Art and Capital – Art Banking, Art Loans and Art Finance
During the art market boom of the late 80’s when art became an accepted and viable form of investment, a need was created for people to be able to borrow against the artworks that they were investing in which resulted in a number of finance companies offering art loans. Art loans catered to three types of clients, those that wanted to leverage their existing art collection to fund new purchases, those that needed cash to cover debt, and art dealers who required funds to acquire new stock For those interested in the tax implications of art investment, some lenders offer loans similar to reverse mortgages where borrowers receive monthly payments against the value of their art instead of selling the work outright and being charged capital-gains tax.
The correction of the art market in the early 90’s caused a significant reduction in the number of people taking out loans against their art and consequently a reduction in the number of institutions offering art loans. The recent revival of the art market has seen a rapid growth in the art loan industry with auction houses, hedge funds, specialty lenders and banks all competing for people’s business.
Unlike the property market where value is relatively easy to determine and the factors that effect value are quantifiable, the value of fine art is much harder to determine and relies on many different factors which are difficult to measure thus making it much more risky for the lenders to provide loans against fine art. In order to reduce the potential risk, many lenders require what are essentially margin-call provisions which is where the lender reserves the right to reappraise the collateral, and if the value has dropped, to ask for more collateral or partial payback of the loan. Many lenders will also not advance any more than 50% of the value of the artwork which is another safety precaution that allows for any potential reduction in the value of the artwork during the loan period.
Burrowing money against art is definitely not the cheapest way of raising funds with interest rates as high as 18% and most lenders charging 3-4 points above the prime interest rate so you might want to think twice before using that Picasso to fund the villa in S you’ve had your eye on for so long. For those that would find such a service useful I have included links below for the four biggest players in the art finance industry, tell ’em the Art Market Blog sent you!!
Fine Art Capital
First Republic Bank
Art Capital Group
Sotheby’s Financial Services
**Nicholas Forrest is an art market analyst, art critic and journalist based in Sydney, Australia. He is the founder of artmarketblog.com, writes the art column for the magazine Antiques and Collectibles for Pleasure and Profit and contributes to many other publications.
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