Business value does not always sit neatly in property, machinery or vehicles. Many established companies now hold valuable assets that exist electronically or generate value through digital systems. Some produce recurring income. Some represent contractual rights. Others have an established market value that can be independently assessed.
For lenders, this creates an interesting question. Could some of these assets eventually support business finance in the same way that property, equipment or other conventional security can?
The answer is becoming broader. Lenders still need security they can understand, value and control. Yet the definition of acceptable collateral is evolving as the way businesses create and hold value changes.
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What counts as digital assets?
The term ‘digital assets’ covers a broad range of business assets that exist primarily in digital form. Some are financial instruments. Others are tied directly to the way a company operates or earns revenue.
Banks and specialist lenders used to build their risk models around assets they could see, insure and repossess if needed. Digital assets did not always fit neatly into that model, because ownership was harder to prove, values swung quickly and there were often no title deeds or registration certificate to point to.
That said, the value held in these assets is real, and it makes sense that lenders are starting to look at them more closely. Whether a particular digital asset can be used as collateral depends on how well it fits the same tests lenders have always applied to property or equipment.
What lenders generally look for
A lender will usually want more than a statement that an asset has value. There needs to be evidence behind that value.
A digital asset is more likely to be financeable when it has several of the following characteristics:
- A demonstrable market value
There should be credible evidence that the asset has monetary value. This could come from completed transactions, contracted income, independent valuations or another recognised basis for assessment.
- Reliable valuation data
The lender needs a reasonable method for determining what the asset is worth. Assets with transparent and verifiable valuation data are easier to assess than assets where the value is based mainly on an owner’s estimate.
- Liquidity or an established resale market
If the lender ever needs to recover its position, it needs to understand whether the asset can be sold and how readily that could happen. An established market can provide some reassurance. An asset with no identifiable buyers presents a different risk.
- Proof of ownership
The business must be able to demonstrate that it owns the asset and has the legal right to pledge it as security. Ownership records, contracts, licences and other documentation may form part of this assessment.
- A way for the lender to take control of the asset
Security has to be enforceable. A lender needs a practical mechanism through which it can exercise its rights over the asset if the agreed repayment terms are not met.
- A relatively predictable value or cash flow
Assets linked to recurring income can be easier to assess than those exposed to large and sudden price movements. Predictability gives the lender a stronger basis for assessing repayment and recovery risk.
These factors do not guarantee that a lender will accept an asset as security. They simply provide a stronger foundation for assessment.
What digital assets may be accepted?
Cryptocurrency
Cryptocurrency has earned far greater credibility over the past few years. What once sat on the fringe of finance now forms part of treasury strategies for many businesses around the world.
Some companies accept crypto payments from clients. Others hold Bitcoin or other cryptocurrencies as part of their financial reserves.
Geddes already accepts cryptocurrency as collateral where it suits the funding assessment. That reflects a practical view of modern business ownership.
Crypto still requires careful evaluation because prices can move quickly. Even so, it has become a legitimate asset that can form part of a funding assessment for businesses that hold genuine value in digital currency.
Tokenised securities
Ownership no longer has to exist only through traditional paperwork.
Tokenised securities represent ownership through blockchain technology, which creates a digital version of shares, investment holdings and similar financial assets.
South Africa continues to develop its regulatory environment around digital finance, while interest in tokenisation keeps growing across global markets.
For businesses involved in these structures, tokenised holdings may become another asset that enters a lending assessment as financial markets continue to evolve.
The technology may feel new. The principle remains familiar because ownership still has commercial value.
Digital invoices
Modern accounting systems now create stronger visibility into invoice histories, payment records and customer behaviour.
That creates opportunities for businesses that need funding while payments work through normal commercial timelines.
A growing company should not always have to pause expansion because cash sits inside unpaid invoices.
Digital records give lenders stronger insight into how those receivables perform, which strengthens funding assessments built around real business activity.
Learn more about invoice factoring here.
Software
A business may have invested heavily in developing proprietary software, a customer platform, internal technology or a subscription-based product. If that software generates recurring revenue, it has a direct connection to the company’s commercial performance.
Valuing software as collateral is not as simple as placing a price on a physical asset. Its value can depend on ownership rights, recurring revenue, intellectual property protection, customer retention and the cost involved in recreating the technology.
That does not make software irrelevant to lending. It means the asset needs to be assessed in the context of how the business generates money from it.
For technology businesses in particular, this can provide a more complete picture of the company’s underlying value.
Intellectual Property
Patents, registered trademarks, proprietary technology, copyrighted material and other intellectual property can support revenue over many years.
A brand with strong market recognition may have valuable trademarks. A technology business may own proprietary code or patents. A company with a specialised product may have intellectual property that sets its offering apart within its market.
The lending assessment still needs evidence of ownership and commercial value. Depending on the asset, that could include registrations, licensing arrangements, revenue records or independent valuations.
For businesses built around ideas, intellectual property can therefore form part of a much wider view of available collateral.
The asset is only one part of the funding assessment
Strong collateral does not exist in isolation.
Geddes looks at the wider position of the business, including its trading history, financial performance, cash flow and the reason for the funding.
The purpose of the loan also matters. Growth finance should have a commercial purpose behind it. Perhaps the business needs working capital to fulfil a large order. Perhaps it wants to purchase an asset, expand operations or take advantage of a new contract.
Collateral provides security for the finance. The business itself still needs to demonstrate a credible case for borrowing.
This is why a conversation about funding should not begin and end with the question of whether a business owns property.
- RELATED POST: Business Loan with Collateral: What Assets Can You Use?
Geddes will to consider the collateral you have
At Geddes Capital, we provide growth finance to established businesses and assess each funding requirement on its own circumstances.
We are always willing to consider the collateral you have. That does not mean every asset will be accepted as security. It means we are prepared to look at what sits behind your business rather than making assumptions from the asset type alone.
If you have collateral that you believe could support your funding requirement, speak to us about it.
Give us the details. Tell us what the asset is, what it is worth, how ownership is documented and how it contributes to the business. The more evidence available, the more informed the assessment can be.