Your art collection as loan collateral
Use the art you own to borrow the funds you need — all without a single work leaving your walls
Fine art is a powerful capital financial asset that may be considered as part of your overall wealth management strategy such as using your collection as collateral to gain liquidity for other financial opportunities.
Art and Liquidity
As a fine art collector, you no doubt have a very clear sense of what drew you to each piece in your collection. You may even be able to talk in depth on the personal history and creative influences of the artists whose works you own. Yet if you are like many collectors, you may only vaguely be aware that you can use art as collateral for a loan. By borrowing against your artwork, you may create liquidity to take advantage of a broad range of financial opportunities. You might think about:
- Acquiring additional artwork
- Financing business goals
- Taking advantage of other opportunities
As a Bank of America Private Bank client, you have access to a qualified team of Bank of America fine art credit executives who can help you borrow against your art collection while you maintain possession of every piece.
Deep aesthetic interest and passion may be your main motivations for buying fine art. Yet your collection may be valuable in financial terms. Given the fluctuations in the art market over the past few years, as well as collector interest in both established and new segments, the value of your collection may have changed over time.
A fine art loan may be an effective way to unlock capital, which can be used to fulfill other goals such as the purchase of additional art or cash flowing assets.
Fine Art Lending General Guidelines
- Appropriate for: Art collectors with an internationally recognized collection valued at $10 million or more.
- Loan amount: A minimum of $5 million.
- Facility types: Renewable lines of credit.
- Pricing: Interest rate per annum will be equal to the Bloomberg Short-Term Bank Yield Index rate (“BSBY”) Daily Floating Rate plus a spread.
The process of borrowing is straightforward. Your advisor, in tandem with a Bank of America fine art credit executive, will assess your overall financial profile to help identify opportunities for you to borrow against your art. A proposal will then be provided to you outlining a borrowing structure for your consideration.
From there, a professional appraiser will be engaged to determine the value of your collection that will be used for borrowing. The loan amount is typically advanced up to 50% of the appraised value. Because the value of art fluctuates, the art used as collateral will be appraised annually, while remaining on your walls.
The loan, once approved, will be documented and closed with all the requisite information such as bill of sale, insurance certificates, appraisal and so forth. The funds will then be disbursed so you may execute against your opportunity.
Not every collector and collection qualifies for art lending. Typically, a borrower must have a collection with a minimum value of $10 million or more. Collections should also have diversified holdings among artists and time periods. This protects the borrower should a particular artist or genre experience softness in the market.
You might use the funds to acquire additional artwork or to take advantage of another opportunity. Borrowing against a potentially appreciating asset (like a lot of fine art, recently) for other assets which may also appreciate can have financial advantages such as positive leverage to achieve asset diversification. What you may pay in interest on an art-related loan is generally less than the fees for an unsecured loan.
Such loans can also be preferable to selling artwork at an inopportune time — for example, when you are exhibiting your collection. You may also have a deep aesthetic or emotional connection to certain pieces and would not wish to put them up for auction. On top of that, with a loan rather than a sale, you may avoid having to deal with taxes on art sales, which are not afforded the same favorable tax treatment as other asset classes.
You maintain ownership of the collateralized artwork and usually will still be able to display the pieces as you normally would. They can hang on your walls or, with appropriate insurance, guarantees and other agreements in place, may be lent for display in a gallery or museum.
If you think it’s time to use your art collection to create liquidity, speak with your private client advisor and/or one of our Bank of America fine art credit executives. The credit executives have a broad knowledge of artists and their work, as well as the financial and business aspects of the art world. They can draw upon relationships with several major auction houses and independent appraisers to help you value your personal collection and identify pieces that may be suitable as collateral for a loan or line of credit.
Your Art Collection as Legacy
It’s important to determine what role art will play as part of your portfolio of assets while you are alive. But it’s just as critical to consider what you would like to see happen to your collectibles when you are gone. Preparing for that now can safeguard the legacy of your collection in the future.
Bank of America Private Bank has special expertise and resources in this area, and we can help clients who appreciate and collect art to navigate financial and estate planning issues so they can reap the most benefits from their collections. Talk to your advisor about our companion article, Your Art Collection and Legacy Planning.
To learn more about how to create liquidity via your collection, please visit privatebank.bankofamerica.com/art.
1 Source: Dr. Clare McAndrew, The Art Market 2018.
Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.
Credit facilities are provided by Bank of America, N.A., Member FDIC, its subsidiaries or other bank subsidiaries of Bank of America Corporation, each an Equal Opportunity Lender. All loans and collateral are subject to credit approval and may require the filing of financing statements or other lien notices in public records. Asset-based financing involves special risks and is not for everyone. When considering an asset-based loan, consideration should be given to individual requirements, asset portfolio composition and risk tolerance, as well as capital gains, portfolio performance expectations and investment time horizon. A complete description of the loan terms will be found in the individual credit facility documentation and agreements. Clients should consult with their own independent tax and legal advisors.
Nonfinancial assets are not in the best interest of all collectors. Special risk considerations include complex tax considerations and lack of liquidity. Nonfinancial assets are not suitable for all investors. Always consult your independent attorney, tax advisor, investment manager and insurance agent for final recommendations and before changing or implementing any financial, tax or estate planning strategy