The Finance World Magazine| Edition: April 2023

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If you are a collector of fine art, you
likely have a clear understanding
of what attracted you to each piece
in your collection. You may even
possess detailed knowledge about
the artists’ personal histories and
creative inspirations. However, you
may not be aware that you can use your
artwork as collateral to obtain a loan,
which can provide liquidity to pursue
various financial opportunities. These
opportunities may include acquiring
additional artwork, financing business
objectives, or taking advantage of other
prospects.
While you may have purchased fine
art primarily for your deep aesthetic
interest and passion, your collection
may also hold significant financial
value. The art market has experienced
fluctuations in recent years, and
collector interest has grown in both
established and emerging segments,
meaning the value of your collection
may have changed over time. Utilizing
a fine art loan may be a beneficial
approach to release capital that can
be utilized to achieve other objectives,
such as acquiring more art or investing
in cash flow assets.
Increasingly, affluent art collectors
are taking advantage of low interest
rates by borrowing against their
valuable art collections, including
pieces by renowned artists such as
Picasso and Basquiat. However, this
trend also increases the potential for
a leveraged boom and bust in the art
market. Although the larger banks
currently dominate the art lending
sector due to lower interest rates, art
finance firms and auction houses are
expanding their loan services to draw
in more clients.
According to sources, Sotheby’s is
leading the non-bank category’s efforts
to provide art loans. The company’s
art loan portfolio is estimated to be
approximately $1B, and it claims that
this figure increased by 50% between
2021 and 2022, which is impressive
considering the challenges faced in
2021.
Additionally, the firm promotes its
business by providing high-end buyers
with a loan equivalent to 50% of the
hammer price on purchases exceeding
$2M at its auctions, with the entire
process - from application to funding
- taking only 30 days.
It appears that Sotheby’s may soon
provide clients with the option to
securitize personal loans secured by
their art collections. According to
Bloomberg, discussions about this
service are still in the early stages.
Meanwhile, Yieldstreet, an alternative
asset investment company that acquired
the specialist art-secured lender Athena
in 2019, announced that its members
invested $1B on the platform in 2022,
which is their highest ever total. Athena
reports that it has funded over $500M
in the art-lending sector to date.
There are various types of loans
available in the art financing industry,
and different players offer different
services. One type of loan is nonrecourse,
which means that if the
borrower fails to repay, the lender
cannot seize other assets belonging
to the borrower. Borro is an example
of such a lender, and it specializes in
short-term financing for artworks and
other assets. Borro’s interest rates vary
depending on the size of the loan, with
larger loans attracting lower interest
rates. On average, the interest rate is
between 3% and 4% per month.
By borrowing against your fine art
You may unlock the
value of your art
collection to buy
more art or invest
in appreciating
assets and
diversify your
portfolio.
collection, you can use the funds to
purchase additional art or invest in
other assets that have the potential to
appreciate, which can help diversify
your portfolio. Borrowing against a
potentially appreciating asset, like fine
art, can provide positive leverage to
achieve asset diversification.
Additionally, art-related loans
generally have lower interest rates
compared to unsecured loans. Selling
artwork at an inopportune time, such
as when you are exhibiting your
collection, can be avoided by taking
out a loan instead. Furthermore, you
may have a strong personal attachment
to certain pieces in your collection and
prefer not to sell them at auction. By
taking out a loan instead of selling,
you can avoid paying taxes on art sales
that are not as tax-favorable as other
asset classes. You retain ownership
of the art and can still display it as
usual. It may even be loaned out to
galleries or museums, provided there
are appropriate insurance, guarantees,
and other agreements in place.
April 2023 www.thefinanceworld.com 97