Whether as an individual or a corporate entity, purchasing for the first time or refinancing, or whether the yacht of your dreams is ready to make its first splash or is well broken in, there are many facets to financing a marine vessel.

As a capital investment, a yacht requires considerable expertise during the acquisition and financing process. Each purchase is unique and, therefore, the proper financing objectives must be evaluated. For example, some buyers may only be comfortable financing with a fixed rate while others, based on personal cash flow, may recognize more value in a variable rate. Many banks don’t understand the psychology that accompanies a significant luxury purchase and lack the insight to assist a buyer in making an informed financing decision. Bankers with a background in private client lending, however, are more likely to recognize the financial complexities of a yacht purchaser. Since various closing elements accompany most yacht sales such as registration, documentation, tax and insurance, it’s essential to manage the loan process until it is complete. The buyer, broker, banker, closing agent and attorney(s) must all work together for a successful closing.

Buyers need to have knowledge of the various repayment options, must carefully evaluate and understand amortization schedules and realize that a yacht’s value may depreciate more quickly than the loan amortizes. In today’s world of sophisticated financing, someone may choose to incorporate an interest rate swap as a risk management strategy. Is this a good idea and do you plan on holding the asset until the swap matures? It is best to have a candid conversation with a knowledgeable banker early in the financing process to ensure that, as a borrower, you are matched with a lending program that does not place you in unnecessary lending risk.

Yacht financing is a bit more complex than buying other luxury assets. It’s important to find a bank that that works with clients individually to achieve the right financing objective. Your banker should be able to provide the best credit solution: one that is tailored to your specific needs and financial ability, while incorporating privacy and confidentiality along with best-in-class client service.

Contributed by:

Mike Bondurant, private client group officer, City National Bank

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