How To Finance Your New Art Purchases

Investing in artworks can be challenging but it is also very rewarding. When you invest in this business, you simply take calculated risks in order to make profit. It follows that if you want to make money from your investments, you should understand the art world and learn how the market operates. In addition, you should learn the vital trick of buying and selling at the right time. There is also the little matter of raising capital to finance your investments. Authentic artworks cost good money so you need capital to operate effectively in this market. However, you can start small and increase your capital base as you grow in the business. Below are some secrets of success for smart people who want to make good money in this exciting and rewarding market.

Understand the Market

In every business, knowledge is power and reliable information is vital to success. This is why you should make the effort and understand how the market operates before you even buy your first artwork. Investing in this business is not all about buying the paintings of Masters like Pablo Picasso, Vincent van Gogh and Michelangelo. You are an investor and not a connoisseur so you should take a holistic approach to investing in artworks. As a dealer, you should know all about Minimalists, Abstract Expressionists and Renaissance Masters. Your knowledge of this business should extend to Chinese porcelain, African woodcarvings, works by masters of the Impressionist era and even struggling artists who may just create masterpieces in future.

Keep Accurate Records

Accurate record keeping is one the qualities of a great investor. Buy a large diary and record details of “market behavior”.  Remember that this market is very much like the stock market. Prices go up and down in this market and some works have cycles. This means that there are specific periods in the year when prices rise and fall. Use this killer information to buy low and sell high. In addition, the market is driven by consumer sentiment sometimes. Prices can head north or south on a whim. Learn to recognize trends in the market and try to profit from these trends.

Diversify

In every business, it pays to diversify because this move protects you and increases your chances of success. Think of your collection as a stock market portfolio.  A stock market portfolio contains penny stocks, blue chip stocks, mutual funds and other money market instruments. In your case, your portfolio or collection must include works by established artists, struggling artists and others in-between. The point here is that you cannot afford to risk all your capital on just one or two artists. When you diversify, you enjoy a huge advantage because if some of your purchases do not bring you good money others will.

Think Long Term

If you are investing in this business, you should look at the big picture. It is not always possible to buy an artwork today and sell it in a week or two. Sometimes, you get more value for money if hold on to the goods for a while and sell when the price appreciates. Just think; some works that go for millions of dollars today were selling for just $200-$500 some years back. Now, you may not hit such heights with your purchases but the point is simply this. Buy your artworks for both short-term and long-term profit.

How to Finance Your new Art Purchases

Art can be an incredibly personal type of possession. Most buyers would prefer to buy works from certain artists, or they would like artwork that is in a specific style. Other individuals merely want pieces that resonate with them, or feature a subject that is of interest. No matter the style the buyer wants, he or she may not have enough money on hand for these beloved art pieces.

Therefore it is a good idea to consider options for financing. There are numerous ways in which to get acquire the funds needed for purchasing art. Enthusiasts find it important to invest in art, whether it is make their homes more customized or for some other reason. Read on to learn about more ideas on how to finance the artwork of your dreams.

Secured Loan

You can raise capital by taking a loan to get started in this business. If you have stocks in some reputable companies, you can easily get a secured loan using your share certificates as collateral. At this point, you are testing the waters so take a small loan at the start. After you repay this loan, you can apply for a bigger one. As your business grows, you may need more money to operate but this is not a problem. Your bankers will keep financing you as long as business is booming and you are repaying the loans at the right time.

Secured financing is a way to have the money for purchasing art. It can be for nearly any amount, as long as the individual has collateral that is equal to the amount they wish to receive. This type of loan often is based on a value of items that are used as security. It may be necessary to get an appraisal of said items.

Secured loans typically are an alternative to other types, when the person has rather poor credit. It gives a lender confidence with giving out a loan, in the instance that the borrower defaults on the loan. The lender will be able to take possession of collateral that is in place as security. He or she can put up jewellery, current artwork, or property as a means of loan security.

