Can your art collection work for you?

Given the size of the global art market and interest in art as an asset class, borrowing capital against one’s art collection is picking up pace.

Art is widely accepted as a financial investment; however, since it lacks ease of liquidity, there exists an element of hesitancy amongst buyers and collectors. According to a report published last year by Statista Research Department, the global art market was valued at $50 billion dollars in 2020. This is a considerable amount, despite the fact that it had dropped noticeably (by approximately 14 billion from the previous year), due to the impact of the pandemic.

Given the size of the global art market and interest in art as an asset class, borrowing capital against one’s art collection is increasing in popularity worldwide, with several banks and specialised financial firms offering the facility to their exclusive and high-net-worth clients. Art lending involves using a single work of art, partial or an entire collection as collateral to obtain a loan or offer quick working capital for various financial purposes. Therefore, having an art collection that is of value becomes a significant advantage in such cases. Keep in mind that a collection that is of mixed individual value will mitigate risk and still work for the collector.

Look for credible sources

There are several merits to the art lending model — as it grows in popularity, there will be more interest in art per se, which will widen the market, creating more players in the field. It is also likely to create more transparency in services such as valuation and appraisals. The importance of buying art through credible sources, ensuring adequate research on price points and maintaining all pertinent documents around the transaction, will take precedence. Similarly, the additional flexibility of having access to finance will enthral art collectors and encourage a focused approach to collecting and renew emphasis on cataloguing, valuations and conservation.

In general, the re-sale of artworks can be tedious, time-consuming and also involve high transaction costs; the lending model on the other hand is likely to be a quicker process, with the loan amount proportional to the value of the art collection. Yet, it is not that simple; the loan amount and the rate of interest can be impacted to account for costs involved in storage, authentication, valuation, documentation and other fees. Art lending is not for everyone, it would work only for those who have a valuable art collection, require quick funds to make an investment; in order to expand their collection, for instance, or to purchase art at auctions or for other non-art related investments.

Building trust

In India, where collecting art is still at its nascent stage, a lending model against significant art pieces should be able to shine the spotlight on art as an investment option, thereby building trust in the collectors’ community. On the other end, for formal art lending channels to function, regulatory frameworks have to recognise them; only then, mainstream financial organisations can include art lending as part of their bouquet of services for their high-net-worth clients.

A key point to consider in the Indian art market context is that finance companies offer loans based on existing data — track records of the artists in the collection, which could make it difficult for art collections that are too eclectic or lack data to either get approvals for loans or get only a small amount. Additionally, the Indian art market share in global terms is minuscule compared to the United States, United Kingdom and China. Therefore, current low price points will impact the amount of the loan, which is a percentage of the value of the collection.

Yet, it is early days in India. With growing interest in Indian art, there will be an accompanying shift in transactional values that could benefit the art market and the community.

The author is a Bengaluru-based art consultant, curator and writer. She blogs at Art Scene India and can be reached at [e-mail]

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