Catalog Loan
A financing arrangement that uses a music catalog's future royalties as collateral for a loan, without transferring ownership.
What it means
A catalog loan (also known as royalty-backed financing or a catalog-backed credit facility) is a financial product that allows music rights holders to borrow money using their catalog's future royalty income as collateral. Unlike a catalog sale, a loan does not transfer ownership of the rights — the creator retains full ownership and receives their catalog back free and clear once the loan is repaid. During the loan term, the lender typically receives the catalog's royalty income to service the debt (principal and interest), and any excess revenue above the debt service is passed through to the borrower. Catalog loans have emerged as an alternative to outright sales for creators who need capital but don't want to permanently give up their rights. Companies like Sound Royalties, Lyric Financial, and various traditional banks with entertainment lending divisions offer these products. The loan amount is typically based on a multiple of the catalog's annual revenue, similar to a catalog valuation but usually more conservative (3x-8x annual revenue versus 8x-15x for a sale). For ambient and meditation music creators, a catalog loan can fund new productions, equipment purchases, marketing campaigns, or personal financial needs without sacrificing the long-term value of a growing catalog.
Technical details
Catalog loans are structured as secured loans with the intellectual property and its revenue streams serving as collateral. The lender files a UCC-1 financing statement to perfect its security interest in the catalog assets. Key terms include: loan-to-value ratio (typically 50-80% of the catalog's appraised value), interest rate (usually 8-15% depending on the catalog's risk profile and size), amortization schedule (typically 3-7 years), debt service coverage ratio requirements (usually 1.25x-1.50x — the catalog's annual revenue must exceed annual debt service by this factor), covenants (minimum revenue thresholds, restrictions on licensing decisions that could impair the catalog's value), and events of default (which could trigger foreclosure on the catalog). From a tax perspective, loan proceeds are not taxable income (unlike sale proceeds), and interest payments may be deductible as business expenses, making this a potentially tax-efficient way to access capital compared to selling.
Frequently asked questions
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