QCOSTARICA – On May 20, the Secured Transactions Act (Ley de Garantías Mobiliarias – N.° 9.246) goes into effect, which allows individuals and companies to use intangible property as collateral of loans.
The new law allows assets such as accounts receivables, personal property (except vehicles), crops, commercial patents, consumable goods, inventories and intellectual property, among others, to be recorded electronically in the National Registry (Registro Nacional).
Danilo Montero, executive director of the Costa Rican Association of Development Organizations (Asociación Costarricense para Organizaciones de Desarrollo -Acorde), acknowledged that the law will be very useful particularly for small businesses and microenterprises (micro empresas in Spanish) and farmers counting on inventory credit, to obtain business loans.
Montero explained that with the ability to record, electronically, a lien against such property opens doors to new financing opportunities.
However, lenders are not being so quick to adopt the measure.
Gerardo Corrales, general manager of BAC San José, told La Nacion that his bank will wait for the regulations to know the details before lending on this type of asset.
Typically, lenders in Costa Rica make loans on tangible property such as real property (land, buildings, and fixtures) and personal property (ships, automobiles, tools, etc.).
Financial experts warn of the “collateral lending trap”, when the primary basis for loan approval is the value of collateral instead of the capacity of the enterprise to generate profit.
In Commonwealth legal systems, intangible property is traditionally divided in pure intangibles (such as debts, intellectual property rights and goodwill) and documentary intangibles, which obtain their character through the medium of a document (such as a bill of lading, promissory note or bill of exchange).
The recent rise of electronic documents has blurred the distinction between pure intangibles and documentary intangibles.
Source: Nacion.com; Wikipedia; Registro Nacional