The Growth of Fine Art Secured Lending

According to Deloitte’s 2019 Art & Finance Report, the art secured lending market has grown rapidly over the last decade, with outstanding loans secured against fine art estimated to amount to between $21 billion and $24 billion in 2019. The value of this lending provided to collectors and private individuals is projected to account for 90%.

To help you understand the fine art lending market, we have covered some of the key market dynamics in more detail.

1. Reasons for borrowing against fine art

There are many reasons why a fine art owner may want to borrow against the value held in their fine art. Above all, a lot of their wealth could be locked up in their high-value fine art, and they may want to utilise this capital for a different business or personal purpose. Some specific examples of why owners leverage their fine art include:

• Releasing the value in their existing fine art collection to overcome a short term personal or business cash flow need
• Releasing the value in their existing fine art collection to purchase new pieces at auction or private sale
• Selling their fine art at auction or private sale but they require the funds before the sale date which could be months away

Collectors and private individuals looking to release the equity held in their fine art always tends to have an exit plan in place before taking out a short term lending facility.

2. Difficulties accessing art finance through banks

Whilst some commercial and private banks offer art lending solutions, many collectors, private individuals and dealers often can’t be serviced by these providers due to their strict lending criteria. As a result, many often struggle to access funds, which ultimately impacts their ability to grow their business and overcome liquidity challenges. However, specialist lenders have opened fine art finance to a broader group of collectors, dealers and private individuals by offering less stringent lending requirements.

3. Off-putting underwriting process required by some banks

There is some hesitation towards art lending, specifically among art dealers due to some lenders’ lengthy due diligence processes, mainly art finance services offered by private and commercial banks. However, boutique lenders tend to provide a faster, more straightforward approach, and capital can often be released much more quickly.

4. Access to art acquisition finance

87% of art dealers surveyed by Art Tactic in 2018 said they would like better access to art acquisition finance, as many have to self-finance or co-invest with another investor to make fine art acquisitions at auction and private sales. Alternative acquisition finance solutions offered by some specialist lenders can help fine art market participants take advantage of purchase opportunities when they arise which can ultimately help them achieve their financial goals.

5. Improving product awareness

While the value proposition of fine art collateral lending is clear and product awareness has increased dramatically in recent years, many collectors, dealers, and private individuals who would find this service attractive are still unaware of the products and services available to them.

6. Limited market knowledge amongst service professionals

According to Deloitte’s 2019 Art & Finance Report, art secured lending is one of the most popular financial advisory services amongst high net worth (HNW) individuals as many HNW’s have fine art portfolios. Although, many service professionals such as financial advisers and wealth managers lack knowledge of the fine art market and the benefits fine art lending offers, which means fine art lending solutions are often not advised to clients as widely as they could be.

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