Skip to content

The Secrets of Art Finance

The Secrets of Art Finance

The transformation of the wealth management sector, the global art market and the cultural and creative sectors (CCS) are rapidly creating new needs and opportunities at the intersection of art and finance, including one of the most discreet financial services in the world.

Art and collectible assets require the same attention as other assets. Talking about the market size, the Ultra-High-Net-Worth Individuals’ (UHNWIs) wealth associated with art and collectibles was an estimated US$1,481 billion in 2020. But what is the underlying reason that UHNWIs favour art-secured loans? 

Based in the Principality, Monaco Art Structuring plays an important part in the Ultra-High-Net-Worth scene. Since 2014, its founders have actively helped art collectors to manage their financial needs.

Compared to the lengthy process of the Superyacht re-financing (on average up to 8 months), or the real estate loans (1-2 months), the funds of the art-secured loan are usually available within 10 days after collateral assessment. Lenders usually offer transparent pricing, quick decision timeframes, and personal services.

Although the United States is the leader of art finance, the Covid19 pandemic has changed the European market and increased the appetite towards art-secured loans as a tool for addressing the liquidity challenges. Some European banks also started to offer art-secured lending as their complimentary services for HNWIs, therefore they are becoming ideal partners for the collectors. However, most of the clients have different agendas.

Generally speaking, most of the UHNWIs do not need a loan, however, wealthy people like to increase their wealth by making smart decisions. They also prefer liquidity since utilising part of their cash flow can bring them much more results.

Springtime (1872) by Claude Monet
Springtime (1872) by Claude Monet, Walters Art Museum

The most coveted Art Finance Report by Deloitte discusses that 48% of collectors are saying their main motivation for using their art collection to secure loans is to finance the acquisition of more art.

Using art-secured financing to buy art without having to sell other assets and unlocking capital for other investments are the main drivers in the art lending market for most (80%) of the art-secured lending providers surveyed this year.

It is a niche-credit service targeted to (U)HNW individuals, where almost all of the major financial players will lend against up to 50% of the appraised fair market value of the artwork. Typically, the loans are in the 1  to 20 million Euro range, but some banks are willing to lend up to 250 million Euro on a case-by-case basis. The loan is usually offered up to three years (two years with the possibility to extend) against artworks that have proven track records on the secondary market.

Art-secured loan is relatively a quick process, however, the main advantage why the UHNWIs choose this financial service is the utmost discretion. When it comes to art finance, the focus is on the artwork only, no extensive background check and taxation/financial reports are needed from the owner. If the provenance of the artwork is in order, then it fully serves as the collateral and guarantee of the loan. Liability is strictly restricted to the artwork. This is one of the key reasons why UHNWIs love this service because they are not screened and questioned by the banks.

Art-secured lending is not something new. It was first pioneered in the 1970s. The key is that a work of art is not only an object of pleasure, but it can also be  long-term collateral to secure further investments. This way, art-secured lending can unlock liquidity for investment or personal finance purposes. While one enjoys their art collection on the walls at home, one can also use it to inject money into their business.

Saint Jerome Writing (1605–1606) by Caravaggio
Saint Jerome Writing (1605–1606) by Caravaggio, Galleria Borghese, Rome

Depending on the regulations of the country of the primary residence of the owner, they might even keep the artwork in their home, enjoying it, while the art-secured loan is in place helping to achieve new acquisitions and endeavours.

Deloitte’s annual Art Finance Report conservatively estimates that the overall market size of outstanding loans against art could reach between US$24 billion and US$28.2 billion in 2021, a 10.7% average growth rate, and further grow to an estimated US$31.3 billion by 2022. This  is especially interesting in the light of their survey disclosing, that a staggering number of 76% of collectors said they would like wealth managers to incorporate art and collectibles into their service offering.

Just to put this estimated US$31.3 billion in context, according to the art market website, Artnet, the total amount of money spent on postwar and contemporary art at auction in 2019 was US$4.2 billion, and the total amount of money spent on fine art, design, and decorative art at auction last year was US$17.8 billion. 

Art-secured lending ranked among the most popular art and wealth management services in 2019. Based on a survey conducted by Deloitte, 60% of the art collectors say that art-secured lending was one of the most relevant wealth management services for them. Also, 69% of collectors said they would be interested in using their art collection (or parts of it) as collateral.

What one can find fascinating as well is that despite significant demands for art-secured lending services, only one in three banks is willing to offer this service in Europe. In contrast to this, 80% of US private banks are open to providing art-secured lending. On the contrary, Europe has not yet included its art-secured lending into its services. The team of Monaco Art Structuring strongly believes – seeing the trends in the Principality of Monaco and other European UHNWIs locations – that  increasingly more  art collectors prefer this way of overcoming temporary liquidity problems.