Borrowing Against Patents: A UK Guide
Patents are the strongest class of intangible collateral. This guide covers how to borrow against patents in the UK, including valuation approaches, typical loan-to-value ratios, lender requirements, and the step-by-step application process.
Why Patents Are the Strongest IP Collateral
Among all classes of intellectual property, patents consistently achieve the highest loan-to-value ratios from lenders. There are three reasons for this.
Legal clarity. Patents are registered rights with defined scope, territorial coverage, and expiry dates. A lender can verify exactly what they are taking security over by examining the patent register. This contrasts with unregistered rights like trade secrets or goodwill, which are inherently uncertain.
Transferability. Patents can be sold, licensed, or assigned independently of the operating business. If a borrower defaults, the lender can realise value by selling the patent portfolio or licensing the rights to a third party. This secondary market — while still developing — provides a credible exit route for lenders.
Revenue attribution. Patents with active licensing programmes generate identifiable, contractual revenue streams. Lenders can model future cash flows from licence agreements with confidence, making the collateral valuation more robust.
How Lenders Assess Patent Collateral
Lenders evaluate patent portfolios across five dimensions when determining collateral suitability and loan-to-value ratios.
| Dimension | Strong Collateral | Weak Collateral |
|---|---|---|
| Grant Status | Fully granted in multiple jurisdictions | Pending applications only |
| Remaining Life | 10+ years remaining from filing date | Less than 5 years remaining |
| Revenue | Active licensing agreements generating contractual income | No licensing revenue; defensive patents only |
| Breadth | Broad claims covering a technology area; portfolio of related patents | Narrow claims easily designed around; single patent |
| Enforcement | History of successful enforcement or licensing negotiations | Never tested; potential invalidity challenges |
Patent Valuation for Lending
Patent valuation for lending purposes uses the same methodologies as valuation for M&A or financial reporting, but with a collateral-specific perspective. Lenders apply haircuts to fair value to account for liquidation risk.
Relief-from-Royalty (Primary)
- Estimates the royalty savings from owning the patent
- Uses comparable royalty rates from licensing databases
- Preferred for patents with observable licensing comparables
- Most widely accepted by lenders
Cost Approach (Supporting)
- Estimates the cost to recreate the patented technology
- Useful as a floor value when licensing data is sparse
- Includes R&D costs, clinical trials, regulatory approvals
- May understate value of highly commercial patents
After determining fair value, lenders typically apply a collateral haircut of 50–65%, resulting in the 35–50% LTV ratio characteristic of patent-backed lending. The haircut accounts for liquidation time, transaction costs, and the risk that patent value may decline during the loan term.
Patent-Backed Lending by Sector
Different sectors present different patent lending characteristics. Understanding your sector’s profile helps set realistic expectations for LTV ratios and lender appetite.
Life sciences and pharmaceuticals. Patent portfolios protecting drugs, medical devices, and diagnostic methods are highly valued. Long development timelines and regulatory exclusivity create strong, defensible positions. LTV ratios of 40–50% are common for granted pharmaceutical patents.
Technology and software. Software patents are viable collateral when combined with documented source code, escrow arrangements, and recurring revenue. The challenge is rapid obsolescence — technology patents may lose value faster than pharmaceutical patents. LTV ratios of 30–40% are typical.
Manufacturing and engineering. Process patents and design patents covering manufacturing methods or product designs can serve as collateral, particularly when they protect a market position or pricing premium. LTV ratios of 35–45% are achievable.
Beyond Patents: Other Intangible Collateral
Patents are the strongest intangible collateral class, but trademarks, software IP, and data assets are increasingly accepted by specialist lenders. If your business value extends beyond patents, explore the full range of intangible asset lending options.
Estimate your patent portfolio borrowing potential
Use the Opagio Valuator to generate a structured patent valuation using the relief-from-royalty method.