Art financing explained

Today, art financing is an enterprise filled with life and energy. It’s no secret that the art market has witnessed a flurry of investment activity in the last few decades. Art has shifted from its heretofore category of “collectibles” to the more dynamic classification of “alternative asset”, and similar to any other asset class, investors are focused on maximizing their returns. Financing a purchase with a collateral loan provides the flexibility to do so.

This little known and under-used benefit of owning art provides the ability to access and put the value to use without having to sell the artwork. With a short term loan collateralized against an art asset, one can tap into its value while avoiding tax events and seller’s commissions involved in the selling of art. Not to mention that the process of reaching the right buyer can take months and even years. The relatively quick and simple loan process can provide the necessary funds to seize buying opportunities of other art assets for private collectors, dealers, museums, trusts, estates, and foundations.

Unlike traditional lending options, a collateral loan means that the loan is provided without a background or credit check. Lending is securitized purely by the collateral, which can be an attractive option for clients who are not only looking to acquire additional art assets, but who need to raise cash for other purposes such as financing unexpected cash flow issues, or executing a business plan, for example. This, in addition to other considerations like the possible capital gains tax on the sale of art, makes a collateral loan an attractive option.

Caroline Bostock is the General Operations Manager at Suttons & Robertsons.