Fine Artwork Can Leverage for Additional Liquidity – Creative Finance

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Our recent study showing creative investors especially net lease commercial real estate have increased using their art collections as collateral loan.  The question is WHY?

The value of their art collection has increased significantly for last several years now.  However many art collectors do not want to sell their arts because of too expensive when they sell as mentioned in our previous blog, “The Best Way Creating Liquidity Value of Your Art Collection – Borrow

There are more willingness banks and smaller art lenders are aggressively offering loan secured by art collector.

For art collector (borrower), it depends on what type of loan, the loan-to-value (LTV), annual interest rate and terms.

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There are two types of secured art-loans

  1. Recourse
  2. Non-recourse.

Recourse loan where art is required as collateral for the loan but the borrower also has to provide a personal guarantee of payment.  That means if the borrower defaults and the bank can’t recover the full amount of the loan by selling the art, it can make a claim on the borrower’s other assets.

Non-recourse loan where it does not require borrower’s personal guarantee.  The artwork is the only asset that is the security for the loan.

Because of the low risk associates with the recourse loan, lender offer much lower rates.  It’s also a part of an overall relationship with a wealthy client.  Borrowers may be able to get rates as low as prime plus 2% or 3%.  Conversely, the non-recourse loan, annual interest rates vary largely but typically range from prime plus 6% to 13%.

The minimum loan is $US 5 million for an art-secured loan.  Since loans typically are around 50% of the appraised value of the art, the borrower’s collection would need to be worth around $10 million or more. Also the minimum value of each piece is $200,000.

These are typical requirements for these art-loans.

Borrower requires proof of authenticity such as purchase document, exhibition history, sale history and inclusion in a catalog.

Borrowers also need to prove that they own the art outright, with no possibility of anyone else claiming it in situations like divorce or a disputed inheritance.

In addition, certain lender prefer a certain type of art collections.  They make better collateral than other.  For instance, some lender prefers artworks from ancient civilization; other lender prefers artworks between 19th century impressionist painting and postwar or contemporary art.

Where the money goes are stated in our previous blog: ““The Best Way Creating Liquidity Value of Your Art Collection – Borrow

CONTACT US… Collectors interested in arranging financing should contact us for free consultation.  We will assist to identify the borrowing need, determine what type of financing makes the most sense, and facilitate the appropriate lender.  Please note minimum appraisal report is at $US 5 million.  There is no maximum amount.

Related resources at Amazon Corner:

  1. Structured Finance and Insurance: The ART of Managing Capital and Risk
  2. The Art of Buying Art: An Insider’s Guide to Collecting Contemporary Art
  3. The Art Business
  4. Art as an Investment
  5. Risk and Uncertainty in the Art World
  6. The Explosion of the Art Market in the 21st Century
  7. Fine Art and High Finance: Expert Advice on the Economics of Ownership

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