and ultimately strengthening the IP finance ecosystem.

Preliminary comments – IP funding gap

Whilst intangible assets are increasingly critical for giving an SME a competitive advantage, the tendency of SMEs is too often underfund the development and protection of their intangible assets. This represents a significant strategic challenge, which may be driven by several factors:

day-to-day operational demands often overshadow long-term strategic investments and cash flow pressures favour investments with immediate revenue generation
many SME leaders lack expertise in identifying, developing, and valuing intangible assets
returns on intangible investments can be highly uncertain and long-term and, with limited resources, they make SMEs more sensitive to potential losses
traditional lenders struggle to value or accept intangible assets as collateral since there is a presumption that intangible assets cannot be easily liquidated in case of default

In 2018, the UK government estimated the annual financing gap for SMEs to be between £68 million and £354 million for IP-backed growth loans.

The existence of an IP funding gap and the significant impact it could have on the strengthening of an SME’s portfolio of intangible assets is demonstrated by the evidence gathered from two survey questions:

If your business could borrow capital to grow its intangible assets, how much capital (i.e., the ‘funding gap’) would be required by your business?

£200,000 in health; and
£500,000 in photonics, robotics and AI.

Assuming that your business borrowed the required capital, what types of intangible assets would your business prioritise for (further) development?

patent, design protection in health;
patent, public IP policy, trade marks, design rights in photonics; and
valuation and portfolio patent renewals, patent enforcement in robotics and AI.

Relevance to Question 12 and Question 13 of the Open Call for Evidence

Significant progress has been achieved by at least one major UK bank – NatWest – which in 2024 alone has extended 12 IP-backed loans to SME customers for a total new borrowing of £11.8 million. Five of these SME customers moved their banking to NatWest as the IP-backed debt funding was a unique offering.

The IP of the SMEs accessing the loans was collectively valued at £24.8 million by specialist company Inngot at ODV (orderly disposal value).[8]

NatWest’s IP-backed loans were given to SMEs from a variety of sectors such as telecoms, software, IT managed services, ClimateTech, search optimisation, customer platforms in charity and rewards sectors, advanced engineering, MedTech, creative industries (gaming) and EdTech.

The average loan margin was 2.74% – lower than NatWest’s SME loan average – in recognition of the lower risks associated with IP rich businesses.

All NatWest loans are performing well, and the bank has had one loan reach its 12-month review – the SME’s IP was revalued with a £1 million uplift in IP value and the bank is therefore looking to lend more to this SMEs customer.

However, as evidenced further above, SMEs continue to face significantly greater challenges when seeking financing for intangible assets investments compared to tangible ones. These barriers create a systematic disadvantage that contributes to the intangible asset funding gap.

Based on evidence from the survey, the answers to the relevant questions were as follows:

Question 12 – In your experience, what are the barriers to borrowing to finance intangible investments relative to tangible investments?

(IP-backed lending) doesn’t exist;
lack of education and understanding that better risk criteria when investing in intangible assets; and,
have not found any lenders interested as pre-revenue.

Question 13 – What is the experience of businesses seeking to use intangible assets as collateral for borrowing?

This campaign (i.e., the CIPA survey) is the nearest access we have had to even discussing this.
Banks don’t have staff that have any training in this type of financing, and no programmes to help staff help us!

The restriction of IP-backed financing exclusively to businesses based in England has created a discernible gap that Scottish SMEs must now endeavour to bridge, placing them in a position where strategic and legislative adaptation becomes imperative.

CIPA’s proposals for advancing the IP-backed debt financing of SMEs:

The above-discussed challenges around the existence of different identification, disclosure and IP valuation standards which are not aligned with the realities of an innovation-driven economy creates a weak debt financing environment for UK-based SMEs.

