With art gaining increased acceptance as an asset class, a sudden interest in investing in the business of art can be noticed. An estimated calculation after consultation with industry leaders shows that the US-based art market has a financing in the range of US $7 billion. This range also seems to be increasing like the online trading emerged recently thanks to the binary option robot.
Do private banks favor the art of business?
It has been seen that private banks favor a very specific need while catering to the business of arts. They will not lend against decorative arts or fine arts such as watches and jewelry etc until and unless the client has an additional established and liquid secondary market. This discrimination is rampant and makes it difficult for several art businesses to flourish.
If you are one of those dealers who have a flourishing sheet of assets apart from the art inventory, you find a rather warm welcome at most private bank. This is appalling but true.
Most private banks would require the borrower to be able to pay off the debt from sources apart from the ones that are directly linked with the art business. If you have a liquidity problem at hand, private banks might not be the best option to choose.
The problems with options other than private banks are quite a few. For those who do not qualify for an art loan from private banks, there are limited choices. These choices do not seem to have protective regulations to back them up. Moreover, the fees and interest rates could go sky high. Some of the infamous lenders of the art industry tend to charge exorbitant rates and also involve the usage of abusive legal documents.
The Art Finance industry in New York
It is interesting to note that the art finance industry is bigger and more developed in New York than the rest of the world. There are two factors responsible for this development.
- A lender can place a lien under the UCC filling (Uniform Commercial Code). This allows borrowers to retain possession of their art.
- New York is both an art as well as a financial capital.
In Europe and UK, the financing of art collections and business continues to remain an underdeveloped market. The primary reason for this is the cultural stigma against borrowing.
What should a collector do?
If you are a collector who is looking for an art loan and do not meet the requirements of a private bank, there is still hope. Do your bit by getting references. You can hire a third party who will be able to find options that suit your preferences. There are fair lenders in the market but could be difficult to find. Once you can get hold of them, there is no looking back for you. However, if you end up borrowing from the wrong lender, you will not only pay more but might also lose your art collection. The art business industry requires careful and detailed research to find the one lender who can help your prospects to flourish.