As corporate value in the United States has become increasingly tied to intellectual property rather than physical assets, lenders are looking beyond traditional forms of collateral to finance companies against patents, data, trade secrets and other intangible assets.
The factories, machinery and real estate that once anchored corporate borrowing are increasingly giving way to a different form of collateral: patents, trademarks, copyrights, proprietary databases and trade secrets.
As intangible assets have come to dominate corporate value, attorneys, lenders, investors and insurers are increasingly financing companies against intellectual property that often represents their most valuable asset.
The backdrop for this shift has been the transformation of the US economy from one built primarily on factories, equipment and real estate, to one driven by IP, software, data and other knowledge-based assets.
Intangible assets now account for roughly 92 percent of the market value of S&P 500 companies, up from 32 percent four decades ago and just 17 percent in 1975, according to consulting firm Ocean Tomo.
Aggregate intangible investment across 27 key economies reached $7.6 trillion in 2024, more than double in real terms what it was in 1995, according to 2025 data from the World Intellectual Property Organization. In the US, intangible investment expanded more than five times faster than tangible investment between 2020-2024, according to the data.
Intangible assets include intellectual property, but also things like organization know-how, supply-chain expertise, skilled talent, and all assets that either result from or interact with IP in some form.
Traditional lending has been slow to adapt because commercial banks remain most comfortable lending against receivables, inventory, equipment and real estate, which are assets with established resale markets and long underwriting histories. IP often requires specialized legal structures, valuation methods and even insurance to make lenders comfortable extending credit.
“The real turning point, at least in my professional life, was the pandemic,” said Frank Azzopardi, co-head of intellectual property and commercial transactions at Davis Polk. Azzopardi creates the legal structures for IP-based financing.
As airlines confronted an unprecedented collapse in travel, many had already pledged conventional assets to existing lenders. To raise billions of dollars of additional liquidity, they turned to an asset many investors had never considered collateral: their frequent-flier programs.
“The airlines were facing an existential crisis because people were not flying,” Azzopardi said.
Their loyalty programs hold a secret database of clients and client information, and they generated substantial recurring cash flows through partnerships with credit-card issuers, hotels and rental-car companies.
“What we did was we dropped them down in a bankruptcy-remote special purpose vehicle,” Azzopardi said. “The bonds were essentially issued against the loyalty company, and it raised billions and billions of much-needed liquidity for the airlines.”
Those transactions helped to demonstrate how IP could serve as reliable collateral when traditional assets were not an option.
“We’ve been iterating that structure since then in various contexts,” Azzopardi said. “Investors understand the structures. The rating agencies are very sophisticated, and also increasingly understanding the structures, and so it is becoming ripe for very attractive forms of financing, where the collateral is considered to be quite fortified and valuable.”
The same structures have since appeared in transactions involving technology companies, branded consumer businesses and media assets. In 2024, Davis Polk advised lenders in a $2.5 billion financing for DISH DBS Issuer in connection with EchoStar‘s restructuring, leveraging subscriber database assets as part of the financing structure.
Azzopardi said the concept is broadly applicable.
“It really is agnostic as to the type of IP, as long as the IP itself is critical to the ongoing ability of the company to conduct business,” he said.
While the legal structures have evolved, valuing intellectual property remains one of the market’s biggest challenges.
— IP valuation —
Roy D’Souza, senior vice president at Loop Capital Financial Consulting Services, said lenders focus less on theoretical values than on what an asset could realistically fetch if a borrower defaults.
“For example, selling patent assets without strong technical evidence of third-party infringement can be difficult,” he said. All a lender wants in the case of a default is “a very clear understanding of who the buyers are, what are their motivations, and what is the likely value that they will get as a net recovery,” D’Souza said.
That explains why not all intellectual property is equally financeable.
“IP that has an existing revenue stream, evidence of infringement or has a long legal life is where the most value is going to be,” D’Souza said.
Music copyrights have become one of the market’s fastest-growing segments because royalty streams are predictable and active secondary markets exist.
“Securitization offerings against music royalty income is really hot right now,” D’Souza said, adding that one major credit-rating agency has rated roughly $12 billion of music securitizations in recent years.
By contrast, patents often command higher borrowing costs because resale markets are thinner and valuations more complex.
“If your borrowing profile is much riskier and you’re pledging, for example, patents as collateral,” D’Souza said, “typically your interest rate is in the very low double digits to teens, sometimes to include warrant coverage.”
The result is a bifurcated lending market.
Large commercial banks generally remain more comfortable with trademarks, brands and copyrights, while private-credit funds and specialty finance firms are more willing to lend against patents and proprietary technologies.
“Typically your commercial banks … will stay away from lending against patents and technology as the primary asset without some type of financial backstop,” D’Souza said. “They’re more comfortable lending against things like trademarks, brands and revenue-generating copyrights.”
Even so, practitioners say demand continues to grow as innovative companies are increasingly light on traditional assets, and as some insurers step forward to help mitigate risk.
— Insurance —
The companies most likely to pursue IP-backed financing are often venture-backed businesses that have already commercialized their technology but want to postpone raising another round of equity, said Randy Sidhu, the founder and chief executive of IP Specialty Insurance Services, which insures IP-backed lending.
He said many of those companies have strong customers, a solid equity investor base, experienced management teams and recurring revenue, but lack the traditional collateral banks prefer.
“They’re really looking to bridge that gap,” Sidhu said. “Equity at that point in the growth cycle is very dilutive.”
Rather than sell additional ownership stakes, companies can borrow against the IP driving their businesses.
“It’s the equity dilution calculation,” Sidhu said. “They get to minimize dilution, they get to leverage an asset that traditional lenders are not giving value to.”
Insurance policies covering IP-backed loans reimburse lenders if proceeds from collateral sales are insufficient to repay the outstanding principal after default.
“It’s not there to backstop weak patents,” Sidhu said. “It makes a really strong patent portfolio financeable.”
The insurance does not eliminate the need for insurers and lenders to do their homework.
“We say no to a lot more deals than we say yes to,” Sidhu said. “We’re just seeing better and better constructed portfolios.”
He said insurers evaluate not only legal protection but also whether intellectual property has been commercialized, generates revenue and can realistically be transferred to another owner if necessary.
“We’ve seen some really strong patent portfolios. We’ve seen some really strong trade secret portfolios,” Sidhu said.
The emergence of insurance is helping to attract new pools of capital.
“Over the last six to eight months,” Sidhu said, “we’re definitely seeing more insurance capital come to the space … and you’re just seeing a lot more institutional lending capital come into the space as well.”
For now, most participants remain specialty lenders, private-credit funds and family offices rather than traditional commercial banks, although Sidhu pointed to Britain’s NatWest as an example of a mainstream bank actively developing IP lending products.
Azzopardi, D’Souza and Sidhu believe IP-backed lending is moving toward the financial mainstream as intangible assets continue replacing physical ones on corporate balance sheets.
“This is like a new asset class being created,” Sidhu said.
Please email editors@mlex.com to contact the editorial staff regarding this story, or to submit the names of lawyers and advisers.