Recommendations to facilitate access to financing for intangible assets
Report published by the “Fundación de Estudios Financieros”, analyzing the problems that both companies and financial institutions face to finance intangible assets. According to the report, this kind of assets are at the heart of innovation and productivity improvements and are key in the new digital economy. However, at European level, Spain ranks second from the bottom in terms of investment in intangible assets over GDP. Improving access to financing for this type of asset is essential for economic growth and to take advantage of the opportunity provided by the Next Generation European Funds to foster the digitization of the economy.
- Financing companies with intangible assets is more complex for traditional financial institutions, mainly because of the difficulty that these assets pose to being provided as collateral or loan guarantee. It is not easy to determine the market price of the asset in the event of default or failure of the project and whether it can be separated without losing all its value from the rest of the company in case you want to sell it. For this reason, companies are increasingly turning to private equity instruments and own equity as opposed to bank financing. Additionally, banks face a restrictive regulation in terms of capital consumption when they invest in intangible assets.
- Start-ups are the companies with the greatest difficulty in accessing bank financing because they do not have collateral: According to data from the European Investment Bank (EIB), in new and high-growth companies intangibles represent 75% of their total assets, 35 pp more than in mature companies. Access to bank debt has the appealing of not having to share control or ownership to other investors.
- The report contains several recommendations for improving bank financing of intangible assets, some of which are the following:
- Possibility of creating a “supporting factor” (in capital consumption) when the destination of the financing is an intangible asset.
- Collaboration agreements between insurance companies and banks to share de risk of financing this type of assets.
- Development of companies specialized in the evaluation of patents and unification of the levels of protection of intellectual property rights among EU countries.
- Updating Basel framework to incorporate the diversity of categories and typologies of intangible assets, without automatically deducting capital from those held by credit institutions and their consolidated subsidiaries.
- And also, recommendations to improve access to private (non-bank) and public financing, such as: public guarantees for loans to companies aimed at promoting their digitalization or preferential loans offered through Development Banks, facilitating the IPO of young companies, advancing in the Capital Markets Union, greater public-private collaboration through Investment Funds that promote co-investments,…
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