Licence-Back
Definition
A licence-back is a licence granted by a lender back to a borrower that has assigned its intellectual property as security, permitting the borrower to continue using that IP in its business for the life of the loan. A licence-back arrangement is the practical companion to a legal mortgage or an assignment by way of security: the borrower transfers title to the lender as collateral, and the lender immediately licences the rights back so day-to-day operations, manufacturing and sales carry on uninterrupted. Without it, transferring title would strip the business of the very assets that generate the cash flow needed to repay the loan, which would be self-defeating for both sides. This is why the licence-back matters so much in IP-backed lending: it lets the lender hold the strongest possible security over separable, identifiable IP while leaving the borrower fully operational. The licence typically terminates or reverts on default, at which point the lender can enforce its security and pursue a sale or third-party licensing of the asset. For lenders, the structure preserves the value of the collateral, because an asset kept in productive use and generating revenue is far more realisable than one that has gone dormant. As a UK example, a renewables business borrowing against its patented technology would assign the patents to the lender by way of security and take a licence-back so it can keep deploying the technology and earning the revenue that services the debt. The underlying charge must still be registered at Companies House within 21 days under section 859A of the Companies Act 2006 and recorded at the UK Intellectual Property Office. Since operating cash flow is the primary repayment source, the licence-back keeps that cash flowing while the security sits in the background as a fallback.
Complementary Terms
Concepts that frequently appear alongside Licence-Back in practice.
A legal mortgage over intellectual property is the strongest form of security a lender can take over an intangible asset, in which legal title to the IP is transferred to the lender as collateral, subject to the borrower's right to have it returned once the loan is repaid. In practice a legal mortgage ip security is created by an assignment by way of security, almost always paired with a licence-back so the borrower can continue to exploit the very patents, trade marks or registered designs it has charged.
An assignment by way of security is the legal mechanism used to create a legal mortgage over intellectual property, whereby the borrower transfers title to the IP to the lender as collateral while retaining an equitable right to have it reassigned once the debt is repaid. Unlike an outright assignment, an assignment by way of security is conditional and reversible, and it is almost always accompanied by a licence-back so the borrower can carry on using the assigned patents, trade marks or designs in the ordinary course of business.
A sale-and-licence-back is a financing structure in which a business sells its intellectual property to a funder or special-purpose vehicle for cash, then immediately takes a licence back to keep using that IP in its operations. The sale and licence-back arrangement raises capital against otherwise illiquid intangible assets while leaving the business's day-to-day use of its brands, patents or technology undisturbed, because the licence-back grants continued rights of exploitation.
Royalty income lending is a financing structure in which a loan is advanced against, and serviced from, the licence royalties that an intellectual property asset generates. Royalty income lending is widely regarded as the cleanest form of IP-backed credit because it aligns repayment with a contractually defined, recurring cash stream rather than with the uncertain resale value of the underlying right.
Revenue attributable to IP is the portion of a business's income that can be reasonably traced to a specific intellectual property asset rather than to the enterprise as a whole. Isolating revenue attributable to ip is central to both valuation and lending, because it demonstrates that the intangible is a genuine, separable driver of cash generation rather than an inseparable part of goodwill.
A security interest granted by a borrower over its intellectual property assets — including patents, trademarks, copyrights, and trade secrets — as collateral for a loan or other financial obligation. IP charges must typically be registered at both the relevant IP registry (such as the UK Intellectual Property Office or USPTO) and the general security interests registry (Companies House, UCC, or PPSA).
A form of asset-backed lending in which intellectual property assets — patents, trademarks, copyrights, and proprietary software — serve as collateral for a loan facility. IP-backed lending enables knowledge-intensive businesses to access non-dilutive growth capital by pledging their intangible assets rather than physical property or equipment.
Related FAQ
What is a legal mortgage over intellectual property?
A legal mortgage over IP transfers legal title of the rights to the lender as security, with a licence-back so you keep using them; it is the strongest form of IP security and is discharged when the loan is repaid.
Read full answer →Do I lose ownership of my IP if I use it as collateral?
No. Using IP as collateral grants the lender a security interest, not permanent ownership; you keep using the rights and get clear title back on repayment. Ownership only transfers if you default and the lender enforces.
Read full answer →How does a sale-and-licence-back of IP work?
In a sale-and-licence-back, a company sells its IP to a funder for cash, then immediately licences it back so it can keep using the IP in its business — releasing capital without losing operational use.
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