A few years ago, an art collector approached Bank of America asking for a loan—a big loan. “He

Andy Augenblick, an art collector himself, started Fine Art Capital to lend funds against art and antiques.

was getting on in years and he wanted to build a museum to house his collection,” recalls Randy Hess, a senior vice president for the firm’s private bank. The man wanted to use the art itself as collateral for the museum. Hess still sounds excited when he remembers seeing the paintings in question—a world-class collection of American modernism, including several classics by Jasper Johns. The art was so valuable, the bank loaned $100 million dollars against it, and the collector built his museum. Then he came back for another loan to build a second museum in France. “At his passing, the loan moved into a foundation and became an estate transfer vehicle. That was a unique situation,” Hess admits, “but to me, it reflects the creativity you can bring to leveraging an art collection.”

Increasingly, lending institutions are considering art and antiques as equity, which opens avenues for collectors who want to increase cash flow without selling their artwork. Auction houses, private banks and independent lenders provide several options that allow you to keep artworks in your possession and still secure a loan. However, the terms and the amount loaned depend on the entity you approach and on the type of artwork or antiques you are borrowing against. The following is a guide to three types of lenders that will consider your collection as collateral.

AUCTION HOUSES

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For decades, major auction houses have quietly arranged advances for sellers. Their typical offer is an advance on the sale’s proceeds, which is a type of bridge loan. “Most often that happens with an estate that has cash-flow issues, such as estate taxes due before the sale,” says Paul Provost, director of trusts, estates and appraisals at Christie’s New York.

Christie’s and Sotheby’s will also arrange loans against art the borrower doesn’t plan to sell immediately, for up to 50 percent of the value. Interest rates vary but average about 3 percent above prime, depending on the length of the loan and the value of the art.

“More and more people are considering art as an asset, so they’re thinking about leveraging those assets as they would any other,” Provost says. However, he cautions, “We’re always delighted to talk to collectors about what they’re trying to achieve, but our primary business is offering for sale works of art on behalf of the client, not lending money.”

Sotheby’s, on the other hand, has taken a more aggressive approach to art financing since the 1980s, when Mitchell Zuckerman founded Sotheby’s Financial Services, which solicits art-based loans worldwide. “It’s one-stop shopping,” says Zuckerman, who still runs the department as president. “We have the intellectual capital of in-house art experts who can value art as collateral and physical plants around the world that can hold it and sell it if necessary. You don’t even have to write checks toward the interest payments. Many of our clients just send things in for us to sell.”

Sotheby’s lends mainly to individual collectors at 50 to 60 percent of the value of their property, and is quite broad with regard to what it will lend against. “We’ve had loans secured by wine collections, Egyptian antiquities, Old Master drawings, jewelry—anything we can sell at auction,” says Zuckerman. “There are about 70 categories we will consider as collateral, but we’re quality-oriented.” Loans are re-evaluated every one to three years to keep up with fluctuating market value.