New Intellectual Property Finance Supply of '2.5 Trillion Won'... Easing the Burden for Small and Medium Enterprises

Data on the annual increase and decrease in intellectual property finance from 2018 to 2021. Provided by the Korean Intellectual Property Office.

[Asia Economy (Daejeon) Reporter Jeong Il-woong] Last year, the new supply scale of intellectual property (IP) finance exceeded 2.5 trillion won, providing relief to small and medium-sized enterprises (SMEs). IP finance refers to a series of activities that raise funds using intellectual property rights. Fundraising is conducted through financial institutions providing IP-secured loans, guarantee loans, or investments based on the valuation of the intellectual property held by companies.

According to the Korean Intellectual Property Office (KIPO) on the 22nd, the new supply scale of IP finance last year was 2.5041 trillion won, a 21.3% increase compared to the previous year (2.064 trillion won).

The scale of fundraising by type of IP finance is subdivided into ▲‘IP investment amount’ of 608.8 billion won, which involves companies holding excellent intellectual property rights or direct investment in intellectual property rights ▲‘IP-secured loan amount’ of 1.0508 trillion won, which is executed by using intellectual property rights as collateral ▲‘IP guarantee amount’ of 844.5 billion won, which involves obtaining guarantees based on intellectual property rights.

Among these, the scale of IP investment last year was found to have increased 2.3 times compared to the previous year (262.1 billion won). The increase in new investment is attributed to the expansion of IP investment funds through contributions to the Korea Fund of Funds and strengthened cooperation with venture capital firms, which has activated investment in companies holding excellent patents.

In particular, considering that the investment amount in companies holding patents in the so-called ‘BIG3’ fields?future cars, semiconductors, and bio?reached 335.8 billion won (55.2% of the total), IP investment is evaluated as being utilized as a major fundraising method for innovative SMEs.

Above all, the increase in the number of investment institutions participating in IP investment from 50 in 2020 to 69 last year is interpreted by KIPO as evidence that investment institutions’ awareness of IP investment has improved.

The new amount of IP-secured loans also maintained the 1 trillion won level for the second consecutive year. In particular, a survey conducted on 1,390 companies with IP-secured loans showed that 77.7% of the loan cases were companies with relatively low credit ratings (BB+ grade or below), indicating that a financial environment is being created where companies can secure funds simply by holding excellent intellectual property.

IP-secured loans are formed with interest rates in the 2-3% range, which helps reduce the loan interest burden on companies. Currently, IP-secured loans are handled by a total of 10 banks. The banks handling IP-secured loans have gradually expanded, starting with the Industrial Bank of Korea and Korea Development Bank in 2018, followed by NongHyup, Shinhan, Woori, Hana, Kookmin, and Busan Banks from 2019 to 2020, and Daegu and Gyeongnam Banks last year.

IP guarantees are mainly used by early-stage startups that find it difficult to use general guarantees or IP-secured loans, receiving benefits such as preferential guarantee ratios (90% to 100%) and reduced guarantee fees (0.2% to 0.5%p).

Through this, the new IP guarantee amount last year increased by 19.1% compared to the previous year (708.9 billion won). IP guarantees are currently available through the Korea Credit Guarantee Fund, Korea Technology Finance Corporation, and Seoul Credit Guarantee Foundation.

Jung Yeon-woo, Director of the Industrial Property Policy Bureau at KIPO, said, “IP finance is a system that supports SMEs holding excellent intellectual property to raise funds based on the value of their IP to overcome management difficulties and expand their business.” He added, “This year, KIPO will do its best to provide institutional support so that practical help can be given to young startups and regional SMEs through expanding support for IP valuation costs and creating IP investment funds.”

Meanwhile, as of last year, the balance of IP finance surpassed 6 trillion won for the first time in history. The balance is subdivided into 862.8 billion won in IP investment, 1.9315 trillion won in IP-secured loans, and 3.2147 trillion won in IP guarantees.

This content was produced with the assistance of AI translation services.