By JUSTIN SCHECK

Brian Frank for The Wall Street Journal

San Francisco’s Museum of Asian Art is facing a severe financial crisis as a result of the weak economy and rising loan payments.

SAN FRANCISCO—The Asian Art Museum here is facing a financial crisis, the latest—and one of the largest—in a string of museums to suffer from problems amid the weak economy.

Officials of the Asian Art Museum, which showcases more than 17,000 artworks from Asia and has an annual operating budget of about $17 million, are currently negotiating with J.P. Morgan Co. to keep loan payments from increasing, said the museum’s chief financial officer, Mark McLoughlin. The difficulties date back to a 2005 refinancing of more than $100 million of debt that eventually drove loan payments sharply higher.

Mr. McLoughlin said the museum has hired a bankruptcy lawyer to negotiate with creditors, though he added that the institution doesn’t plan to declare bankruptcy.

A lawyer for J.P. Morgan declined to comment on the matter.

The Asian Art Museum’s troubles come as many museums face financial hardship because of the weak economy. The Magnes Museum in Berkeley, Calif., said earlier this year that it couldn’t afford to stay open, and would donate its collection to the University of California. In New York, the Chelsea Art Museum may fold after its founders’ company declared bankruptcy and the museum’s collection was put up as collateral for a loan. Other museums are cutting staff and operating hours.

A survey earlier this year by the American Association of Museums found that in 2009, more than 30% of large museums like the Asian Art Museum reported “severe or very severe stress,” due to problems like declining contributions and withering stock-market investments.

The Asian Art Museum is one of the more prominent institutions to be hurt. The museum is regarded as a premier Asian art institution and was built largely around a collection donated by Chicago businessman Avery Brundage. In 2000, the museum sold $107 million of bonds to help it move to its current building, near San Francisco’s City Hall. Italian architect Gae Aulenti updated San Francisco’s old public library to house the collection, which includes one of the oldest known Chinese Buddha sculptures.

For the Asian Art Museum, donations and income from visitors have remained healthy, Mr. McLoughlin said. But after refinancing the fixed-rate debt in 2005 to a variable-rate loan, the bond’s insurer, MBIA Inc., had its credit rating downgraded in 2008 during the financial crisis.

That caused the museum’s loan interest to skyrocket, at one point hitting 9%, Mr. McLoughlin said. The museum temporarily fixed the situation by getting a letter of credit from J.P. Morgan assuring that the bonds were a safe investment. That letter is set to expire on Dec. 21, Mr. McLoughlin said, raising the prospect that the museum’s payments could rise.

If it does, the museum’s debt payments could rise.

In the spring, Mr. McLoughlin said, the museum hired Los Angeles bankruptcy litigator Bruce Bennett to negotiate with large creditors. Mr. Bennett didn’t respond to a request for comment.

Even in a worst-case scenario, Mr. McLoughlin said, the collection and the building itself would be safe from creditors. That is because both are owned by the City and County of San Francisco, so in the event of a bankruptcy filing, creditors could only go after about $70 million of endowment money and minor assets owned by the museum’s foundation, Mr. McLoughlin said.

Write to Justin Scheck at justin.scheck@wsj.com