When you need financing …
Issue 3 : Nov/Dec 1998
Any discussion of marine financing can be as nebulous as a discussion of which is the best boat. We all know no one boat can be best for all sailors or in all situations. Similarly, no one loan or marine finance specialist can be best for all our financial needs. Marine financing is a large, diverse industry with many specialized lenders. Local banks, although they may make loans to purchase boats, generally are not specialists. While doing research on this subject, I found that one of the best sources for names of marine lenders is the ads in Soundings.
Because of the diversity of lenders, you must first determine what you need and then start looking for the lender who comes closest to fulfilling that need. You might even think before looking very deeply into this specialized field that you surely will need squeaky clean credit, but that’s not always true. Some lenders can even customize loans to fit the needs of the “marginal borrower.”
Of course we all think about financing when we are looking for a new boat, but do we start looking soon enough? The acceptance criteria for the marine specialty finance companies vary enough that you should start to arrange for financing even before you start wandering through boatyards or contacting brokers. My own research could not turn up any difference in the credit-granting guidelines of marine finance companies, but their loan criteria showed vast differences. Some of the companies had no minimum loan amount, while others had a minimum amount, usually in the $15,000 to $20,000 range.
Some of the firms also had a maximum age of boats they would finance, although they suggested that each loan is reviewed on a case-by-case basis. A surprising number of the finance companies queried do not make a survey of the boat to be financed a prerequisite for granting the loan. However it should be noted that the loan will require the boat to be covered by insurance with the finance company shown as a loss-payee. The insurance company will require a survey in order to issue coverage.
Wisdom dictates getting a survey if for no other reason than having a disassociated professional check out your decision and point out any problems you may have overlooked or been unable to determine.
The rates and terms of the companies — the items most advertised — are not going to vary much. Banks and finance companies get their money from the same sources and will have to pay about the same amount, so they will charge similar rates. It is wise, therefore, to shop for other criteria, because that is where the differences show up. A boat can meet the IRS criteria for a second home and therefore the interest on a loan secured by the boat may be tax deductible. For this reason, it might be wise to finance your next boat even if you have the funds to pay for it outright. But check with your accountant and refer to Bob Wood’s article on the subject on Page 20.
If you’re selling a boat, rather than buying one, you would be just as wise to look into financing. When you find a person who wants to buy your boat, you want the sale to go as smoothly as possible. Can you think of anything more discouraging than having a potential buyer go to a marine finance company and learn from them that your boat doesn’t fit the loan criteria for that bank? A big red flag was just hung on your boat. Or worse yet, your buyer goes to his local bank, and they quote terms and rates that are overly stringent and, in doing so, crush the deal.
If you are prepared ahead of time to guide your prospect to the financing firms that can supply funds to buy your boat, you will make it easy to buy from you. It would also be wise, if you are selling your boat, to get a survey done by a certified surveyor. This will prepare you for any short-comings your boat might have so you can correct them or be prepared to deal with them before they become a negative in the eyes of the potential buyer. It’s better to know the faults and be prepared to deal with them than to conceal them and risk losing the sale.
Not buying or selling? There’s one more reason you might want to look into marine financing. You may want to upgrade the boat you have. Depending upon the project and the amount of money involved, you might be a candidate for marine financing. Not all marine lenders do refit or boat improvement loans, but some have programs set up specifically for such activities. In most cases, the lenders who have rehab programs require that the work financed be done by an outside contractor. But if you’re a do-it-yourselfer, this shouldn’t discourage you completely.
Maybe you can separate your refit into a number of specific projects and hire professionals to do the more complex of these. You could do the tasks you feel the most comfortable with and finance the work done by the professionals.
Or perhaps if the project cannot be separated into smaller chunks, you could convince the contractor to allow you to do the parts you are qualified to complete as a subcontractor and give you credit against the down payment. Since rehab loans are not that common, you’ll need to do your homework before you get too far down the line with project planning or commitments on a job of this nature.
In the end, your work will be rewarded with financing for your specific needs.
Thank you to Sailrite Enterprises, Inc., for providing free access to back issues of Good Old Boat through intellectual property rights. Sailrite.com
