
Permanent Loan Defined
A permanent loan is a type of loan with an unusually long term. One of her donors offers to provide a famous art piece from their permanent collection, made available to the museum as a permanent loan. For example, in the fine art market, permanent loans are arrangements in which the donor of an artwork agrees to lend it to an art gallery or museum for an extended period of time. Under the terms of the permanent loan agreement, the museum will have possession of the art piece for a predetermined term of 20 years. A permanent loan is a type of loan with an unusually long term.

What Is a Permanent Loan?
A permanent loan is a type of loan with an unusually long term. The term can have different meanings, however, depending on the context in which it is used.
Despite its name, permanent loans are generally not permanent, although they may last for a long time.



Understanding Permanent Loans
The term "permanent loan" can be confusing because its meaning can differ greatly depending on the context. For example, in the fine art market, permanent loans are arrangements in which the donor of an artwork agrees to lend it to an art gallery or museum for an extended period of time.
Permanent loans in this context are alternatives to an outright gift or donation. Yet although the term "loan" typically implies a financial motive, permanent loans in the art world generally do not involve any interest payments or other financial compensation. Instead, the donor will simply expect certain parameters to be followed by the receiving institution, such as agreeing on the duration of the loan and arranging that the donor will receive public recognition for the loaned artwork. Despite the word "permanent," these permanent loans are in fact temporary, with terms generally ranging between five to thirty years.
In the world of real estate, the term "permanent loan" is used to describe the mortgage loans secured by real estate developers after a given projected has been completed. These permanent mortgage loans generally replace the construction loan financing that the developer had relied upon in order to develop the building and prepare it for sale. Here again, although the term permanent is used, a more accurate description would be "long-term loan." The amortization periods on permanent real estate loans are typically in the 15- to 30-year range, with 25 years being a common example.
One instance in which the term permanent loan is more directly applicable is in relation to so-called perpetual bonds, or "consols." These sovereign debt instruments were historically issued by the governments of the United States and the United Kingdom, and they were unique in that they did not specify a particular maturity date. In theory, the owners of these perpetual bonds could continue earning interest on their principal indefinitely. In practice, however, these bonds were eventually redeemed by both governments.
Real World Example of a Permanent Loan
Eryn is a curator at a major art museum. One of her donors offers to provide a famous art piece from their permanent collection, made available to the museum as a permanent loan.
Under the terms of the permanent loan agreement, the museum will have possession of the art piece for a predetermined term of 20 years. In return, the museum agrees to publicly acknowledge the donation both in the description of the art piece and in the museum's marketing materials. The museum will also secure special insurance to protect both themselves and the donor against the risk that the piece might be damaged during the term of the loan.
Related terms:
Amortization : Formula & Calculation
Amortization is an accounting technique used to periodically lower the book value of a loan or intangible asset over a set period of time. read more
Construction Loan
A construction loan is a short-term loan used to finance the building or renovation of a home or real estate project. read more
Donor-Advised Fund
A donor-advised fund is a private fund administered by a third party, created for managing charitable donations on behalf of an organization, family, or individual. read more
Fractional Gift
A fractional gift entails a gradual charitable donation of a work of art in order to receive the maximum a tax break. read more
Hard Money
Hard money is a currency backed by a gold standard or other precious metal, or types of lending, political contributions, and government funding. read more
Interest
Interest is the monetary charge for the privilege of borrowing money, typically expressed as an annual percentage rate. read more
What is Maturity Date?
The maturity date is when a debt comes due and all principal and/or interest must be repaid to creditors. read more
Mortgage
A mortgage is a loan typically used to buy a home or other piece of real estate for which that property then serves as collateral. read more
Negotiable
Negotiable refers to the price of a good or security that is not firmly established or whose ownership is easily transferable from one party to another. read more
No-Appraisal Loan
A no-appraisal loan is a mortgage that does not require the property to be assessed for its current market value. Highly unusual for first mortgages on residences, it is more typical when a mortgage is being refinanced. read more