Why does chain of title matter for an IP loan?

Full Explanation

Chain of title is the documented, unbroken record of ownership from whoever created a piece of intellectual property to the company now offering it as security. It matters for an IP loan because a lender can only take a valid charge over IP the borrower genuinely and wholly owns. If a link in that chain is missing, the security may be worthless in the one scenario the lender cares about most: default and realisation. A gap can also stall or collapse the deal at diligence, long before drawdown. The most common defect is unassigned work. IP created by an employee usually vests in the employer by law, but IP created by a contractor, freelancer or agency does not, it stays with the creator unless there is a written assignment. Founders are frequently surprised to learn that the developer who wrote their core codebase, or the studio that designed their brand, may still own it. Joint ventures, university spin-outs and acquired IP raise similar questions. During an independent IP audit the lender traces each right back to source and checks for signed assignments, and it searches the UK Intellectual Property Office and Companies House for prior charges or recorded interests that would rank ahead of it. Clean chain of title supports the lender's legal-strength test, one of the three tests (alongside separability and saleability) that shape how far it will lend against an orderly-disposal value. Strong, well-evidenced title lifts the advance rate and helps you access facilities such as NatWest's High Growth IP Loan or lending assessed within HSBC's growth fund. Defective title does the opposite: the asset may be excluded from the borrowing base, or the loan-to-value cut to reflect the risk that the charge cannot be enforced. The practical next step is to build a title pack before you approach a lender. List every material IP right, gather the assignment for each one, and remedy gaps now by having contractors and past employees sign confirmatory assignments. Fixing title is far cheaper and faster before an application than under deal pressure, and it protects both your ability to borrow and the terms you are offered.

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