Original text here from Patrice Bernard (LinkedIn)
It's clear that businesses in the 21st century are very different from those in past times, but unfortunately, banks have yet to fully adjust their practices to the modern reality. For instance, NatWest has only recently introduced a new facility for extending credit secured by intellectual property.
Focusing on the software industry, which is particularly relevant here, it's been 25 years since the internet bubble, followed by, among other things, the mobile revolution and, more recently, the emergence of artificial intelligence. As this sector has grown, it now represents a significant portion of economies, yet it continues to be underserved by financial institutions because it doesn't fit the traditional banking models.
The most glaring example is credit. For industrial businesses, the ability to borrow funds by securing a loan against part of their physical assets (like machinery, inventory, vehicles) – which are substantial as they are the primary tools of their trade – is a standard and normalized financing method. However, for service companies, the assets are largely intangible (and incidentally, difficult to incorporate into balance sheets) and are therefore not considered.
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This gap is harmful both to businesses and banks for several interrelated reasons. SMEs and mid-sized enterprises, which are the majority and have high growth potential, find themselves at the intersection of critical support needs and attractive development opportunities for their suppliers. However, they often also carry a relatively high level of risk.
This is (probably) why NatWest has decided, at last, to take up the challenge. Cautiously, though, as their new policy only comes into play when traditional credit-granting methods fail. In such cases, which are considered a last resort, an estimation of the intellectual property's value by a specialized partner, Inngot, will allow for a loan to be considered, secured against the inventoried intangible assets.
From a distance, looking at the landscape and hearing about the "digitalization" claims of financial institutions, one might believe they are perfectly in tune with the rapid changes in their environment. Yet, an initiative like NatWest's starkly reminds us of the significant gap that sometimes exists between appearances and the reality experienced by customers. There's still a long way to go to even begin catching up with the backlog accumulated since the early 2000s...
