The scope of the use of intellectual property as collateral is discussed. Through examples, it is shown here that due to its volatile and dynamic nature, intellectual property is not a reliable collateral. There is an urgent need for appropriate valuation and registration methods in order to build confidence in intellectual property as collateral.
Whether intellectual property (hereafter IP) could be used as collateral for a bank loan is a recent and controversial question. Cash-strapped entrepreneurs may get the idea, but at the same time, might run out of money to condense it into reality. To fill this gap, it would be worth considering whether and under what circumstances their idea itself should be considered sufficient to obtain a successful loan.
While such a situation would be ideal for entrepreneurs, when this issue is viewed from a bank’s perspective; a natural apprehension that comes to mind about using IP as collateral for a loan has to do with the fundamental nature of IP itself – in that it is intangible, might not retain its value unlike gold or real estate, and would therefore represent a high risk for any bank that accepts it as valid collateral for a loan.