Despite China's relatively fast recovery, many small and medium-sized firms have taken huge hits from the COVID-19 pandemic, resulting in many closures and disrupted money chains. However, tech firms in southwest China's Chengdu City are keen to turn their intangible assets into cash through intellectual property (IP) pledges.
An IP pledge is a financing activity in which enterprises pledge their intangible assets, including trademarks, patents and copyrights, to obtain funds.
"At the height of the pandemic, everyone was thinking of ways to address uncertainties and risks, particularly with how to make good use of intangible assets," said Yang Xuemei, the deputy general manager for Chengdu Huamai Communication Technology.
Statistics show that more and more Chinese innovative micro and small enterprises are seeking financing support through IP pledges, which simultaneously eases their capital shortage and accelerates the IP rights market transformation.
Huamai specializes in the Internet of Things, with an average annual turnover of $15 million. The firm applies for new patents in this area almost every year.
The company's supply chain was disrupted due to the pandemic. A $1.5-million bank loan helped ease the impact. It obtained the loan through an IP pledge.
And Huamai is not alone. The Chengdu Intellectual Property Exchange, owned by Chengdu Jiaozi Financial Holding Group, is helping companies to apply for this kind of bank loan.
"We have launched a platform called Zhidaitong. It's for companies to apply for bank loans with their IP. It's a form of indirect financing, which won't cause share dilution," said Li Mingyang, deputy general manager for the Chengdu Intellectual Property Exchange.
By the end of September, 26 deals were closed using this service for the IP pledge loans. The equivalent of $90 million worth of bank loans has been issued to small and medium-sized firms.
The government has also been working on ways to help ease nerves among banks, as IP value tends to drop, making these kinds of loans a risky proposition for banks.
"Local governments across China have been rolling out policies to encourage IP pledge loans, including Chengdu. That also includes policies to lower risks for banks. A special fund pool has been set up so that the government and banks can split the risks," said Qin Shikui, the investment director for Chengdu Jiaozi Financial Holding Group.
The loans, however, tend to be short-term for one to two years.