Q & A: Everything you want to know about art financing
Understanding art-based lending with Naomi Baigell of TPC Art Finance
When you buy a piece of art as a collector, traditionally, you get to live with it and enjoy its aesthetic contribution to your living space. Yet for an increasing number of collectors, art acquisition can be part of a broader picture, where passion investments in arts also allow collectors to pursue other investments, fund their acquisition strategies and more.
Art finance, also known as art-based lending, has become more prominent in the past decade as many collectors have realized their artwork can provide more than visual and intellectual pleasure. To learn more about the details of this unique financing option, I spoke with Naomi Baigell, Managing Director of TPC Art Finance. Here, she shares an overview of art-based lending for collectors interested in understanding this growing space.
Q: Let’s start with basics, can you explain what “art lending” and “art finance” are?
Naomi Baigell: Art lending (or art finance) is a service that can be provided by both banks and specialized lending companies offering loans to art collectors and high net worth individuals secured by their artworks as collateral. Typically, the owner of the artwork can expect to receive up to 50% of the artwork’s value as a loan.
Q: When you say 50% of an artwork’s value, can you elaborate on which definition of value you use?
Naomi Baigell: Yes! We use the Fair Market Value when determining a loan opportunity at TPC Art Finance—how similar and like works, historically, sell by a particular artist. Let’s say you are financing a work by an artist whose similar pieces typically trade for $200,000, we would then be able to offer up to 50% of that value…or in this case $100,000 against the work of art.
Q: So why might a collector choose to leverage their fine art for temporary liquidity through art-based lending?
Naomi Baigell: There are a variety of reasons that collectors use art financing, with most either using the funds to seize an opportunity or to solve a short-term liquidity gap. We see clients borrowing to add to their art collections in place of selling to acquire more works, investing the funds in other business opportunities, and covering expenses from liquidity shortfalls.
About 90% of the loans that we make are for opportunistic purposes—such as borrowers using the funds to invest in more artwork or a business opportunity, and a majority of those are using the funds to build their collection.
Q: We’ve been speaking about fine art generally. What are the specific parameters for the kind of art that can be collateralized? Does it have to be a well-known name like Andy Warhol, or a mid-career artist like Julie Mehretu? What about all the younger emerging artists whose prices have set records in the past year, like Julie Curtiss or Amoako Boafo?
Naomi Baigell: After the most recent sales, I think that Curtiss and Boafo, among others, are becoming the new household names. But to answer your question regarding the “blue-chip” standard artist roster vs the new guard, yes, we lend against blue chip, mid-career and newer entrants to the secondary market. We find the mid-middle high end of the market our sweet spot and an area of collecting that is quite active with an audience that is our target demographic. We look to support those collectors who are participating in this sector of the market and currently have loans against works of art by the artists you mentioned and many others. We don’t discriminate against the more primary market artists, but we do like to see active transactional history and a bit of secondary market representation.
From our perspective, TPC Art Finance lends against most marketable fine art, which includes paintings, prints, photographs, and sculptural art with a minimum value of $100,000. The artists we accept must have some secondary market presence, which broadly means that the artist’s works have appeared at auction and achieved some consistent sales results. In addition to art, we might consider other areas of collecting, such as watches, classic cars or fine wine on a case-by-case basis.
Q: Ah, so you might accept a collection of Patek Phillipe and Rolex for collateral, and I guess I could keep my Swatch for daily use?
Naomi Baigell: Yes, keep your Swatch! It is not typical that we lend against assets other than fine art, but we would certainly love an opportunity to review and enter a conversation. The economics need to make sense to both parties and Patek Phillipe and the like would be a good watchmaker to test the concept.
Q: Can a collector request a loan with just one artwork, or do you require a few pieces?
Naomi Baigell: As we are only lending against the work(s) of art (or potentially collectibles as we’ve discussed!) and not any other assets the collector may have, we require at least 2-4 works of art depending upon the loan size.
Q: Would that be different if I had one vintage Ferrari to offer as collateral?
Naomi Baigell: As we always say, each loan is bespoke and a classic car loan would be a new journey for us, but we are intrigued by the asset and its collectors. We do like a diversified portfolio, so perhaps if the car collector also collected art, we may think about taking a work of art and a car if the values were balanced. However, in the case that it is just a car portfolio, we would likely prefer to have more than one car in order to underwrite the loan.
Q: Sounds like there are similarities in your approach and the insurance industry—we both tend to like a spread of risk. Once the collector and lender have agreed to the artwork and value, does TPC take possession of the artwork while it is being collateralized or can the collector continue to live with artwork?
Naomi Baigell: Good question! We do take possession of the artworks being used as collateral, as the artworks serve as the primary security for the loan. Working in collaboration with the borrower, the art is held in an agreed-upon storage facility that TPC has a relationship with for the duration of the loan.
Q: Some collectors lend their artwork to a museum for exhibition. Can that take place while the artwork has a lien against it?
Naomi Baigell: The quick answer is yes! We are always happy to see works included in museum/gallery exhibitions as well as art fairs. In those situations, we work with both the collector and the entity to ensure all the necessary documents and insurance coverage are in place, which involves a simple administrative process.
Q: What is minimum and maximum duration of a loan?
Naomi Baigell: Typically, loans run between 6 months and 2 years, though we are always happy to discuss the +/- of those durations.
Q: What are the three main pieces of advice you would give to someone who is interested in art financing/art lending to secure a loan?
Naomi Baigell: This is an incredibly valuable question and one that we have learned to review with clients when discussing our loans and the speed by which we can accomplish their objectives. When considering an art loan, we recommend taking the following steps to have a smooth experience:
- Have your collection and its documents organized, so that you can provide all information on the works as needed. This includes:
- Images of artwork and identifying information (artist, title, date, medium, size)
- Ownership documents: Bills of sale/sales receipt
- Provenance information, such as previous owners, literature and exhibition history, etc.
- Decide what kind of lender is better-suited to you.
- If speed and flexibility are the key drivers to taking the loan, then a loan with a specialty lender (like TPC) will likely better suit your needs
- If you are seeking a long-term loan with low rates and have a strong/liquid balance sheet, a loan from a private bank could serve you
- Work with a lender that you have a good relationship with and trust.
Editors Note: It’s also important to have a conversation with your insurance agent or provider, informing them of your plans to collateralize your artwork. Typically, the art lender will be listed as an additional named insured or loss payee.
Whether you see your art as adding a bright splash of color to your living room, or as part of an investment strategy to further grow your collection or entrepreneurial pursuits, art financing is one area that shows us that the possibilities of art are endless.
Naomi Baigell is Managing Director of TPC Art Finance.
Katja Zigerlig is Vice President of Art, Wine and Collectibles Advisory at Berkley One (a Berkley Company).
This document is advisory in nature and is offered as a resource. It is an overview only and is not intended as a substitute for consultation with your insurance broker, or for legal, financial or professional advice.