Why Finance a Yacht?

Yachts – especially superyachts and mega yachts – are only accessible if you are a high-net-worth individual, even if you are using superyacht finance. It’s important to note that yacht financing is never about making a boat more affordable or buying on ''credit.'' The sheer sums of money needed to purchase a yacht and the risk for lenders will require that you have significant wealth and that your financial position is very strong. In other words, a yacht needs to be a highly affordable purchase for you, even if you want to finance it.

Yacht financing is usually used when you have very significant assets invested or tied up in such a way that it doesn’t make sense to liquidate them to buy your yacht. Lenders will want to be assured of this before they will even consider lending. Generally, you will need to have assets, wealth, and sources of income (properties, shares, securities, businesses, etc.) that far surpass the value of the yacht you are looking to buy for yacht finance to be an option.

The running costs of yachts vary, but they won’t come in at less than about 10% of the cost of your yacht per year, and these can be significantly higher if you have a large boat with lots of crew. Yacht financing is always about the vessel rather than these additional costs, so you will need to ensure you can comfortably cover these in addition to repayments and other running costs and loan repayments. 

Depending on your citizenship, it may also be more advantageous to finance a yacht for creditorship and personal liability reasons.

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Why Finance a Yacht?

How Does Yacht Financing Work?

The overarching principles of yacht or superyacht financing are much like a more ''normal'' loan. Your lender will release a pre-agreed sum to you that you will use to buy the vessel. You will be required to pay back the loan and interest over several years. This system is often used if you are purchasing a second-hand yacht.

If you are planning a new build, your lender will agree to release finance to you in stages. Financing commissioned yachts is marginally more complex as lenders only release funds to the shipbuilder after each part of the build is finished. Work on each stage will need to be verified (often by third-party specialists) and certificates issued against the completion of the phase before your lender will release funds. Your shipbuilder can then continue with the next stage of the build. Both you and your lender will want to consider extra financial safeguards in the case of yacht construction. Usually, these include provisions and structuring in a way that will protect you from bankruptcy or litigation against your shipbuilder that would halt the construction of a ship partway through the projects. Again, you will be required to pay back the loan and interest over several years.

While it is possible only to use the yacht as security for superyacht finance, increasingly lenders will want something in return for offering this type of loan. Yacht-only collateral is likely to be a reality for much smaller boat purchases, rather than vessels that cost multiple million pounds, i.e., superyachts and mega yachts.

Lenders will most likely want to form professional relationships to manage your personal and/or business assets in return for superyacht finance. What kind of relationship you will enter into with a lender and what you will need to put under management will generally depend on your profile, background and wealth. Also, expect to be required to sign a contract that pledges that the lender can claw back any defaulted payments from your corporate interests and personal assets if you don’t make repayments on time. Again, this means that lenders will circle back around to your ability to pay for the yacht in the first place: if you can’t – or won’t – make comprehensive contractual assurances to cover the loan, expect this type of finance to be more complicated.

Loan-to-value ratios vary from lender to lender but generally sit at around a maximum of 50%, although it can sit on either side of this, depending on your background. Generally, the more diverse and liquid your assets, the more willing lenders will be to consider financing your yacht.

Nuances of Yacht Finance

Before considering you for superyacht finance, lenders will want to know more about your experiences with yachting. If these questions come up unexpectedly, this can seem overly intimate: professional relationships rarely venture into the details of how you spend your vacation and what kind of places you stay in. However, yacht finance is a world unto itself, and lenders will want to ensure you understand the asset you are buying and that you have a long-term interest in yacht ownership. Generally, having chartered a yacht a few times will suffice. Principally, lenders want to ensure you will enjoy the vessel you’re buying and won’t want to sell it immediately and that you have grasped the basics of operations and costs.

You will also need to think about the long-term involvement of your lender throughout your ownership of the yacht. Your lender will want to ensure that the boat (i.e., their security) remains in good condition for the loan period. They will want to do this to ensure that should you ever default on the loan, the yacht can be sold relatively quickly and that it’s in good condition at all times. Practically, this will probably mean it will need to be inspected regularly (at least once per year) by the lender, who will want to check that appropriate upkeep is being carried out and that the vessel remains in good condition.

