Loans & Other Financial Options
Loans from Nonprofits
Many nonprofit organizations offer loans to artists. The amounts and fees for these loans range widely. Some of these loans go towards completing a project that only pays out upon project completion. For instance, the New York Foundation for the Arts will give a loan that may not exceed 80% of the contracted amount for a project. There is a 3% fee of the loan amount. The loan is usually good for 120 days. Check your options carefully.
Artist Project Loans
Some organizations will loan you money for a contracted project. Since some grants and funding are not paid at the beginning of a project, you have to figure out how to raise start-up funds. Some nonprofit organizations have come up with a solution, and will loan you the money against the contract. The amounts they charge to do this are well worth it and can help you actualize your project. After all, they need to pay their own accountants and legal team to process your loan.
There are funders who will award you an emergency loan for various reasons, such as an health emergency, a catastrophe, or personal issues. You can find these funders online or in the library. (See Emergency Loans section.)
Not recommended. Do not get a payday loan unless you have exhausted every other option available. You secure this loan by writing a post-dated check drawn off a checking account, which is deposited on said date. The loan company advances you on a certain amount of money until you get paid. They often have a fee associated with a particular amount. For example, a typical $250 loan can have a fee as high as $45. Normally, the loan matures in two weeks, at which time you are expected to pay the loan and fee in full.
If you cannot pay the required amount then you can pay the fee ($45) and roll the original loan amount ($250) over for another two weeks, where again you will be faced with either paying the entire amount due or the fee and roll the loan for another two weeks. If you roll the loan over just once, you have paid $90 to borrow $250!
Borrow from friends and family or even a bank or credit union if you are strapped for cash. Or better yet, sell your art! But stay away from these payday loan businesses.
The Department of Veteran Affairs guarantees fixed-rate VA loans for qualified veterans of the United States Military. Offered in terms of 15 or 30 years, VA Loans usually do not require a down payment and have less stringent criteria than conventional loans. These loans will also accept funds from gift programs and other loans or grants from certain sources to be used for the down payment (if required) and closing costs. While the VA’s Loan Guaranty program does not place a maximum amount on a loan an eligible veteran may borrow, it does use county limits on loans. Check the VA’s website for more information on 2013 loan limits: http://benefits.va.gov/home loans/purchaseco_loan_limits.asp. For all counties not listed on the website, the limit is $417, 000 as of this publication date.
You can only get this loan if you are a qualified veteran that served in one of the branches of the United States Military. In addition, this loan can only be used for residential property. You must occupy or intend to occupy the property as a home for yourself within a reasonable period of time after closing the loan. This means that the loan cannot be used to purchase rental-only property.
This type of loan is used when the loan amount exceeds guidelines set by Fannie Mae and Freddie Mac, federal government-sponsored investors that purchase loans on the secondary mortgage market. Remember that lenders selling residential mortgage loans to Fannie Mae or Freddie Mac must follow their underwriting guidelines in order to participate.
The interest rate may be higher on these large loans. Thus, the loan may have a higher monthly payment and will cost more over the long run. Because Jumbo Loans are typically considered higher risk, the criteria for securing these loans is very strict and you will need to have a higher income level to qualify. Due to the recent economic downturn and the financial troubles of Fannie Mae and Freddie Mac, these loans are harder to secure and to pay off. Read all the documents associated with your loan very carefully, and consider consulting with a certified accountant before signing one of these loans.
Unlike many home-buyer programs, government loans, such as a Federal Housing Administration (FHA) backed mortgage, are not limited to first-time homeowners. Government loans are always changing, so it is best to check government websites for current information.
These types of loans have both income caps and limits on the mortgage amounts. Government loans also include additional criteria that borrowers must meet to obtain the loan, depending on the program.
Construction/ Permanent Loans
Loan programs are available to assist borrowers who would like to build a new property. Construction loans are available, as well as a combination construction/permanent option.
The loan would be secured by a mortgage on the land and the property, once it is built. The construction loan usually has a short term (12-24 months) to allow time to complete the building and may then convert to a permanent mortgage on the completed property. With such a loan product, one has to decide whether to incur the additional risk of building a space.
The Federal Housing Administration (FHA), established in 1934, is the oldest and largest insurer of residential mortgage loans in the U.S. An FHA loan offers lower down payment loans for qualified borrowers when compared to a conventional loan. Both fixed and adjustable rate mortgage products are available and usually only require a minimum cash investment of 3%.
FHA loans will also accept funds from gift programs and other loans or grants from certain sources to be used for down payments and closing costs. Unlike conventional loans, the maximum property debt ratio is increased to 29% compared to the 28% allowed for conventional loans, and the total debt ratio can be as high as 41% versus 36%.
In addition, while a conventional loan may require you to have at least a two-month payment reserve (money in the bank to cover the mortgage and/or insurance) this is not a requirement for FHA loans.
These types of loans have both income caps and limits on the mortgage amounts. Certain down payment assistance programs paired with government loans may have income caps placed on them, as well.
