FROM LOGOS TO LOANS: THE RISE OF TRADEMARK-BACKED FINANCING

November 4, 2025 admin IP, Trademark 0

“Tomorrow’s companies will not borrow against their buildings; they’ll borrow against their names.”

Whenever one thinks of the collateral for a loan, what comes to their mind? Probably gold, land, or something tangible. But here lies a twist: what if one can mortgage their intangible asset, i.e., the brand? Sounds unusual, but this is exactly what happened with Kingfisher Airlines. In the early 2010s, when the debts of the kingfisher grew larger than its reputation, and its planes were grounded, the employees left unpaid, one thing that came as a rescuer for the kingfisher was its trademark, the bright red bird that once promised ‘the good times’. The banks considered it strong enough to be pledged as collateral, and it became the last lifeline for the lenders seeking repayment. This story demonstrates a new reality of modern finance where a brand’s goodwill is bankable. Sometimes, the most valuable property a business owns isn’t its machines or buildings or any other tangible assets, but the name or identity it carries in the market.

TRADEMARK AS COLLATERAL

A trademark is an expression of trust and, unlike Patents or Copyrights, can be renewed or protected perpetually, which makes it a lasting IP. Its goodwill is tied to market share, future revenue stream, and customer loyalty, making it more appealing to money lenders for security, while allowing the borrowers to get liquidity without losing ownership.

Whenever any IP, including Trademark, is pledged as collateral, there are two crucial steps that must be gone through: valuation and procedural formalities. Firstly, a fair price must be fixed for the trademark in question. Unlike tangible assets for which ready reckoner or market benchmarks exist, a trademark cannot be chosen easily, and the valuation hence becomes an articulate and vital issue. Generally, the methods such as cost approach (considering investment in the brand building), market approach (comparing the recent sale or license transactions of similar brands), and income approach (estimating future revenue stream) are applied. Each approach or method needs further due diligence in respect of ownership, legal protection, capacity of revenue generation, market risks, encumbrances, etc.[1]

After the valuation, the associated legal formalities need to be made. This includes payment of ad valorem stamp duty as applicable under the Stamp Act, registration of the charge with the Registrar of Companies, filing of the charge with CERSAI, and, where necessary, recording of the transaction with the respective IP office. When the amount has been repaid, a release deed should also be filed to terminate the security interest.[2]

LEGAL POSITION IN INDIA

In India, the law recognizes trademarks as assets that can be charged or pledged, even though such recognition is scattered across various statutes rather than situated in one dedicated legislative framework for trademarks. The Companies Act, 2013, is one such important legislation that has explicitly included brands and trademarks under intangible assets in Schedule III. Accordingly, Chapter VI of the Act provides that companies may create charges over “property or assets, whether tangible or otherwise” and requires the registration of such charges with the Registrar of Companies within thirty days.[3] The SARFAESI Act, 2002, has attempted to enlarge this spectrum by broadly defining “property” so as to include intangible property such as trademarks, licenses, and franchises[4] and by establishing a registry, that is, CERSAI, to record and enforce security interests.[5] Similarly, Section 6 of the Banking Regulation Act, 1949, gives powers to banks to lend against all types of properties, including intangible,[6] although there is a specific restriction in Section 8 to prevent banks from trading in goods directly.[7]

JUDICIAL PRECEDENTS

The Indian courts, to a considerable extent, have shaped the understanding of trademarks in relation to collateral; specifically, the socio-economic, technical, and legal aspects as they pertain to trademarks. The Supreme Court in ICICI Bank v. APS Star Industries (2010) [8] held that the creation of a security interest in intangible assets is valid and that trademarks could be accepted as legal collateral for a loan. This landmark ruling established that a security interest is based on value and not on grossing physical form; this injection of value strengthens lenders’ confidence in transactions involving IP as security.[9]