Secured loans are for more than just those individuals who have poor credit. They can be used by borrowers who have a high amount of debt, as well as on risky purchases. It is possible for borrowers to receive lower interest rates for their secured loans, since this is less risky and he or she is backing the loan with something of value. Some other items that may be used as collateral include the following: coin collections, antique firearms collections, antique cars, and historical artefacts.

Unsecured Loan

An unsecured loan is the one you get without putting up any collateral. These loans are granted based on your relationship with your bank and your financial integrity. If you want an unsecured loan to invest in artworks, your best bet is an overdraft. This is short-term loan and it is usually approved for current account holders based on turnover and financial integrity. If you maintain a salary account with a reputable commercial bank, you can get an overdraft easily. This is because your salary is paid into the account at the end of every month and this qualifies you for the overdraft. You can take this loan, invest and repay the loan after you have sold the goods.

Art financing sometimes may be made available with unsecured loans. There are numerous factors that must be considered before someone is approved. It is easier when one has a good credit score. However, this is not the only consideration in making the decision to approve someone for the unsecured loan.

If the individual has any debt, including car payments or a mortgage among other things, there may be an issue with getting an unsecured loan. Lenders will look at the debt to income ratio for the person. They want to be clear that borrowers are not going to be overextended, and that they will be able to make loan payments.

Loans Covered by Your Collection

Some financial institutions will lend you money at relatively low interest rates if you have a collection already. In this case, the amount you get will depend of the value of the goods you have. Maybe you have the opportunity to buy a great work at a decent price but you do not have the cash. With this option, you can easily raise the cash and repay the loan in installments.

Cash from Friends

Another way to raise capital is to get cash from friends and family. If your friends and relations are convinced that there are great prospects in your investments, they will lend you money to make the business grow. Repay the loan at the right time and you can always borrow some more later.

Credit Cards

Credit cards are an alternative for purchasing artwork. It all depends on the credit card limit amount. It is important to note that they can have higher interest rates, depending on the negotiation made with the credit card company. Interest will be added on to what you spend with the card if you do not pay it off within a month.

Credit card financing can be an attractive option, but other choices should be considered for the fact that there are no high interest rates or high monthly payments due. Credit card financing is ideal for people who are not interested in buying pieces that are more expensive. Anyone who simply is in search of stylish art pieces for their house or office will do well to get credit card financing.

Auction House and Dealer Financing

Auction houses and dealers can provide financing to their clients. This can be used to buy art. The amount that a dealer lends is determined on the individual’s credit rating, as well as the likelihood of the borrower being able to pay back the loan. Ownership of this artwork technically falls under the dealer until the buyer pays off the entire loan. Since auction houses and dealers know the values of the pieces already, financing typically is arranged faster.

Lease to Own

A great way to acquire art is by leasing it. Certain companies will give buyers the option to lease art for a period of between five to ten years. Once the lease term is done, the lessee is able to purchase the pieces he or she wants. This is perfect for individuals who change up their home’s interior style on a regular basis. Also, it makes it possible to learn more about what artists have to offer before making an official purchase. This lets potential buyers become aware of recent trends when deciding to lease a new piece of artwork.

There are several options for financing artwork. A viable method depends on different factors. These include the person’s current debt amount, what he or she has for collateral, and his or her credit worthiness.

Borrowing is a great means of securing art pieces, including what the borrower really wants to accentuate the style of his or her home or office. Even when he or she does not have the required money to make the purchase, there are plenty of possibilities.

Loans involve having to pay interest, so leasing may seem like the better option for some people. If the borrower does not feel the need to own the pieces of art right away, leasing gives potential borrowers the chance to determine if they would like to keep these artwork pieces or select something else to lease. The individual also may go through auction houses, dealers, or banks to get financing.

Final Word

Investing in art is the way to go. There is big money in this business and you can become one of the winners here. Start small, think big, expand carefully and you will succeed in this lucrative business. Weigh the alternatives carefully before you make your decision so that you do not end up regretting your choice for how you want to secure the financing for the artwork of your dreams. Most importantly, take great enjoyment in the artwork that you thought you would only own in your dreams.

