Art Financing Options

NEW YORK—Anyone who has purchased art knows that finding ways to pay for it can be a creative process in itselfespecially if youre strapped for cash at the moment you spot that must-have piece. But as the art market grows, so do the resources collectors can turn to for help with acquiring new works. Here is an overview of a few of the optionsfor both the super-wealthy and the emerging buyer.

Collateralized Loans

While art financing has existed in some form since at least the 1970s, its really only now that lending sources are widely available and people are widely aware of this product, says Andy Augenblick, president of Fine Art Capital, a New York-based company that offers a variety of art-related loans. Art financing [for all intents and purposes] is really a new industry.

Indeed, Fine Art Capital is now just one of several companies offering art financing: Sothebys, Bank of America, Citigroup Private Bank (which claims to be the first institution to offer such financing), JP Morgan, Art Capital Group and Art Finance Partners are some of the other lenders on the scene.

But dont expect to take advantage of their services unless you already have a sizeable collectionbecause youll have to pony up your Picassos and Pissarros for collateral.

Both Augenblick and Suzanne Gyorgy, vice president of Citigroup Art Advisory Service, say that the funds most of these lenders offer are borrowed against already-owned artworks or other high-value collateral.

We look for internationally marketable fine art with an individual value of $100,000 by artists with a documented record at auction, Gyorgy says. She adds that Citigroups minimum loan size is $5 million.

While Fine Art Capital offers a lower minimum of $500,000, both lenders cater to a group Augenblick calls high-net-worth individuals.

If you fall into that category, Augenblick stresses, some lenders will consider collateralizing not just traditional fine art, but also items such as valuable coin collections, stamps and antique musical instruments.

He adds that people have borrowed against their art assets not only to grow their collections, but also to invest in business and real estate opportunities, pay taxes, send their children to college and even finance divorces.

One of the biggest advantages of this financing approach? Many lenders let borrowers keep their artworks at home, and some also take care of details such as appraisal, Gyorgy says.

We lend to really passionate collectors, so for them its key [that they be able to keep the art at home], she says.

Augenblick said other advantages include longer termsmost bank loans are for one year, while art loans can extend to 20 years in some cases. You wouldnt buy a house with a one-year mortgage, he said. Its the same thing with art.

Collectors often also can get larger loans based on their art. Say a person has $10 million worth of art, but $1 million in the bank, Augenblick said. A bank [that doesnt offer art financing] isnt going to feel comfortable lending that person three, four or five million dollars because they dont understand the art. Were comfortable lending that person a lot more funds.

He added that interest rates for art liquidity loans are similar to traditional loans, based on the borrowers creditworthiness.

Gallery Financing

Collectors who dont qualify for collateralized loans have other options, says Myrtis Bedolla, owner of Galerie Myrtis in Washington, D.C. (set to open in October) and president and owner of the Baltimore-based Creative Artisans, an arts consultancy advising corporate, private and institutional collectors in the acquisition and sale of fine art.

Bedolla recommends in-house financing, a process where the gallery allows the customer to pay for an art purchase over time.

Many offer this service without finance charges, or at a very low interest rate, usually between 3 to 5 percent, Bedolla says. In both scenarios, the art remains in possession of the art dealer or gallery until it is paid in full.

She added that in-house policies vary, with most galleries requiring a non-refundable deposit of one-third of the purchase price for works valued up to $10,000.

The dealer or gallery sets the minimum and the customer is granted up to three months to pay off the balance, Bedolla said. For more expensive works of art, for example those ranging from $10,000 and up, buyers often have six months to make their final payment.