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Unpacking the FAQs About Art Financing
TPC Art Finance is a specialty lender for art collectors, providing a source of capital to finance business opportunities, acquire more art, and solve liquidity gaps. Loans are made for up to 50% of the marketable cash value of artworks or collections with terms ranging from 1-3 years. For those who want to unlock the value contained within their collection without parting ways with any artworks, TPC’s lending services can be a valuable tool. While the core concept of art-secured lending is straightforward (a collector uses works of art as collateral for a secured loan), there are some questions that oftentimes arise about the specifics of TPC’s lending practices. This post will provide answers to some of those questions and to describe some of the key differences between TPC and other sources of capital for the art community.
1. Who offers art lending services?
There are several kinds of institutions that offer art-secured lending services, including private banks, non-bank lenders, and auction houses.
When one thinks of borrowing and lending, the first kind of institution that comes to mind is a bank. Most smaller and regional banks do not have art advisory departments and do not offer art-secured lending services, but many larger banks do. However, larger banks will typically accept an individual’s fine art as collateral only if that person is already a high-net-worth client who has significant holdings with the bank. In many ways, it is almost an extension of client services and getting a bank to approve an art-secured loan may be possible only if you agree to do additional business with the bank. Loans through a private bank will typically start at $10 million and will have the most competitive rates. However, they also come with the most stringent underwriting and diligence processes, resulting in a more time-consuming and less streamlined practice when compared to other lenders.
Auction houses are more familiar with art valuation than banks and will be able to execute a loan faster than banks. However, their rates, like any specialty lender, will be higher and you will likely be contractually obligated to offer them the first right of refusal in a consignment sale. Another issue to keep in mind is that auction houses offer other services beyond lending, meaning they may have an interest in selling your artwork through a typical consignment or default. This is something to consider as a collector when using such lending services.
Similar to auction houses, other non-bank lenders that specialize in art-secured lending will be able to execute a loan with expediency. Some lenders offer stand-alone lending services, while others may provide loans alongside valuation and advisory services.
2. How is TPC different from these other lenders?
TPC Art Finance is one of the only pure art lenders in the market today, focusing solely on lending services. We do not engage in other areas such as advising, appraising, or selling artwork. Our goal is to provide the best possible terms in the shortest amount of time, while remaining responsive to each individual client’s needs.
3. What are your rates?
Like all financial institutions, our rates fluctuate depending on several factors, most notably market conditions and the size of the loan. Typically, they range from the high single digits to the low double digits.
4. Are these rates higher than what I would find at a private bank?
Yes. The primary reason is because we do not have the same rigorous underwriting process or regulatory demands that a bank has, nor do we examine the financials or other assets under management of the client in the same way that a typical bank would. Our focus is the artwork itself and the borrower’s background. In a default situation, we would take recourse against the art and not any other assets under management.
5. How long does the process take?
In addition to being less invasive than a bank, we are also far more agile. New borrowers can expect to receive funds within about three weeks, while established clients may be able to have their loans funded within one week. For clients who operate in businesses where time is of the essence, being able to quickly access funds can be the difference between a lost opportunity and a seized opportunity.
6. What artworks do you lend against?
TPC has a wider acceptability of artwork than most other lenders, offering loans against artworks from a broad array of collecting categories and mediums, as well as primary market artists who have an established transactional history. While we typically only lend against artworks that have a value of at least $100,000, we do consider works with a lower threshold on a case-by-case basis.
7. What tips do you have to make obtaining a loan easier?
We at TPC pride ourselves on our ability to quickly execute a loan, but there are steps that borrowers can take to facilitate the process. Firstly, the client should approach a lender with ample time to finalize a loan, which is typically 3 weeks. Secondly, we recommend collectors have all of the necessary paperwork organized and ready to be provided, starting with their invoices/bills of sale showing ownership, good images, and any up-to-date condition reports, as well as any additional provenance and exhibition or literature history that may be beneficial. Additionally, loans can occasionally be slowed down from information found while performing our due diligence, so we advise clients to be upfront about any issues that may be discovered while we conduct our research.
As we explored in a previous edition of Lending Insights with Chris Wise, Vice President, Fine Art Practice, at Risk Strategies, it’s also important to manage expectations of the art valuation as it relates to the lending process. We lend up to 50% of the marketable cash value of any secured artwork and rely on standardized criteria when assessing its value. Understanding the reason for this type of valuation and having a realistic idea of this value will help ensure that the size of the loan meets the needs of the venture.
Ultimately, our goal at TPC Art Finance is to offer our clients a refined approach to unlock the equity in their artwork, and to expand their knowledge of art lending’s benefits and services. With TPC, clients can collect with confidence.