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Who qualifies for a yacht loan in this economy?

Submitted onJuly 19, 2009 2 Comments, join the conversation

yacht loansEven in the current financial environment, yacht loans remain accessible from prominent banks throughout the United States and Europe. Competitively priced loans for vessels of all sizes continue to be available to qualifying applicants.

The statement above begs the question: Who qualifies for a yacht loan in this economy? What criteria are banks looking for before they lend on a yacht?

First, who qualifies?

Let me preface by saying that yacht loan underwriting is relatively conservative when compared with underwriting for other types of assets.  Requirements are more stringent because the lender’s perceived risk is infinitely higher. Here’s why:

  1. a yacht purchase is purely discretionary.
  2. a boat or yacht can be stolen, disappear over the horizon or become unsalvageable due to storm, sinking, collision, fire, etc. Granted, insurance is a required as a condition of financing, but the perceived risk is more than, say, an office building or a house (where the dirt is often more expensive than the building).
  3. Marine lenders are aware that if a borrower’s income is compromised and monthly payments must be curtailed, one of the first to go will be for the big toy tied to the dock.

So, with the above in mind, you might see why we are careful about the collateral and borrowers we put on our books. Very simply, we are looking for applicants with good credit history, good income/cash flow, good liquidity, and buying a good boat. Thankfully, we have applicants every day who meet those criteria.

But, you might ask: what is “good”?

Credit history: scores (from the major reporting agencies Equifax, Experian and TransUnion) from the high 600’s and up. No outstanding liens, collection accounts or late payments.  Past late payments or derogatory credit must be plausibly explained. Multiple maxed-out credit cards detract. Previous or existing loans (“high credit”), whether paid off or not, must be at least equivalent to the amount you’re asking for.

Income: verified through Federal tax returns, pay statements, K-1/W2/1099’s and supported by business tax returns and financial reports, if applicable. While we understand the American way is to reduce one’s taxable income, with cooperation from borrowers (and their accountants), we can usually get a handle on recurring income. In most cases, the borrower’s debt-to-income percentage (including projected vessel debt and annual maintenance (usually about 10% of vessel value) must be less than 50%.

Caveat:  if you don’t report your income we can’t help you.

Liquidity: Liquid, accessible cash and or readily marketable securities. While bank requirements vary, we’d like to see an applicant’s liquidity equivalent to 6 to 12 months of total debt. Example:  existing payments for your home mortgages, autos, credit cards, and projected payments for the new boat and boat maintenance total $21,000 per month. While there can be mitigating factors, I’m looking for at least six to twelve times that amount in your savings, investment and brokerage accounts after the down payment is paid on the boat. The reasoning is simple: I don’t want you to clean out your savings to buy a boat and I’d like to know that if you lose your income stream, you have the reserves necessary to make your payments as you make alternative plans.  See “3” above.

A good boat: Vessels with pedigree, vessels well-known in the marketplace, vessel makes and models with sales histories qualify as a good boat. Most boat and yacht builders whose names you recognize would probably qualify. Custom boats, particularly with the above characteristics, are definitely financeable, although fewer lenders will do it. “One-off ” boats (only one boat built by a little- or unknown builder) are more difficult to finance because of the lack of sales history and the likelihood that a one-off boat will take longer to sell (if a lender had to repossess it and sell it to recoup their investment). In many cases, though, the more financial horsepower an applicant presents, the higher the likelihood that a lender will finance the deal. If it is difficult to get an accurate value (values are a moving target these days…), sometimes a bank will still do the deal but finance a lesser percentage.

That said, 70-85% of a vessel’s purchase price is commonly financed. Assuming that the applicant qualifies, the financed amount is typically based on the purchase price of the boat. Different marine lender finance different percentages, but generally, for purchase prices up to $500K, 80 to 85% (and sometimes 90% for a strong client) is possible. $500K to about $4 million, 80% is the norm.  $4 million and up, 70 to 75% is usually the maximum amount financed.  Multi-million dollar deals are structured and priced individually.

Stay tuned for his next post:  what kinds of boat loans and yacht loans are available?

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About the Author

Phil Bartholomew is contributing author at Yacht Help Desk & an expert marine/aviation lending officer at Seacoast Marine. For yacht finance help you can send him an email

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2 Comments »

  • ken tatarow says:

    I want to build a new boat with a semi new company on the west coast who is building a good product though has only sold three boats and is working on hull number three. They require progress payments and my fear is them completing the project if something goes wrong with their company. I am willing to place the entire purchase amount in escrow until the boat is finished. Does anyone know of a bonding company, finance company, or insurance company that would from the funds to the builder with the sercurity of my escrow once the vessel is complete? Any other suggestions? Thank You

    • YHD says:

      Hello Ken,

      Your concern is shared by many. In the previous years it was easier for a yard to prove themselves through performance and by forcing the client’s hand- “if you don’t make the deal the next guy will”. It’s safe to say that in today’s economy the issue of stability can be questioned for every company. Ferretti, Sea Ray, Viking and Carver are amongst household names that have been forced to make adjustments. Just this week Lazzara Yachts published a video in an effort to inform the public that they too have corrected their business and are committed to the brand (http://bit.ly/3nSaTU). This does not answer your question directly, but it’s meant to let other readers know that you are not being paranoid, just cautious.

      Since you are willing (and able) to place the full monies in escrow the easiest option is to have your bank issue a Letter of Credit (LOC) that the Builder can then borrow against. This depends greatly on the Builder’s financial position and their banking relationships. The LOC will cost you 1%-2% depending on the bank, but it is guaranteed funds for the Builder and guaranteed piece of mind to you because your bank will not release that cash until certain requisites have been met (these vary by bank, but can include a completion survey, your signed acceptance of vessel, proof of clean title, etc…). The Builder can take this LOC to their bank and borrow against it. Since you are putting the burden of finance the build on them you may consider negotiating their interest fees.

      Another avenue to consider is a construction loan. Again, this depends greatly on the builder’s history or the financial strength of the principals. If both are god you might be able to qualify for construction financing and have the lender make the stage payments for you. Also, it may still be possible to obtain financing through the engine manufacturer. CAT Financial, for example, might be willing to finance the engines which can eliminate a big stage payment.

      A third option is to follow what some of the megayacht builders use on their massive projects- monthly billing. In this system you either pay 30 days in advance or in arrears (again, depending on what the builder can afford). The builder bills you based on actual work completed in that month- including labor, materials and non-tangible costs. This system works well for large projects because it provides a steady cash flow for the builder and security for the client. If you fail to make a payment, construction stops and you can be fined. By the same token, if the builder is unable to continue construction for the financial reasons that you are concerned about, you can take your boat to another yard for completion knowing that you only paid for what was actually built.

      There are a few other creative options, but try these first and please tell us if they were helpful. We’ll ask one of our lending experts to further comment with recommended banks, competitive rates, and related points. If you’d like more detailed or guided assistance please drop us a line at contact@yachthelpdesk.com.

      YHD

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