Could better access to credit spur art market growth?May 18, 2018
TEFAF’s report, based on interviews with 142 of the dealers and galleries participating in their shows, highlights potential growth opportunities in art finance. While nearly 60 percent of acquisitions are currently financed through retained earnings, almost 90 percent of respondents said they would be interested in acquisition finance.
The high-end art market is unlike other retail industries, which rely heavily on finance to obtain stock. Among those surveyed by TEFAF, the value of loans against art (loan to value ratio) accounted for just 5-8 percent of gross sales. The report suggests that dealers’ reticence to invest for growth is based on bureaucratic processes, the high cost of finance, mistrust of valuations and title and authenticity risks.
Dealers and galleries made it clear that they were facing hurdles in their attempts to secure finance; 57 percent said that access to credit was poor or very poor. However, there seems to be a demand, with nearly 30 percent claiming that the lack of access to credit had affected their ability to grow their business.
The report suggests that changes to bring the U.K., eurozone and Hong Kong art markets in line with the legal framework that governs art financing in the U.S. could act as a catalyst for the market. It is estimated that more than 90 percent of art-secured lending to art dealers is underwritten in the U.S. where the borrower is allowed to keep possession of the art while the loan is outstanding.
Pointing to great opportunity in art finance, the report also calls for research into the capital structures of dealer and gallery business. In part, it suggests, this would help to make the finance industry more comfortable with the art business and help to support underwriting and risk management decisions.
To read the full report, click here.