Art Finance & Loans

Fine art finance is complex to arrange, and very few lenders operate in the space. As a result, interest rates vary significantly from lender to lender and are based on internal assessments, valuations, risk analysis and the art at the centre of it all. When it comes to fine art finance, the amount you are borrowing and how long you are borrowing for will set the scene for if this type of finance makes sense. 

Private banks used to be the art finance industry’s market leaders, but many found it challenging to maintain profits and consequently, they moved away from art finance and art investment activities. Some private banks still provide fine art finance. However, these tend to be smaller departments, and they are challenging to reach through traditional avenues – you will most likely need an introduction through a broker like Enness. Today, specialist and niche lenders are also very attractive lenders for art-backed loans.

The terms you are offered for fine art finance will be unique to you, and there is little room to guess what you will be offered without putting forward your art for consideration. The very best rates could be as low as 2-3%, although these are relatively exceptional cases. At the top end of the scale, you might see rates of 9%, and double-digit rates aren’t unheard of. The considerable span in interest rates only serves to underline why working with a broker like Enness can be so beneficial: there are very significant savings to be made if you work with a partner who can secure the most advantageous rates. 

While taking loans and raising capital can be a necessity for individual or business reasons, art ownership is almost always personal, even when it is principally an investment. The mix of personal and financial motivations can be complex to traverse, and there are several angles Enness will help you consider when it comes to art-backed finance. 

Firstly, it’s essential to know that most lenders will not allow you to keep the art in your possession or in its present location if you use it as collateral for a loan. Generally, your location (and that of the art) will dictate whether you can retain possession of your art. The US has codes that will allow for this for example, as do some European countries, although others don’t. Lender appetite also plays a big part even if local laws theoretically enable you to retain art you have borrowed against. Many lenders simply won’t consent to it.

If you want to keep possession of your art and Enness secures an offer that will allow you to do so (in line with local laws), other factors need to be measured. Your art will need to be regularly appraised so the lender can ensure it remains undamaged, authentic and it hasn’t dropped in value. Because this requires more of an investment from your lender in terms of appraisals and valuations, and the loan carries more risk because the art isn’t in their care, you will pay more for this type of fine art finance. Insurance will also be a significant consideration, and you will need to seek expert guidance on coverage in what is both a delicate and unusual situation. You will want to ensure additional insurance and higher loan costs will make sense for you from a financial perspective. 

The art you own or your portfolio will also play a part. Some lenders prefer a diverse portfolio of art, and others have no constraints in lending against a single piece of fine art. However, a portfolio of old masters will have different pulling power than a single Damien Hirst for example, and every lender will have its own capabilities to lend against different types of art. 

As with any loan, there are consequences if you default. Lenders generally offer fine art finance at around 40% (in exceptional cases, sometimes a little more) of the value of your artwork. The low loan-to-value ratio reflects the risk lenders take on and the fluctuating value and demand for fine art: lenders need to ensure they have a margin if the art’s price drops rapidly during the period of your loan. Lenders will sell art as a last resort, but it has happened, and if they do so, you stand to lose much more than you have borrowed. Understanding the risks of art-backed finance and having a solid exit plan is imperative. By doing so, many individuals are hugely successful in using this type of finance. 

How you plan to exit an art-backed loan will be essential to getting the best loan. While you can sell your artwork to raise funds to pay off your loan, many people wish to retain their art to benefit from the long-term appreciation it offers. Lenders are keen to do business and are generally happy if you opt for this route. However, you will need to have a solid game plan in place that Enness can present to lenders, detailing how you plan to pay back the loan with other funds. 

Art-backed finance can take a little longer than other types of "quick" lending (securities-backed lending typically moves faster, for example). The reason for this is that art will need to be valued and authenticated by, or on behalf of your lender. An expert will carry out the appraisal, and there’s no way to substitute having this done in person.

Art finance is relatively quick when you have access to a player like Enness, who knows which parties will have an appetite to lend. As an expert negotiator, your broker will also know which details to bring to the table to entice lenders to offer you the most competitive deal. 

In the first instance, your broker will start by sharing the details of the art you’d like to borrow against with prospective lenders. Depending on how much you are willing to reveal, Enness will share photographs, relevant documentation and the details of your fine art or art collection with select lenders. If you wish to receive initial offers without revealing the full details of your ownership to maintain confidentiality, Enness will be able to cater to this, although rates and terms will be approximate. 

When Enness has sourced a competitive offer that you would like to accept, your lender will need more documents and details if you have not already supplied them. They will also want a specialist to appraise and value your artwork.

Depending on where your art is located and where the appraiser is (and how easy it is to bring them together), this can go more or less quickly. Art experts can generally be found in all major cities, although you may have to wait a little longer if you have a rare piece that requires a particularly specialist appraisal.

For the right borrower and the right transaction, you will find that lenders will do their utmost to ensure that a valuation and inspection can be carried out in the minimum timeframe. From there, provided the appraiser and the lender are happy that the art is genuine, is owned by you and the art’s market value, things will move fast. When the art has been appraised and valued, your broker will tie up the loose ends to push the deal through to completion quickly. From there, lenders can usually release funds in as little as two to three weeks.

For many high-net-worth individuals, keeping the details of your art collection confidential will be extremely important. Privacy is paramount if it is not public knowledge that you are the owner of the art for security and privacy reasons. Naturally, you may also want to ensure that there is confidentiality around the fact that you wish to use your art as collateral for a loan, regardless of your motivation for this type of financing.

For their part, lenders will want to perform their own due diligence, both on your art and your ownership of it. Lenders will verify that you are the owner of the art and authenticate your ownership's provenance, plus that of previous owners. Ensuring that the art is authentic is also a critical point for lenders.

Enness only work with the best lenders in the field of art financing. Any lender Enness approaches for art-backed financing understands the requirements of operating in this part of the market: confidentiality, dependability and discretion are all standard.

However, if required, Enness will be able to keep the details of your ownership confidential in the initial stages of negotiations. To do this, your broker can provide details of the art you wish to secure collateral against and give basic details of your profile without revealing your complete identity. Lenders can give in initial "in principle" style offers to Enness as a well-known party with a trusted reputation. That said, the terms and finer details will require that you give the green light to share more information with lenders in the form of documentation, photographs, specific details about the art and other relevant information. However, many clients appreciate being able to have Enness negotiate starting offers while maintaining confidentiality in the initial stages of art-backed financing.