The Research On Using Weak Patents As Loan Collateral For Banks

With the fast development of knowledge economy, the science and technology SMEs have been the main carrier of innovation and greatest of economic growth and social development in China. While they possess lots of valuable patent technologies,"Financing Difficulty" has been one of the main factors preventing them from developing and commercializing their patent technologies to realize the value of such innovation. Patent pledged loans help to solve this problem effectively. At the same time, our government departments are rapidly developing various policy alternatives, giving incentives for lenders and borrowers to actively engage in patent pledged financing. However, many banks are very cautious, hesitating to give a shot, this business is carried out slowly. And the theoretical research on financing with patent as collateral is also sparse. Under this background, based on the theory of real option and equilibrium game, this paper attempts to establish the influential factor model of effectiveness in bank’s patent pledged loans business and the corresponding solutions to help with the SMEs’ financing difficulties, hoping to.spur the development of this new financing business. Therefore, this research has vital academic and practical significances.This paper takes the viewpoint that patent value is not equal to the value of the patent-protected project, but they are always increasing with the expected future cash flow and patent length, the result turns out contrary to that of increasing patent litigation risk.On this basis, we present an option-based model of weak patent pledged loan pricing under multi-uncertainties. The results show that strengthening intellectual property protection and enhancing liquidity of technology market are sure to spur the development of patent pledged loan business. The embedded options in the loan contract have important impact on the value of patent pledged loan to the bank, and the existence of litigation risk makes the bank get worse. As for the present risk compensation policies, loss compensation is efficient, while the effect of interest subsidizing is mixed. With the application of the basic model, we further build a model that introduces a more detailed specification of the default process on weak patent pledged loans by incorporating the borrower’s ability to reinstate the loan out of default prior to foreclosure. Loan forbearance provides an incentive for the borrower’s reinstatement. Overall, waiving the penalty associated with delinquency does lead to higher delinquency rates, but is not effective in reducing defualt. Finally, the value of credit reputation does have a significant impact on default. So the bank should reinforce the impression that default is costly with respect to future credit opportunities. In the presence of asymmetric information, we explore the contract designed by bank to screen borrowers with different levels of risk. The banks can offer a menu of contracts with different loan amount and loan interest rate that allow to distinguish a low-risk borrower from a high-risk borrower. The high-risk borrowers are unaffected by asymmetric information, but the low-risk borrowers receives instead a low loan amount. Thus, we further explore the feasibility and efficiency of financial innovation in patent pledged loan contracts. There exists a separating equilibrium in which high-risk borrowers prefer adjustable rate loan contract while low-risk borrowers choose fixed rate contract, enabling banks to distinguish low-risk borrowers from high-risk borrowers.