Art-secured lending

A collector whose wealth hangs on his walls and whose cash is tight borrows twenty million dollars from a private bank against a pledge of three paintings. The lender typically advances thirty to fifty percent of the estimated value. It wants security on the object as much as on the borrower: custody in an approved place, an independent appraisal, and a fine art policy naming it as beneficiary. A loss payee clause puts the lender first in line for payment, and the policy cannot be canceled without notice to it. The underwriter looks at three things. The agreed value must stay close to the loan appraisal, or the lender's outstanding balance is not covered. Authenticity risk, which fine art policies often exclude, is the loan's blind spot. And enforcing the security assumes a sale the market does not always allow within thirty days.