Several proposals for addressing these challenges could enhance transparency and build trust among SMEs and lenders and ultimately strengthen the IP finance ecosystem:

Educate SMEs on all different types of IP

Providing education to SMEs on the existence of different types of IP is crucial for several reasons:

Business asset protection: IP often represents a significant portion of an SME’s value. Without understanding the different types of IP, businesses risk leaving their innovations, creative works, and brand identity vulnerable to competitors.
Competitive advantage: Proper IP protection helps SMEs maintain market differentiation. Each type of IP protects different aspects of a business’s competitive edge.
Revenue generation opportunities: Understanding IP opens doors to licensing, franchising, and other commercialization strategies that can create new revenue streams.
Risk management: Knowledge of IP helps SMEs avoid inadvertently infringing on others’ IP rights, which could lead to costly litigation.
Investment and growth capital attraction: Investors and lenders often look for protected IP as evidence of a company’s value and potential for growth.
International expansion: Different countries have varying IP laws and protection mechanisms. SMEs looking to expand globally need to understand these differences.
Innovation stimulation: When businesses understand how to protect their innovations, they are more likely to (re-)invest in R&D and development of their intangible assets.

Standardise IP identification and capture (beyond registrable IP rights)

Securing relevant IP gives an SME a means to control, protect, and extract value from investment into intangible assets. Therefore, there is a need to devise standardised methods for identifying all types of IP, so-called ‘IP auditing’, created by an SME. Such methods should not be restricted to the identification of registrable IP rights (such as patents, trade marks and designs).

This need stems from several critical challenges and opportunities:

Value recognition gap: Many SMEs create significant IP without recognising its value. Standardised auditing helps identify ‘hidden’ IP assets that might otherwise remain unprotected or underutilised.
Holistic value capture: Registrable IP rights (patents, trade marks, designs) represent only a fraction of an SME’s intellectual assets. A comprehensive audit reveals the full spectrum of intellectual capital.
Risk management: Incomplete IP identification creates significant risks to, for example, inadvertent disclosure of valuable trade secrets or employee departures without proper IP assignments.
Access to finance: Financing bodies increasingly recognise intangible assets as collateral, but without standardised identification methods the SMEs struggle to effectively communicate to the financial institutions the existence and value of their unidentified IP

Create an IP sandbox

A ‘sandbox’ in the context of IP is akin to a comprehensive IP Register and it refers to a regulatory framework that allows for controlled experimentation with an all-inclusive collection of IP types and practices. The IP sandbox concept may be borrowed and adapted from regulatory sandboxes used in fintech.

In practice, IP sandboxes for SMEs could work in several ways:

Safe testing environments: IP sandboxes would provide SMEs a controlled environment to experiment with IP types and IP protection strategies without facing the full legal or financial consequences of mistakes.
Regulatory flexibility: Customised IP protection pathways specific to SME needs and resources.
Educational components: Guided mentorship from IP professionals throughout the protection process or knowledge sharing between participating SMEs and funders or financial institutions.

A practical example of an IP sandbox could be one offering Standardised IP identification and valuation frameworks where financial institutions and SMEs test simplified, standardised methodologies for correctly identifying, cataloguing and valuing all different types of IP.

IP sandboxes could represent a promising approach to make IP systems more accessible and useful for SMEs, who often lack the resources and expertise to navigate traditional IP frameworks effectively.

[1] www.gov.uk/government/calls-for-evidence/small-business-access-to-finance/small-business-access-to-finance

[2] Investment in intangible assets in the UK: 2022 www.ons.gov.uk/economy/economicoutputandproductivity/productivitymeasures/bulletins/investmentinintangibleassetsintheuk/2022

[3] NatWest launches Intellectual Property-based lending to fuel high growth businesses www.natwestgroup.com/news-and-insights/news-room/press-releases/enterprise/2024/jan/natwest-launches-intellectual-property-based-lending-to-fuel-hig.html

[4] HSBC UK launches next level lending for next level tech businesses www.about.hsbc.co.uk/news-and-media/hsbc-uk-launches-next-level-lending-for-next-level-tech-businesses

[5] Companies recently securing IP finance inngot.com/ip-finance

[6] www.gov.uk/search-for-patent

[7] Estimating UK investment in intangible assets and Intellectual Property Rights assets.publishing.service.gov.uk/media/5a80da6640f0b62305b8d837/estimating-uk-investment-intangible-assets.pdf

[8] inngot.com/tools/sollomon