Emergency Relief for Artists
There are generally two kinds of emergencies that qualify for an emergency loan: large scale disasters and personal emergencies.
Large scale disasters inflict a wide range of damage, such as a hurricane, earthquake, or terrorist attack. These kinds of crises destroy livelihoods and communities in an instant, and it often takes many years for these neighborhoods to recover.
Personal injuries include an accident or sudden illness, physical injuries, house, or studio fires, and floods.
Encountering both types of emergencies at the same time can be overwhelming. Fortunately, there are a number of emergency support programs. It is a good idea to know what is available before you are in a crisis.
What Situations Are Eligible for Emergency Support?
When struck by an emergency, what should you do? Before applying to an emergency organization, it is important to understand the distinction between what they term valid emergencies and avoidable ones. The majority of emergency support organizations draw a clear line between the two. Valid emergencies can be characterized as absolutely unavoidable. They are life-and-death situations, such as medical emergencies, fires, floods, natural disasters, etc. Emergency situations of one’s own making, although difficult, are not eligible for emergency support. This category includes circumstances such as bad financial planning, credit card debt, child support, defaults on student or other loans, eviction because of refusing to pay rent, etc. Emergency organizations are also not set up to assist with special opportunities, such as sudden and unexpected performances or exhibitions overseas, residencies, and professional conferences (although there are many programs nationwide, similar to NYFA’s Special Opportunity Stipends, that support special opportunities). None of these situations constitute unavoidable, life-or-death emergencies.
Types of Emergency Support
Emergency organizations generally provide one or more of the following areas of support—emergency grants, emergency low-interest loans (these have to be repaid), and emergency assistance. They also vary in terms of how long they take to respond, so check their websites for details.
Emergency grants can range from a couple hundred to several thousand dollars. Emergency loans come in the same amounts, and are usually accompanied by a grace period of about a year to give artists time to get back on their feet before repayment starts. Lastly, many emergency organizations (and non-emergency organizations, too) give artists technical assistance concerning how to pick up the pieces and proceed with their lives, and some will work with other social service organizations on an artist’s behalf. Whatever the form of support, responsiveness (i.e., a quick turnaround time) and access to information and resources are rules by which these organizations live and breathe.
It is also good to know that most organizations do not prioritize artistic merit. Generally, an organization will review an artist’s résumé simply to verify that she/he is a “professional” working artist. The organization will also weigh the need and the degree of crisis. Lastly, artists stricken with multiple emergencies over the course of several years may reapply to many emergency organizations for help.
About Emergency Support Organizations
In the U.S., there are a number of organizations that provide emergency support to individual artists. Some of these organizations work with specific artistic disciplines, while others concentrate on a particular ethnic group or geographic region. Not every region is covered, so planning ahead can make a difference. Most of the emergency loan organizations are non profits started by artists, that raise funds from foundations, charities, guilds, and unions—very few of them receive government funding. Most of these organizations work in crisis mode themselves because crises are unending.
There are many simple things you can do to survive an unforeseeable crisis. (See Hazards section and Earthquake Preparedness section.)
Learning from Others
It is crazy to think that all emergency situations can be avoided. However, their devastating impact can be tempered or reduced. Consider, for instance, the aftermath of the Nisqually earthquake in Washington State in February 2001, from which Washington artists (mostly visual artists) reported $1.3 million in losses, including $890,000 in inventory. (Katrina, the hurricane centered around New Orleans was much worse that this example.) Luckily, the Seattle-based arts service organization Artist Trust, in collaboration with the King County Arts Commission, Seattle Art Commission, Washington State Arts Commission, and the National Endowment for the Arts, quickly set up an emergency support program called Artists’ Quake Aid (AQUA). Through AQUA, Artist Trust was able to distribute $40,000 in aid within weeks to artists suffering the greatest losses (grant amounts ranged from $250 to $1,500). Reported losses included damage to artwork and equipment, workspace, work time, emotional trauma, and the breakup of artistic communities. In the AQUA Final Report, Artist Trust points out several important findings about the ways in which many artists organize their lives and maintain their artistic production, all of which are applicable to most emergency situations, regardless of the type or scale of the emergency:
Many artists live so close to the edge financially that they cannot sustain a disaster of any kind.
Many artists live and work in unsafe conditions.
Most artists do not carry insurance for their artwork as this insurance is difficult to find, very expensive, and has high deductibles. Furthermore, the value of artwork is hard to determine.
Many galleries do not carry insurance for artwork on exhibition or in storage, for the same reasons that artists do not carry it.
Government resources are often unattainable by artists who are not viewed as having a “business.”
Additionally, artists often have a tendency to marginalize themselves, and do not feel that they are part of the general public. They therefore do not tend to utilize the existing emergency support infrastructure offered to them by social service organizations, such as the Federal Emergency Management Agency (FEMA), American Red Cross, and the Salvation Army. However, the reverse is also true. Many social service organizations do not quite know how to handle artists and their specific needs. What is important here is to think outside the box. In emergency situations, in particular, artists should also pursue programs for the general public. This includes community programs, support groups, programs serving students, faith-based programs, etc.