City alliance investing in potential of companies
Million yuan
Small and medium-sized enterprises often encounter financial stress but that won’t worry technology startups in Qingdao, East China’s Shandong province, if their patents have prospects.
By launching an alliance in 2015, the city has helped startups get loans by collateralizing their patents.
As of June, 112 local SMEs gained a total loan of 566 million yuan ($80 million).
Due to a lack of tangible assets, it was difficult for SMEs to get loans from commercial banks. Even with collateral and IP assets, such as patents, trademarks and copyrights, an evaluation is difficult.
“The alliance has enabled insurance companies, collateral agents and commercial banks to share the risk in loans for local technology startups,” said Liu Jianzhi, director of Qingdao Intellectual Property Affairs Center.
“Commercial banks now only take 20 percent of risk rather than 100 percent previously, while insurance companies and collateral agents take 60 percent and 20 percent respectively,” said Liu.
The alliance has been joined by nine insurance companies, 16 banks and six collateral agents.
Liu added that the alliance invites IP consultancies to evaluate patents in legal, technological and economical aspects.
Lasence, a local company specializing in high-end laser products, was the first beneficiary. The company needed liquidity to expand production in June 2015.
The alliance helped the company gain a loan of five million yuan in less than 30 days. During the process the company collateralized their patents and only paid a 20,000 yuan premium to an insurance company.
“We didn’t expect the loan to be so quick. The money was spent buying materials for further production,” said Ge Xuli, Lasence’s business and development manager.
The alliance enables a company to acquire a maximum 5 million yuan loan a year for three years. Interest is set around 5.5 percent, lower than banks. Meanwhile, the city’s government fund helps with interest and premiums.
Lasence has gained 15 million yuan of loans, “which has played a big role in helping our product prototypes in laboratory to go to market, a key step for our company’s rapid development,” said Ge.
According to Ge, the company’s sales volume increased to over 100 million yuan in 2018, compared to 50 million in 2015. The company won second prize in the National Technology Invention Award in 2017.
Liu emphasized that the alliance encourages financial institutions to look at SMEs’ potential rather than the tangible assets if they fail to repay a loan.
“Till now, no enterprise has failed to repay the loan in time,” Liu added.
Sobel, an agricultural startup, has also benefited. “The loan of 5 million yuan every year is a considerable sum for our company to purchase material, support sales and carry out research,” said Deng Zhiyong, the deputy general manager.
“More importantly, the alliance let us know how to manage our patents and find their market presence,” Deng said.
The alliance surveyed 54 companies after they gained loans last year. It showed the total sales revenue and profits of all companies increased by 16.34 and 28.05 percent respectively. It also promoted employment and tax revenue.
“Helping SMEs with loans is not the only goal of the alliance,” said Yan Ranli, deputy director of Qingdao intellectual property office, “the alliance also provides various services on their IP assets and helps them enhance relationships with market players.”
“For companies that failed to acquire loans at first, the alliance will help them improve patent quality to meet market demand,” Yan said.
The alliance has also helped cultivate clients for commercial banks and expand insurance companies’ services.
Qingdao Fusilin Chemical Science and Technology gained loans through the alliance for two years. In the third year, bankers offered a loan without collateral after they saw the company’s growth.
Xu Peishan, deputy general manager of China Pacific Insurance Qingdao branch, said the alliance has brought a new type of insurance and fulfills social responsibility.
In June, China’s State Council called on expanding IP finance to promote innovation and develop the real economy.
The National Intellectual Property Administration is promoting IP-collateralized finance services. A new policy is to be rolled out, according to a previous report by China Daily.