Tangible assets are those holdings of an individual or business that are real and actual, instead of being hypothetical. They are contrasted to things an individual or business may hold that are not tangible. Examples of intangible assets include things like copyrighted ideas, patents, or intellectual property. Though these things possibly have a chance of being financially beneficial at a future point, they are not currently something that can be sold for great profit in most cases.
On the other hand, most tangible assets can be readily converted to cash, or are already cash. The amount of money in your bank account is tangible, as is the property you own, like cars, houses or boats. These tangibles, especially if you want to secure a loan, are usually the types of collateral you provide for the loan. Most banks won’t offer loans to people without tangible assets, even if they have intangible assets that have the potential to make money in the future.
In businesses, physical and real assets may be weighed when a business seeks a loan. Possessions included in the list of tangible assets for business include business inventory, property the business holds, and equipment owned by the business. A lumber company’s real assets might include its current stock of lumber, any machines used to make lumber, the plant where the company operates, and any cash the company currently holds.
Sometimes when attempting to secure a loan, banks may consider only some assets as acceptable collateral. In the above example with the lumber company, a bank might not consider inventory or equipment as an ideal means of securing repayment of the loan. First off, inventory can change, and there’s nothing to prevent the lumber company from selling its lumber. Second, if the company ceases operation, the lender is then stuck with liquefying real assets. The lender may not want the trouble of selling lumber or equipment, and is more likely to consider tangible assets of cash balances and real estate holdings, since cash is easy to take and real estate is fairly easy to sell.
When a company is sold, though, real assets are often considered part of the selling price. A lumber company with new machines and a sizable stack of lumber is going to fetch a higher price than a simple warehouse with outdated machines and no inventory. It’s comparable to selling your house, car and boat at the same time, instead of selling one these assets individually.
There is use for intangible assets too. Some intellectual property, patents, or developments that are not yet in production may be so attractive in potential profit margin that they are worth purchasing, or even lending money so that a person can develop the intellectual property to create tangible assets like cash. Some companies are bought and sold based on their patents or earning potential, and fetch a high price because of this earning potential, even though tangible assets of the company at present are not highly valued.
