How is IP valued for secured lending?

Full Explanation

IP valued for secured lending is assessed differently from IP valued for a balance sheet or a sale. The governing framework is IVS 210 (Intangible Assets), which recognises three approaches. The income approach captures the cash the IP generates, most commonly through the Relief-from-Royalty Method, the Multi-Period Excess Earnings Method after contributory asset charges, or the With and Without Method. The market approach draws on comparable transactions, and the cost approach measures what it would take to recreate the asset. Registered rights such as patents, trade marks and registered designs carry more weight than unregistered know-how, because they are easier to define, transfer and enforce.

What distinguishes a lending valuation is conservatism. A valuer working to a credit standard uses cautious inputs: a low-end royalty rate, a discount rate that carries a risk premium, a finite economic life rather than perpetuity, and a cautious or absent terminal value. Economic life is not the same as accounting or tax useful life, and the discount rate is reconciled through a weighted average return on assets. A Tax Amortisation Benefit is added under the income approach. Crucially, the report is prepared on an orderly-liquidation or forced-sale premise, not a going-concern one, and it must present sensitivity analysis and value ranges rather than let a single most-likely figure hide the downside.

The figure a lender actually secures against is narrower still. Security value is derived by applying the three lender tests to an orderly-disposal value: separability, whether the IP can be sold or licensed apart from the business; saleability, how readily it could be realised on default; and legal strength, whether title is clean and enforceable. The result of that assessment sets the loan-to-value. In practice, broad-market LTVs run at roughly 20 to 40 per cent of appraised value, rising towards 50 per cent where insurance backs the facility, though every case turns on the strength of the specific rights.

As a next step, commission an independent IP valuation prepared explicitly for lending, on a liquidation premise, from a valuer experienced with IVS 210. A generic market valuation, however impressive the headline number, is rarely what a credit committee will accept. Opagio's Intangible Asset Valuator supports this by producing a lender-oriented view of your IP alongside the evidence a credit team expects.

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