Fine art is a powerful capital asset that may be considered as part of your overall wealth management strategy, such as using your collection as collateral to gain liquidity for other financial opportunities.

 

Art and liquidity

As a fine art collector, you no doubt have a very clear sense of what drew you to each piece in your collection. You may even be able to talk in depth on the personal history and creative influences of the artists whose works you own. Yet if you’re like many collectors, you may only vaguely be aware that you can use art as collateral for a loan. By borrowing against your artwork, you may create liquidity to take advantage of a broad range of financial opportunities. You might think about:

 

• Financing business goals
• Funding charitable contributions
• Acquiring additional artwork
• Investing in other long-term projects

 

As a Merril client, you have access to a qualified team of Bank of America fine art credit executives who can help you borrow against your art collection while you maintain possession of every piece.

 

Your collection

Aesthetic interest and passion may be your main motivations for buying fine art, but your collection may carry significant financial value, as well.

 

While there are collectors who have ready access to liquidity, we’ve found that others tend to be fully invested most, if not all, of the time. They often have little money available to focus on other opportunities and must consider liquidity when the opportunity arises. A fine art loan may be an effective way to generate cash, which can be used to fulfill other goals.

 

Fine art lending general guidelines

Appropriate for: Art collectors with an internationally recognized collection valued at $20 million or more

 

Loan amount: A minimum of $10 million

 

Facility types: Renewable lines of credit

 

Pricing: Interest rate per annum is typically equal to the daily or term Secured Overnight Financing Rate (SOFR) inclusive of credit spread adjustment (CSA) plus a spread.

 

Approval process

The process of borrowing is straightforward. Your Merril advisor, working with a Bank of America fine art credit executive, will assess your overall financial profile to help identify opportunities for you to borrow against your art. A proposal will then be provided to you outlining a borrowing structure for your consideration.

 

From there, a professional appraiser will be engaged to determine the value of your collection that will be used for borrowing. The loan amount is generally limited to 50% of the appraised value. Because the value of art fluctuates, the art used as collateral will be appraised annually while remaining on your walls.

 

The loan, once approved, will be documented and closed with all the requisite information, such as bill of sale, insurance certificates, appraisal and so forth. The funds will then be disbursed so you may execute against your opportunity.

 

Not every collector and collection qualifies for art lending from Bank of America. Typically, a borrower must have a collection with an overall value of $20 million or more. Also, collections usually must have diversified holdings among artists and time periods, although we’ve selectively made art loans based on one particularly strong piece of art. The customary proposition is to lend against a diversified collection rather than one piece of art.

 

Loan advantages

Unlike real estate or a dividend-paying security, art does not generate income. In fact, owning art actually costs money after adding insurance, transportation, storage, restoration, and other unique costs. Lending against an art collection, on the other hand, can put a collection's value to work. In addition, artworks are appraised on a yearly basis, creating less price volatility than a securities portfolio, which is marked to market daily.

 

Art loans can also be preferable to selling artwork at an inopportune time — for example, when you’re exhibiting your collection. You may also have a deep aesthetic or emotional connection to certain pieces and choose not to put them up for auction. On top of that, with a loan, you may avoid having to deal with taxes on art sales, which aren’t afforded the same favorable tax treatment as other asset classes.

 

You maintain ownership of the collateralized artwork and usually will still be able to display the pieces as you normally would. They can hang on your walls or, with appropriate insurance, guarantees and other agreements in place, may be lent for display in a gallery or museum.

 

Next steps

If you think it’s time to use your art collection to create liquidity, speak with your Merrill advisor, who can introduce you to a Bank of America fine art credit executive. The credit executives have a broad knowledge of artists and their works, as well as the financial and business aspects of the art world. They can draw upon relationships with several major auction houses and independent appraisers to help you value your personal collection and identify pieces that may be suitable as collateral for a loan or line of credit.

 

The power of the arts

Bank of America’s program of arts support is designed to help economies thrive, educate and enrich societies, bring communities together, and create greater cultural understanding. That’s why we support nearly 2,000 nonprofit cultural institutions across the globe each year. We’ve remained steadfast in our support for more than 15 years and during some of the most challenging periods for the sector. We’ll be with our partners through it all. The Bank of America Art Program is part of the company’s commitment to growing responsibly while bringing value to economies, society and the communities we serve.

 

We believe in the power of the arts.

 

To learn more about our arts support, please visit bankofamerica.com/Arts.