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What is Art Finance?

By Elise Czajkowski
Updated May 16, 2024
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Art finance is the industry of financial services relating to the buying and selling of artwork. Services include art appraisal, personal shopping services, art insurance, market research, curatorial services, and art secured lending. Art finance is also known as art advisory.

Art finance services are generally provided by private banks, auction houses, and consulting firms. They are marketed to high-end clients who are art collectors or sometimes directly to artists. Independent art-finance consultancy firms advise clients on purchase and sale transactions, special-purpose investments, wealth transfer, and the restructuring of art businesses and collections. Art finance became a significant industry in the 1980s as the popularity of investing in fine art grew. Investment in art purely for financial gain has also grown, especially on the international stage.

The term art finance can mean either 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 wanting to leverage an existing art collection to fund new purchases. They are also used for art owners looking to acquire cash to cover a debt, or art dealers who need funding to purchase new works.

Sometimes, art loans are structured like a reverse mortgage. This allows an art owner to receive monthly payments against the value of a work of art, instead of selling the piece outright. This permits the owner to avoid paying a capital gains tax.

Art loans are a delicate financial investment. Determining the absolute value for any piece of fine art is nearly impossible. Many factors play a role in determining the worth of a work of art. These factors can change dramatically over time, making lending money against art a risky practice.

Lenders may place many provisions in an art loan document to reduce the potential risk. The lender might require a reappraisal of the artwork being used as collateral at some point during the loan period. If the value of the work has diminished, the lender may ask for more collateral or demand a partial payback of the loan.

To defend against a reduction in the value of art, many lenders will not advance more than half of the value of a piece. Lenders will often also charge high interest rates on art loans, generally three to four points about the prime interest rate. Interest rates can be as high as 18% in some cases.

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