UK Lenders’ Limited Understanding of Intellectual Property Risks Hampering SME Growth, UKIPO Report Finds

Karl Barnfather, chairman at Withers & Rogers, draws on his firm’s expertise in patent and trademark law to address a critical issue identified in a UK Intellectual Property Office (UKIPO) report: UK lenders’ lack of knowledge about the value of intellectual property (IP) could be holding back business growth.

The Government-backed report concludes that banks are misaligned with the modern economy in how they assess IP assets. It stresses that traditional lending criteria urgently require updating to ensure IP is recognised as a valuable business asset, thereby supporting innovation and economic recovery.

The report highlights that the vast majority of businesses continue to seek finance from banks, yet this remains one of the most challenging routes. This difficulty stems from lenders’ “lack of familiarity” with the business models of IP-rich companies, which often rely heavily on intangible assets such as patents, trademarks, and registered design rights.

Small and medium-sized enterprises (SMEs) applying for asset-based lending face similar obstacles. While organisations providing asset-based finance are somewhat more receptive to intangible assets—often lending against software—they tend to prefer companies with tangible assets when making lending decisions, viewing intangible assets as higher risk.

Traditional lenders have tightened their lending criteria in recent years, but this approach risks constraining growth. The report warns that lenders’ limited understanding of IP asset value could put them at a disadvantage as the UK economy seeks to recover and innovate.

A significant knowledge gap exists among traditional lenders regarding the possibility of taking security interests against certain IP assets. These securities, such as those on patents, trademarks, and registered design rights, can be registered at the UKIPO similarly to the IP itself, yet many lenders remain unaware of this option.

Barnfather emphasises that bridging this knowledge gap is essential to maximise support for SMEs, which are key drivers of innovation and economic growth.

The report also explores alternative financing avenues such as crowdfunding, which has emerged as a source of equity-based finance increasingly open to high-tech and scientific business propositions. Platforms like Crowdcube and Seedrs have incorporated IP considerations into their investment decisions.

Crowdfunding’s internet-based model exposes business propositions to a wider audience, increasing scrutiny and discussion of IP issues. This dynamic may contribute to spreading IP awareness and understanding more effectively than some traditional finance sources.

Supporting the report’s findings, a recent study published by the European Patent Office (EPO) and the Office for Harmonisation in the Internal Market (OHIM) confirms the substantial contribution of IP-led businesses to the European economy. These businesses account for 39 percent of the European Union’s GDP, equating to €4.7 trillion annually, underscoring the critical importance of recognising IP value in financing decisions.

Research cited in Chapter Five of the UKIPO’s ‘Banking on IP’ report reveals that most SMEs (93 percent) have not attempted to assess their IP’s worth. Furthermore, only six percent valued their IP at more than 10 percent of their overall business value, while 84 percent believed their IP to be worthless.

This low awareness is not limited to lenders; many businesses themselves undervalue their intangible assets, potentially limiting their growth prospects. Government initiatives like the Patent Box provide real incentives to improve IP valuation, but further efforts are necessary.