There was an interesting article in Financial Times earlier this week entitled "Banks accused of shunning innovators". The piece described the results of the Innovation Monitor 2009 survey of small and medium size manufacturing firms by the UK's EEF - their manufacturing organization. The general findings did not surprise me: manufacturing companies are having trouble getting financing. That is the same in the US. In fact, the Commerce Department's Manufacturing Council (an advisory committee to the Department) has recommended the creation of direct government loan programs to help manufacturing companies.
What is striking about the UK survey, however, is that companies who have investing in innovation are more likely to be turned down for financing. As the FT article notes
All of this calls for activities to better understand investments in intangibles. Last year, Athena Alliance published a report on Intangible Asset Monetization: The Promise and the Reality. We are in process of finishing up a follow on report of case studies. That report will show how some companies and financial institutions were able to provide financing using intangibles as the backstop. We will post an announcement when the report is released.
What is striking about the UK survey, however, is that companies who have investing in innovation are more likely to be turned down for financing. As the FT article notes
Two-fifths of companies had found it harder to get bank finance in the past 12 months and none had found it easier. Successful innovators were 40 per cent more likely to have trouble accessing credit than companies that had difficulty generating a return from investments in innovation.Clearly something is wrong with the financial system that goes beyond the recent meltdown. Whereas triple AAA rated CDOs, credit default swaps and other financial instruments that no one could understand were seen as risk-free, company investments in intangibles was seen as too risky.
The EEF said the likeliest reason was that many innovations made during the recession were intangible - in areas such as processes, organisation and marketing - and that banks shied away from financing them without significant personal collateral or guarantees from management.
All of this calls for activities to better understand investments in intangibles. Last year, Athena Alliance published a report on Intangible Asset Monetization: The Promise and the Reality. We are in process of finishing up a follow on report of case studies. That report will show how some companies and financial institutions were able to provide financing using intangibles as the backstop. We will post an announcement when the report is released.
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