(2022). Intellectual Property as Business Loan Collateral: A Taxonomy on Institutional and Economic Determinants.
Using intellectual property rights (IPR) as collateral to secure debt financing can form a promising strategy, in particular for small, financially constrained firms. Despite an ongoing shift to a more technology-based economy, the collateralizing of IPR is still trailing behind the use of traditional asset classes. In this paper, we develop a new taxonomy on the key determinants of using IPR as collateral. The taxonomy defines two pillars that govern the use of IPR collateral that distinguish between institutional and economic factors. The institutional pillar covers contract law, IPR registries, and banking regulation. We apply the taxonomy to the current legal and economic states in several industrialized economies to identify potential impediments to IPR-backed debt financing. The economic pillar constitutes the influence of IPR characteristics on the trade-off between the economic costs and benefits of collateralizing IPR. We propose that IPR collateral can have significant advantages regarding signaling, agency issues, and the creation of pledgable income. Based on these considerations we derive several testable hypotheses on the circumstances under which IPR collateral might be particularly well-suited to attract debt financing. Taken together, our taxonomy can be viewed as the foundation for future research on IPR as loan collateral for businesses.
