Selling an artwork is not just the only way to tap its value. If you want to retain possession over a piece but need to generate cash from it, you can simply use it as collateral for a loan.
Borrowers have varying reasons for taking an art-backed loan. Commonly, loans secured by artworks are used to keep cash flowing in a new business, cover an unexpected need, or buy more art. But ultimately, most have taken this type of loan because it’s convenient and practical.
How to Apply for an Art-Backed Loan
You can apply for art-backed loans through banks or lenders like Biltmore that specializes in loans that are secured by high-value assets.
Generally, the process of applying for a loan using art as collateral is summed up in these three steps:
- Determine the artwork you want to use as collateral. Go through your art collection and choose a piece that you would use as guarantee for a loan. More than its value, you also need to consider its emotional attachment to you. Remember, taking a collateral loan involves a certain level of risk, so it’s best to choose a piece that you are ready to part with in case the loan defaults.
- Set an appointment and take the piece for appraisal. An artwork needs to be evaluated to determine its current value and know the loan amount. Typically, you will be allowed to borrow a percentage of the appraised value.Knowing the real value of an artwork may take time in order to verify its authenticity and provenance. If you have any paperwork on the piece, bring it along to help speed up the appraisal process. You can also send images ahead of time and other details such as the artwork’s dimensions, its title, and the name of the artist who created it.
- Decide whether the loan is a go or a no. An offer will be made to you depending on the results of the appraisal. Important details about the loan such as term, duration and interest rates will also be discussed to you. Based from that, you will decide whether to take the loan or not.If you agree with the terms, you can sign on the contract and receive the loan amount. If you don’t, you can try to negotiate or explore options with other lenders.
Protection for the Borrower and Lender
In most cases, lenders put the artwork used as collateral in a secured place for the duration of the loan. But according to a report, borrowers can still keep the piece in their gallery if its security of interest is registered under the Uniform Commercial Code.
Meanwhile, the same report states that new insurance policies are being developed for lenders who issue art-backed loans. These plans are designed to protect lenders from the risks involved when the borrower is allowed to keep the piece during the loan.
In the past, we have seen how collateral loans guaranteed by art have helped people and institutions with their financial needs. In 2009, the Metropolitan Opera used two murals as collateral for a loan. During the same year, Annie Leibovitz, a famous portrait photographer, has used the copyright of her artwork as leverage in order to pay her mortgage debt.
Clearly, your art collection can help you overcome money challenges or assist you with accomplishing your financial goals. If you’re interested in taking this type of loan, Biltmore can help you out. Get in touch with our team and set a free and no-obligation appointment with us.