Art finance involves buying and selling works of art, with services including appraisals, insurance, and loans. Private banks, auction houses, and consultancies offer these services to high-end clients. Art loans allow owners to leverage their collections for financing, but determining a work’s value is difficult and lenders may put provisions in place to reduce risk. Interest rates on art loans can be high.
Art finance is the financial services industry relating to the buying and selling of works of art. Services include fine art appraisals, personal purchasing services, fine art insurance, market research, curatorial services, and secured fine art loans. Art Finance is also known as Art Consulting.
Art finance services are typically provided by private banks, auction houses and consultancies. They are marketed to high-end customers who are art collectors or sometimes directly to artists. Independent art finance advisory firms advise clients on buying and selling transactions, special investments, wealth transfers and restructuring of businesses and art collections. Art finance became a significant industry in the 1980s as fine art investing grew in popularity. Investments in purely profit-making art have also grown, especially on the international scene.
The term art finance can mean the process of acquiring art by financing or the practice of using artwork as collateral in a loan, known as an art loan. Art loans are often acquired by people who want to leverage an existing art collection to finance new purchases. They are also used for art owners looking to acquire money to pay off a debt or for art dealers who need finance to purchase new works.
Sometimes, art loans are structured like a reverse mortgage. This allows an art owner to receive monthly payments against an artwork’s value, instead of selling the piece outright. This allows the owner to avoid paying a capital gains tax.
Art loans are a delicate financial investment. Determining the absolute value of any work of art is nearly impossible. Many factors play a role in determining the value of a work of art. These factors can change dramatically over time, making art lending a risky business.
Lenders can put many provisions into an art loan document to reduce potential risk. The lender may require a re-evaluation of the artwork used as collateral at some point during the loan term. If the value of the work has decreased, the lender can ask for additional guarantees or request a partial repayment of the loan.
To defend against a reduction in the value of art, many lenders will not advance more than half the value of a work. Lenders often charge high interest rates on art loans, usually three to four points off the prime interest rate. Interest rates can be as high as 18% in some cases.
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