How Art Lending Works

Art Lending - Sculpture

The art world is famous for its complexity. Most works of art sold are unique, and even for limited edition works, there any number of nuances that can have a significant impact on the piece. How then, does art lending work? What steps does a lender take to ensure they are lending the right amount on pieces? There are three fundamental parts of the process. They can occur simultaneously or at different times depending on what is most convenient for both the client and the lender. These parts are: establishing authenticity and ownership, establishing market value, and finally, establishing any special requirements.

Establishing Authenticity and Ownership

The simplest way to establish who a work is by and who owns it currently is to examine the provenance. However, there is no standard definition of ‘provenance’, sometimes artists or their representatives will authenticate works, others refuse. Even more bizarre situations are possible like the suspected forgeries of 13 works by South Korean artist Lee Ufan. The suspected forger having admitted four of the pieces were forgeries, however, after inspecting the works personally, Lee Ufan declared all 13 works to be authentic. His declaration contradicted not only the testimony of the forger, but the opinion of the South Korean police and forensic investigators.

It is important to remember that provenance will not be similar for all artists. It could take the form of certification from a foundation (e.g., the Warhol foundation), inclusion in a catalogue raisoné, or purchase receipts from an auction house. All help trace the piece from the artist to the current owner.

Ownership of a piece may be complicated in situations where there are multiple owners e.g. if a work of art is held in trust. In these situations, lenders will work with borrowers to establish the borrower’s control and right to borrow using the art. Naturally this can take any number of forms, and will vary with each individual case.

Art Lending - Appraisal

At Borro, specialists go through rigorous online and offline processes to identify fraudulent or stolen paintings. These include online registry checks, in depth examination of provenance, and, of course, examining the piece itself. These practical inspections are critical— Borro specialists in New York once determined a piece was a forgery after analysing the materials used. Included in their work were newspapers cuttings dated after the year the piece was said to have been produced.

Establishing Market Value

The market value of a work of art is integral to art lending, as lenders will only offer a percentage of that value to protect themselves from future changes in value. It is also important to understand that market value is not necessarily the same as the insurance or retail value of a piece. Market value is what a seller could reasonably expect to receive if the work sold (often at auction), whereas retail values reflect the cost to purchase the work from a gallery or the artist. The insurance value is generally a mark-up of retail.

As the main way for lenders to recover funds in situations where clients cannot repay is to sell the assets under security, market value is the most important value for any art lender. Borro has valued over 60,000 assets overall since launching in 2009. While the goal is always to lend as much as possible to clients, care must be taken to ensure that assets valuations are precise and reflect the current state of the market. Inaccurate values pose a significant risk.

To mitigate this risk, assets are valued using a combination of personal knowledge and data insight—a method that offers 88 percent accuracy based on asset sale prices, which compares favourably to auction house estimates. Data insight draws upon a historical view of liquidity and price trends from millions of auction sale records. This data is then analysed by specialists with extensive experience in the art world, including at major auction houses. Their tailored expertise and opinions on likely movements for specific artists, genres, media, and the art market overall, together with the data, are used to determine the market value.

Establishing Special Requirements

Although authenticity, ownership, and value are the main factors for writing an art loan, certain cases may require extra steps. For instance, some pieces, like Marc Quinn’s frozen sculpture Self may need to be kept at precise temperatures. Similar considerations must be made if the lender wishes to transport the piece. Some pieces might have condition issues that, if remedied, could see a significant increase in value.

It is important for both the borrower and the lender that any unique needs are discussed upfront. This avoids any issues or delays in funding the loan. In order to meet these needs as quickly as possible art lenders will work with a variety of specialist partners. Lenders will maintain strong relationships with partners to ensure any situation can be handled smoothly and effectively.

Art Lending - Shipping

At Borro, a wide range of partners are used. Because the company works across the United Kingdom and the United States, some partners provide services internationally such as logistics and storage company Cadogan Tate. Additionally, Borro maintains a network of local partners who can store, value, and conserve works of art across the United Kingdom and the United States. This allows service to remain fast and simple for clients not matter their location or the piece or art they want to use.


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