Companies which pledge patent rights to get bank loans are becoming a popular way to secure financing in southeastern China, where many technology startups are looking for funding support to sustain their growth.

A technology-oriented branch of Tailong Bank, a local commercial bank in Taizhou, Zhejiang province, had issued 165 million yuan ($23.5 million) in patent pledge loans by the end of September, accounting for more than 55 percent of total outstanding loans by the branch, the bank said.

Supporting local technology startups, which have independent intellectual property and innovative business models, is the key service of the Tailong Bank to win new clients, said Yuan Zhiwei, a senior manager of the bank's branch in Taizhou.

That is also the bank's new development strategy, as it decided to diversify services based on a study of market segmentation.

"There are more than 3,000 small and micro technology companies, an emerging group that requires new types of financial services," Yuan explained.

By pledging its patent rights, Taizhou Ximai Company, a producer of water taps with many independent intellectual property rights for its core technology, received 1 million yuan in loans from Tailong Bank recently, without providing collateral or guarantees from a third party.

The lack of collateral is one of the main reasons that SMEs cannot access bank loans. It is also a constraint for some of the businesses of traditional banks.

"Promoting the patent pledge loan is a method to solve the financing difficulties for technology startups, as we have found," said Yuan.

But there are still some problems that need to be resolved, he said. For instance, there are difficulties on how to precisely evaluate the patent, and financial regulation standards need to be further improved to better control potential risks, the banker said.

The financial difficulties for SMEs have been highlighted by the government during the past year. Commercial banks, especially city and rural commercial banks, are adopting innovative financing models to support SMEs.

Although SMEs can open bank accounts to fund transactions, it does not mean that they can obtain financing, said Erik Feyen, head of the macro-financial unit and lead financial economist of the World Bank.

SMEs, which have financing demands, may not have enough financial records or fixed assets that they can present as collateral. Their abilities in financial management may also be limited.

For financial institutions, the cost of loans to SMEs is still very high, with various risks, "so those are the difficulties we should resolve," Feyen said.

Analysts suggested that to accelerate financial reform in China would require the capital markets and banking system to meet the needs of the privately-owned SMEs.

The development of financial technology, which can use advantages of big data, blockchain and artificial intelligence, may also help the financial sector to better invest in small companies with limited financial risks.