The Basics of Peer to Peer Savings

Peer to peer savings is also known as P2P. Peer to peer lending or crowdfunding is a way to look for high rates of interest as a return for lending your savings to others. Here is a guide on what you need to know before you invest in peer to peer savings.

What is peer to peer savings?

Peer to peer savings is a loan based platform which converts your savings into a lending stream for possible borrowers.

This means that you can lend your money to others for a fixed return, in the similar way that a bank or building society offers loans.

This is how a peer to peer savings works:

  1. Add your savings to your selected P2P providers’ platform
  2. Lend your money to a borrower via the P2P provider
  3. The borrower repays your money back with interest over a fixed term – earning you a profit

You can decide on how long to lend your money for, with terms that are as long as 6 years or as short as 31 days.

However, be careful on how long you tie your money up for, as there are penalties that may be charged for withdrawing your funds early.

How much can you save?

There is no maximum amount to how much you can save so you can save as much as you like.

However, there is a minimum limit on the amount that you have to lend; usually around £10 or £25.

As P2P savings acts like a loan, there is a risk that you may not get your money back if the borrower cannot keep up with their repayments which is known as defaulting.

For this reason, you should always spread the risk by lending your savings to various borrowers.

Higher investments, such as £50,000, can become longer to distribute to borrowers which implies that you will need to wait longer in order to receive a return on all of your money.

Who can you lend your money to?

This depends on the provider that you select. The typical types of borrowers include:

  • An individual: this is somebody that is looking to borrow money, who may not have been able to receive credit through traditional methods, for example, through a bank
  • A start-up business: Every new enterprise which requires funds for development or  expansion in their business

Depending on the need for funds, you may have to wait for a few days or  a few weeks until you can lend your money out.

P2P providers will store your money in a holding bank until you can lend it out, with some providers offering a small amount of interest during this time.

Can anyone borrow your money?

No. Borrowers must pass a range of checks to qualify for P2P lending.

These checks are completed by the P2P provider, and these include:

  • A full credit check
  • An identity check
  • An affordability assessment

If the P2P provider you selected is registered with CIFAS, they will also execute an anti-fraud background check on each borrower. They will not perform this check if the provider is not registered with CIFAS.

Which borrower should you decide to lend to?

Individuals are characterised based on their credit history which also has an effect on the amount of interest that you can get in return for your money, broadly speaking:

Borrowers credit historyRisk to your moneyYour interest rate
ExcellentLowLow
PoorHighHigh

Start-up businesses are not classified by their credit profiles so you will have to research the company before you decide to lend to them.

Does it cost you anything?

Yes, most providers will require an annual servicing fee of about 1 percent. This is deducted from each repayment before it gets to you.

If you decide to withdraw your savings during a fixed term, you will be charged with a sale fee; this is normally around 0.25 percent. The sale fee includes the costs of looking for a new investor to put in the amount that you take out of the fixed term loan.

If you decide to withdraw your money at the end of an agreed term, you will not be charged.

Do you pay tax on P2P savings?

You pay for tax on P2P savings. However, your provider will not automatically subtract any tax from your interest, unlike building societies or banks.

You will have to declare any P2P savings interest that you earn by accomplishing a self-assessment form at the the tax year’s end.

Can you make use of your ISA allowance with P2P savings?

Yes, if you have an innovative finance ISA, you can save into a peer to peer investment with the use of your tax-free ISA allowance.

This means that the interest that you earn will be tax-free and that you will not be required to accomplish a self-assessment form for any ISA money you have used in P2P savings.

When will you get your interest?

You will get your interest usually at the end of the lending term that you have chosen. However, this depends on whether you lent your money on a rolling term basis or a fixed term:

  • Rolling term: A portion of your capital and interest, every month for a set term will be paid to you. This means that you can re-invest or withdraw your monthly capital repayments after each month if you want to.
  • Fixed term: You can lend your savings for a fixed period, for example, one year, and you get your capital back at the end. You can also decide to have any interest given to you on a monthly basis.

