Sichuan Coremer Materials Co., Ltd. managed to get a loan of five million yuan (about 814,000 U.S. dollars) this year from a commercial bank by pledging its patent rights.
The loan from the Science and Technology Branch of Mianyang Commercial Bank in Mianyang City in southwest China's Sichuan Province greatly boosted business for the engineering plastics manufacturing company, which was founded in 2005.
The company's sales revenue in the first half of this year exceeded last year's total revenues.
So far, 26 small and medium-sized enterprises (SME) in the science and technology sector have obtained loans totaling 150 million yuan from the branch.
"The non-performing loan ratio of our commercial bank is 0.4 percent, while the upper limit ratio allowed for the branch is 4 percent. Science and technology SMEs account for no less than 50 percent of our major business," said Li Xiang, head of the branch.
The loan with the patent rights pledge is the most popular of the bank's loan products among companies, which borrow the money following valuation of their patent rights.
Mianyang Science and Technology City is one of 16 pilot areas across the country, which also include areas of Shanghai and Tianjin, as well as Zhongguancun, a national innovation and high-tech hub, designated to promote the integration of financing with science and technology.
The program was launched in October 2011 by the Ministry of Science and Technology, the central bank and the country's banking, securities and insurance regulators. The aim is to speed up the application of new technologies and boost the growth of SMEs.
As part of the move, Mianyang Science and Technology City set up a loan risk compensation fund of 20 million yuan, a warranty fund of 300 million yuan and a patent aid and business guidance fund of 15 million yuan.
By the end of May, science and technology companies in the technology zone had obtained loans totaling 7.2 billion yuan, with more than 3,200 SMEs benefiting from the mechanism.
"After two years of the pilot program, the idea of science and technology financing has become increasingly popular. Loans with patent rights pledges exceeded 60 million yuan and 200 new SMEs were set up," said Yang Gongju, a senior official of Mianyang Science and Technology Bureau.
More than 60 special financing institutions for the science and technology sector have been established in the 16 pilot areas, with the balance of loans hitting nearly 30 billion yuan, data from the science ministry showed.
Banks providing loans to science and technology companies often take on substantial risk, as the loans are invested in new enterprises, said Li.
"We are betting on the future of companies. Even one failure will have serious consequences," said Li, adding that it is necessary to revise the examination system for banks to allow for a certain percentage of failures.
"Not all patents are worthy," said Zhang Caijun, manager of an auto gear manufacturing company in Mianyang. "Only by establishing a national examination and trade system for intellectual property rights can we allow more SMEs to obtain financing."
Tang Jiqiang, researcher with Southwestern University of Finance and Economics, said the emergence of private banks, science and technology banks, and social capital in the pilot areas boosts the vitality of scientific innovations.
"In unleashing scientific innovation, the biggest challenge lies in changing the government's role," said Li Daokui, director of the Center for China in the World Economy at Tsinghua University.
He said the government should create a favorable environment for enterprises and talent and allow social capital and enterprises in the science and technological sector to play a major role in SME financing.
