Yacht Financing – Options to Consider

yacht finance

One of the best ways to travel the world is undoubtedly on water. The yacht-based life of the super wealthy attracts many people to consider purchasing a superyacht. Owning a yacht certainly opens up many opportunities to explore the globe. What better place to start than to check out some of the latest vessels available at a prestigious yacht show?  

The latest must-have yachts and design ideas begin with shows in Dubai and Palm Beach in March and continue around the Mediterranean throughout the year. Of course, the highly prestigious shows in Monaco and Fort Lauderdale in autumn also draw significant attention.

Marine finance for luxury yacht purchases

Owning a superyacht or mega yacht is undoubtedly a key to a playground for the super-wealthy, and those with low or no liquidity turn to marine finance to raise capital. Yacht financing requires the applicant to demonstrate assets, wealth and sources of income significantly greater than the yacht’s value. Lenders can require a banking relationship with the borrower and will always expect security that exceeds the value of the yacht purchase to enable borrowing to fund a yacht purchase. It is usually best to seek the advice of a specialist yacht finance specialist like a broker, as they will clearly have the experience to ensure that you get the right finance.

Running costs considerations

The cost of running a yacht generally sits at a minimum of 10% of the yacht cost per year, and for many significantly greater, where you choose to have a crew. Marine yacht financing is not intended to cover the running costs, so it’s essential to ensure you have sufficient liquidity to cover additional costs in addition to the loan repayments. Lenders will not allow borrowing against vessel running expenses. It is therefore vital to choose a broker that has many years of experience assisting high-net-worth individuals to secure luxury yacht finance and who can advise on the best lenders for your circumstances. 

What’s changed?

An increase in the demand for yacht finance has seen the market change from the balloon payment basis most common before 2008 in favour of more conservative measures. Yacht financing is now a complex market seeing individuals have difficulty securing boat loans through traditional banks. It is now a niche market that benefits from the knowledge and support of international finance brokers to secure competitive lending terms.

Getting finance

Lenders are always wary of lending against a depreciating asset, and today the market is more stringent, with many lenders using an Assets under management (AUM) arrangement. Borrowers can be required to place significant sums under the bank’s management to secure borrowing. The exact sums required will depend on the value of the vessel purchased. Still, it is not unreasonable to expect that a £6 million yacht purchase requires a £1 million bank deposit. Each lender will individually have assets and income. The market is complex, and applications placed with the support of a broker are most likely to succeed and attract the most favourable lending terms. As such, it is essential to ensure that each application is presented in a way the lender can easily evaluate any risk before they even consider lending.

Depending on your citizenship, there are more advantageous lending options, such as financing a yacht for citizenship and personal liability reasons, something an experienced international finance broker can explore with you.

Whilst many high-net-worth individuals enjoy the freedom of owning and travelling the world in a yacht, many others choose to invest in on-land property in property hotspots such as Monaco and Cannes, something experienced brokers can help in arranging.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.