Where to invest in peer to peer savings?

It is only an online savings platform, and every provider has its own methods of operating.

You should analyse all of the P2P savings and investment providers to look for the one which will offer you the best return on your savings.

To start saving, you must register on the website of your chosen provider, add your savings, then from a list of borrowers, select who to lend your money to.

Will your peer to peer savings be protected?

There is usually no protection under the FSCS, which means that you would possibly lose your money if you save via a provider who fails.

Some P2P providers have their own schemes which will cover your savings if a borrower default on their payments.

These schemes include a definite amount of money to cover any default payments. If a huge amount of borrowers default at the same time, the scheme may not have adequate money to cover the entire loss to each investor, meaning that you could lose your money.

Make sure that you check the details of any scheme proposed by a provider before investing your money.

Is peer to peer savings regulated?

Yes. Since April 2014, peer to peer providers are regulated by the FCA, which means that every provider has to comply with the terms that are listed below:

  • Your money must be protected by providers that are meeting certain capital requirements
  • Be clear and transparent regarding the risk and who are to borrow your funds
  •  If their platform collapses, providers must have plans in place in order to collect your money

You can check if a peer to peer company is regulated by looking for their name on the FCA register. However, being regulated does not mean that they are covered by the FSCS.

Family or Friends, Who Should You Borrow From?

When you need money, the first thing that may come into your mind is to ask your friends or relatives. However, you must weigh carefully about whether you can manage to return it and can deal with what might follow if you cannot.

Pros and cons of loaning from family and friends

Asking your family may be the easiest way to borrow money. They can give emergency cash and help you dodge borrowing with extremely high-interest rates, such as doorstep lending, bank loans, and payday loans.

If both parties are confident it will not destroy a relationship with a family member if you cannot pay back, this is the best choice as it is usually free of interest.

If you are borrowing from a friend, be conscious that if you do not return the money, this could end your relationship with your friend.

Work out a budget ahead

If you want to ask a family member or a friend, make sure you have drafted up a budget to see how much cash you have left after clearing your living expenses.

Look at your current-account and credit-card records from the last three months, and think carefully how much you can borrow.

What if you cannot repay?

It can be stressful if you cannot manage repayments, but it can be even worse if you are leaving a someone out of budget as it might endanger your relationship.

That is why it is necessary to form out your budget and create a new payment plan as soon as you see yourself in distress.

The first thing you may need to do is to let them know what’s happening to show them that you are an honest person and that paying them is your primary concern.

Here are some other tips that will assist you if you are coping with debt:

Other ways of borrowing money

If you are unsure whether or not you should loan from a family member or a friend, there are other alternatives even if you have a bad credit standing.

See: The UK’s Top Debt Solution Providers

Things consider before lending money to friends or family

If someone asks for financial help, especially if it is a family member or a friend, it can be difficult to decline.

However, there is no point going into hardships yourself because you want to help, or because you feel sorry for not helping. On the other hand, maybe you cannot afford to sacrifice your relationship with them just because of money.

Can you afford it?

Work out your budget before lending to anyone. Consider everything you lend as gone. Be sure that even if someone cannot repay you, you would still be able to pay all your living expenses comfortably without borrowing from anyone.

Can they afford it?

Encourage the would-be borrower to draft out their budget, just like what you would be doing. Remember that if they cannot repay you, this may cause financial trouble for yourself or worse, your relationship with them

What will you do if the borrower cannot pay?

You might be certain the person you have lent funds to will be capable of paying it back in full, but you must study what you will do if they cannot; this is a very personal decision, so take your time and think about this.

How formal should it be?

Always keep in mind that whatever you or the would-be borrower says can be denied. Get something in writing when you are lending to family members. Do not be embarrassed by this as this is very common.

Know that if you lend money to family and friends on a regular basis, you might need to be documented by the Financial Conduct Authority (FCA).

In case the borrower died with an outstanding debt, having a formal contract can protect you. Contracts can be used as a proof to claim from their estate.