In the 2018 Supreme Court case of Canara Bank v. NG Subbaraya Setty,[10] the Court denied assignment of the “EENADU” trademark under the Banking Regulation Act, however making an unequivocal assertion that IP securitization could fall within the scope of SARFAESI Act, that is, recognizing IP as a worthy asset class for securing finance while at the same time highlighting challenges on this regulatory front. [11]

However, the journey of trademarks as collateral has not been without some cautionary tales. Brand goodwill showcased its fragility in the insolvency of Kingfisher Airlines, wherein the worth of a brand is essentially based on the ongoing sustenance of the enterprise. [12] The Daawat case, in contrast, is portrayed as being a successful utilization of brand leverage for corporate development through IP financing.[13] This provides an example wherein trademarks can indeed be a very important means of raising funds for business growth if a famous brand is exploited properly.

Hence, these judicial precedents could be taken to represent the dual personality of trademarks as collateral. They have immense potential value yet are subject to market dynamics, legal uncertainties.

RECENT DEVELOPMENTS AND MARKET TRENDS

IP-based financing is a recognized mechanism in India’s business environment. According to Duff & Phelps, brand and trademark cover a significant area in dividing corporate worth.[14] Furthermore, these assets are often overlooked in the sphere of traditional corporate finance. The increasing awareness today is that most of the difference between the market value and book value is accounted for by these intangible assets that are not recorded.

While intangible assets get excluded in traditional avenues of corporate finance and, as such, lead to a major component in distortions between market value and book value of a company, initiatives such as Startup India and Digital India were able to instill a vibrant innovation ecosystem that fostered the creation of multiple asset-light-but-heavy-brand enterprises. Today, India’s unicorns number over one hundred,[15] with a good number of them deriving more than 70% of their value from brand strength as opposed to tangible assets, thereby making trademarks integral to their funding strategies.[16]

IP financing is introduced among countries such as Singapore and China with state valuation systems and credit guarantees to reduce the risk borne by the lender. These could be meaningful examples for India to emulate. Indian banks have traditionally shied away from lending against IP, mainly due to the lack of standardization and clarity in the valuation process. However, the emerging change of this phase is now viewed by private equity and venture debt players who value brand as an essential element of determining corporate worth. Official deliberations have hence lauded the need for strict IP valuation standards and banking reforms that will be able to align with this evolving financial landscape.[17]

THE ROAD AHEAD: MAKING IP FINANCE WORK IN INDIA

Implementation of trademarks as accepted security in India would essentially entail a series of reforms for the building of a worthy framework for IP-backed financing. At present, the Trademark Act does not explicitly treat a trademark as a security for a loan. Supplementing the Act with explicit provisions permitting trademark pledges would certainly inspire more confidence and transparency among lenders, strengthening the overall mechanism for IP-based financing.[18]

The other major hurdle lies in the subjective nature of trademark valuation, and thus norms and guidelines need to be standardized. Such valuation methods would have to be developed by governing bodies like the RBI or SEBI that accord with IFRS, US GAAP, and FASB 142, so as to ascertain and ensure the fair valuation of the intangible assets.[19]

In addition, specialized institutions or NBFCs focusing on IP-backed lending would greatly streamline the financing process for startups and SMEs, which have strong brand names but few tangible assets.[20] Another layer of protection comes in the form of business-specific insurance designed to pursue or ensure reimbursement for losses resulting from trademark depreciation through infringement or enforcement issues, thereby providing certainty and efficiency to IP-backed loans.[21]

CONCLUSION

The future of finance is not just limited to tangible assets but rather extends to the trusted assets. The Kingfisher case has shown how a brand can prove as a lifeline as well as a liability, while the Daawat case revealed the powers of a trademark if used wisely and properly. With the growth of India towards an innovation-led economy, a trademark can be established as serious collateral. But unless there is a proper institutional mechanisms, valuation standards, and statutory clarity, the lenders will always have doubts while using trademark as collateral. However, if India brings some reforms and establishes the requisite trust in IP-backed lending, Companies may start taking loans not against their tangible assets but rather against their valuable brand.

REFERENCES

Authored by: Ms. Khushi Pancholi and Ms. Khushi Gupta

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