www.attorneybarbaradalvano.weebly.com for the article: The Art of Valuing Art
According to some research, it appears that the culture of art collecting has been changing over the decades.
Generational attitudes often differ significantly from their parents.
Older generations deemed art as something to be acquired, enjoyed and eventually passed on to future generations.
Younger generations are more likely to use art, not only as an investment, but also as loan collateral.
For each generation, art may have a different meaning and a different function. Even artists cannot agree on its purpose.
Using art as collateral for a loan means that a collector can obtain cash for new investments; cash to acquire new art; cash for short-term needs; cash to realign assets for estate planning goals or to finance a business or to alleviate creditor stress.
The loan against an art collection is based on appraisal of the art; documentation of ownership, authentication and market comparisons (similar to real estate appraisal.)
Your great Aunt Ethel's collection of silver teaspoons might not qualify for a loan.
Most large banks have a threshold for a collection before they will consider a loan. In some cases the collection must have a minimum valuation of $10 million and the collection must be diversified by artist.
The art will need to have international marketability and be resistant to global economic downturn.
There is often a minimum loan amount and the interest rate charged for the loan will fluctuate.
What to expect when you use fine art as collateral for a loan?
There are two significant differences/categories: The asset based lender often does not care about default of the loan. It is dubbed "loan to own". The loan is based on only a a fraction of the collection's value. If the collector defaults on the loan, the lender owns the collection for 40 to 50% of its appraised value. Hence, the term 'loan to own.'
Art collections can also serve as additional collateral, in the situation where the original loan has become problematic.
Larger lenders desire the collector to continue to pay the interest on the loan and usually do not want the loan to go into default. They are not in the business of "owning" art, they are in the business of lending funds and collecting interest.
Point to remember: Art is not an income producing asset. Its financial value lies in its marketability to other collectors of art. Marketability of specific artists and genre can fluctuate widely.
Art is not what you see, but what you make others see. -Edgar Degas
Any fool can paint a picture, but it takes a wise person to be able to sell it. - Samuel Butler
Working To Preserve Your Wealth and Protect Your Future... in a Constantly Changing World
Please read my full Disclaimer and How I Can Help You
Visit my website: www.attorneybarbaradalvano.weebly.com for additional articles; information about free webinars and printable infographics