What is a soft asset?

Resale value is the main difference. A truck or an excavator has a deep secondary market, while a fit-out, used office furniture or a software licence is worth far less once installed or assigned. Repossession is rarely straightforward, and a licence or a customer list may need the vendor, the customer or a registry to cooperate before anything can be enforced, so lenders lean towards physical security.

Soft assets also age differently. Software can be overtaken by updates, security requirements or a vendor changing direction, whereas physical gear wears out fairly predictably. Valuation is less certain too, because hard assets have market comparables while soft assets usually need income modelling. Title passes easily on a truck; on an intangible it depends on the licence terms and third party rights.

With physical gear the questions are practical: condition, whether the item can be removed and resold, whether a fit-out has become a fixture and so falls outside the PPSA, and how deep the resale market is. Assignability and title come next: can the borrower legally assign the licence or the intellectual property to a security holder? A non-assignable SaaS agreement, or a change of control clause in a customer contract, narrows what a lender can do. Vendor dependency matters as well, which is why vendor support deeds and source code escrow turn up in these deals.

Then comes economic life: the remaining licence term, the upgrade cycle and the vendor's roadmap. Expect to hand over licence agreements, invoices, development records, registration certificates, customer contracts, usage statistics and recurring revenue figures including churn and customer concentration. Where soft assets form a material part of the security, an independent valuation is usually expected.

Structures range from a secured business or term loan taken over a mix of tangible and intangible assets, to lending secured on assignable licences or registered IP, to revenue financing that advances against contracted subscription income. Vendor finance from the software supplier and lease style arrangements that mirror licence access are also used. Blending soft and hard security usually improves the terms on offer.

Valuation follows one of three routes: cost, useful where development spend is documented; market comparables, rarely available for custom built assets; and discounted cash flow, preferred for customer lists and subscription revenue. For accounting, capitalised intangibles are typically amortised straight line over their useful life under AASB guidance. For tax, only the intangibles named in the capital allowance rules are depreciating assets, such as in-house software, patents, registered designs and copyright: in-house software uses the effective life the ATO sets, while trademarks, customer lists, domain names and goodwill generally get no deduction over time.