Fine Art Finance

Today’s fine art collections are both a legacy and an investment for high-net-worth individuals and their families. As art collections grow both in the number of paintings and financial value, fine art finance is an increasingly popular method of raising capital. You can use art-backed loans for a wide variety of reasons. However, the most common of these could be when:

  • You have significant wealth tied up in a single piece of art or an art collection, but little income or other liquidity
  • You wish to raise significant capital without selling your art, which is likely to continue to rise in value 
  • You want to leverage a piece of fine art or your art collection to reinvest in other assets to seek more lucrative returns 

Art-backed is generally available to anyone with one or more high-value, fine art pieces that have a collective value of (or equivalent to) at least several million pounds. 

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Fine Art Finance

How Does Art Financing Work?

Art finance is used to unlock capital tied up in private art collections. Lenders offer you a loan, using your art as collateral. You can use the liquidity raised from an art-backed loan for practically any reason. However, capital is most often used to invest in a business, buy property, reinvest (i.e., buy more art, diversify assets or invest in a business), or pay off business or personal debt. In art-backed finance, you retain ownership but not usually possession of the art for the loan period. 

In the first instance, Enness’ broker will ask you for general information about the art that you’d like to secure a loan against, as well as how much you would like to borrow and by when. 

Fine art finance is very specialist, but different players have different appetites for lending. Despite the relatively small size of the market, it is possible to borrow significant amounts. Some lenders will offer loans to the tune of hundreds of millions of pounds to the right borrower. The type of art you are using as collateral, the size of your collection, the artist, period, provenance and amount you want to borrow will all influence which lender Enness will approach on your behalf. Fine art finance is generally a short-term financing option because of the relatively high costs associated with this type of loan. There is no "official" maximum loan term, but 18 months to three years is standard.

Enness will be able to go straight to the best sources of art-backed finance. With a proven track record in the art financing space, your broker will know which lenders to approach, regardless of how much you want to borrow or the complexity of your transaction. Enness will handle all the negotiations on your behalf and ensure the deal runs smoothly until completion. Naturally, your broker will also be available to you and your team at any point until the deal is finalised to assist with anything you need. 

The higher-value, more famous the art, and the more sought-after your artist(s), the easier it will be to secure art finance. Lenders never want to be in a position where they have no other choice than to sell your artwork because you have defaulted on the loan. However, the easier that process would be should the situation come to pass will be the benchmark of how easy it is to borrow using your art as collateral. 

How Much Can You Borrow Using Art-Backed Finance?

Art finance is a very specialist part of the market, and few lenders operate in the space. 

Because of the process and risks for lenders (i.e., art needs to be valued and appraised and the fact that there is always a potential risk of theft or damage), most lenders will only consider lending amounts of £2 million or more. Given lenders will only let you borrow in the region of 40% of the value of your art, your piece or collection needs to be significant for this type of financing to make sense. 

What Does Fine Art Finance Cost?

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. 

What Else Should You Consider When it Comes to Fine Art Finance?

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. 

Exiting Fine Art 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. 

How Quickly Can Enness Arrange Art Finance?

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.

Art Finance and Confidentiality

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.

Why Work with Enness to Broker Art Finance Deals?

Operating alone to seek out the best art-backed finance rates can be daunting. Art financing is a competitive space, and you’ll find an experienced negotiator on your side to help you secure the best loan will make a world of difference. 

Approaching several lenders by yourself to compare rates will be time-consuming, and you will be required to cover the same information multiple times, which can be frustrating. Terms can also be complex to compare and understanding which the best offer is won’t always be as straightforward as you’d expect. 

Art financing is typically a lender’s market. If you want to leverage your art, lenders are relatively free to set the rates and terms they want. Negotiating can also be challenging if you or your advisors deal directly with the lender: lenders will usually seek to offer standard market deals and nothing more attractive. 

Enness will open up the doors for negotiation and bring more authority and weight to your request. Your broker may also suggest approaching specialist lenders you may not know about to source the best deals for you.

Enness’ brokers will secure the best art financing rates and terms. You’ll benefit from your broker’s special relationships with leading fine art finance lenders. With a reputation that opens doors, Enness will save you valuable time and money. Your broker will also be able to lay out the facts in the right way and shine a light on details, elements or aspects of your background that will help lenders offer the most competitive finance. 

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Contact Enness for Fine Art Finance

Enness has both the track record and an unparalleled network of specialist lenders to secure the most competitive and advantageous art-backed loan for you. 

Contact Enness to have a no-obligation chat about your plans for fine art finance and explore how Enness can help you structure and streamline this specialist type of financing.

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