Selling art is pretty hard and pretty expensive. Finding buyers can be tough, particularly for expensive works, and US collectors that do sell works pay a higher rate of capital gains tax than they would on most assets.
So it’s understandable that more collectors today use their art collection as collateral for loans instead. In fact, 41% of collectors surveyed in Deloitte’s 2013 Art and Finance Report say they’d consider art-secured lending.
But what about wine? Yesterday, Bloomberg’s Miles Wiess reported that Goldman Sachs had advanced a loan to a former senior director, Andrew Cader, backed by 15,000 bottles of fine wine, mostly first growth Bordeaux and grand cru and premier cru Burgundies.
It has already spawned a lot of groan-worthy headlines about wines and liquid assets, but will this news encourage more wine collectors to follow in Cader’s footsteps?
Bordeaux Cellars, a specialist wine lender in London, currently charges borrowers 15% per year for loans of 12 to 18 months secured against wine collateral.
Although individuals can get already loans using a wide range of esoteric assets from jewellery to antiques as collateral, as Bloomberg reports, speciality lenders have been less keen on wine-secured loans, allegedly because of concerns about fakes.
Nevertheless, there seems to be decent interest from borrowers, which is why some lenders do it. Bordeaux Cellars, a specialist wine lender in London, currently charges borrowers 15% per year for loans of 12 to 18 months secured against wine collateral. However, Bordeaux Cellars will only lend up to 35% of the value of the wine used as collateral. That’s considerably less than the amount of cash that lenders are typically prepared to advance against art collateral, usually up to 50% of the value.
Borro will also give you a short-term loan on your wine collection, but for a price –over 35% on an annualized basis.
However, art-secured loans don’t come cheap either. There are private banks that will advance loans at reasonable rates if clients can also show that they have top-notch credit and other assets at their disposal. However, there are plenty of other lenders that will advance smaller amounts to anyone with the right collateral, as long as they’re prepared to pay eye-watering interest rates.
On some levels, wine should be a more compelling form of collateral compared to things such as art or antiques or jewelry, where valuation is even more subjective. You can actually find a market price for many top-tier Bordeaux, for example, on the Liv-Ex wine exchange in London. And there are plenty of concerns about forgeries and fraud in the art market too.
So it will be interesting to see if, and how, opportunities for collectors to take out wine-secured loans actually grow.