The lenders will also have comprehensive covenants that will cover a wide array of terms that relate to the yacht, its upkeep and its use. Lenders are relatively free to stipulate these, and they will be able to set out clauses and provisions for different aspects of ownership. You will need to understand what these are, how they will affect what you can do with your yacht (i.e., the terms under which you can charter, should you lease the boat) and how it will affect the operation and regions in which you can sail. These details will affect your use of the yacht, and you will need to either negotiate these or reflect carefully on these before signing terms.

For larger, more expensive yachts, you will essentially be entering into a long-term business partnership with your lender, given you will be looking at paying back your vessel over several years. Remember that lenders will be involved and hands-on in more than just your yacht ownership: they usually require updates and at least some oversight of your finances to ensure that you remain in a solid financial position. For this reason, the lender you work with is critical to smooth, enjoyable yacht ownership. While they are subtle details, borrowing from a lender that you like, want to work with for several years, and that has offered you a fair deal is paramount to success.

Structuring Yacht Finance

Whether you are buying a superyacht second hand or commissioning a build from scratch, you will need finance to be structured in a way that meets both your financing and broader requirements. Alongside specialists and your advisors, your broker will also consider how to structure finance in a fiscally advantageous way. Enness will also consider how your package fits your other corporate and private structures.  

Yachts are rarely – if ever – owned by an individual. Instead, you will most likely hold your yacht through a corporate structure. Corporate yacht ownership is most efficient from a fiscal perspective and facilitates elements like the employment of your crew and things like how you pay VAT.

Yacht finance is, therefore, not just a simple question of taking a specialised kind of personal loan and using it to buy a yacht – there are broader and more complex elements to consider. Your ownership structure will need to be thought out and set up before lending occurs, and specialists will need to advise on the best way to structure your ownership. Enness will be able to source in principle offers for you, but lenders will need to understand your proposed structure to be able to do this.

Lenders will lend to the corporate entity that owns the yacht (and of which you are UBO) rather than you personally. However, you will generally be expected to provide a personal guarantee using your own accounts or money against the yacht to provide additional security to your lender.

Loan Agreements will be very detailed. Your nationality, plans for the boat, if it is a new build or you are buying second hand, plus where it will be registered, and the boat’s size will all affect how a lender will want to structure what you borrow. Enness will consider fiscal implications, where you live, the domicile of the corporate entity, currency, potential resale and so on. Enness handle sourcing finance and negotiating terms, but they will work alongside other experts and your advisors to deliver a yacht financing package that meets all your needs.

Enness will also ensure your finance package is ''futureproof''. For example, where your yacht will be registered will also make a difference to how finance is structured and which lenders Enness will approach. Likewise, what you do with the yacht will also come into play. If the yacht will be chartered, lenders may be more willing to let you borrow, given the vessel will generate income. In some cases, however, lenders may require that any revenue generated from charters is paid directly to them as part of your financing agreement, although this requirement may not be the same for every lender. If your yacht is used exclusively for private use, you may need to provide more security or guarantees, given it will not generate income.

Terms will also come up at the initial stages of negotiating finance. Lenders will need assurances that they can take control of the yacht if you default on your loan. Sailing to jurisdictions where it would be impossible for them to impound the boat will usually be a non-negotiable for lenders, and you will need to consider how terms like these affect your ownership and enjoyment of your vessel.

How Will Enness Organise Yacht Finance?

While it is tempting to try and emulate a similar structure or approach the same lender your associates use for their own yacht financing, doing so will not get you the best finance deal. Every aspect of yacht finance needs to be personalised, or you risk missing out on the best package. Enness will analyse every element of your background and identify how to get the best deal. This deal will be completely customised and will be dependent on what you can bring to the table, what you can offer lenders and the broader intricacies of your situation.

Enness always start by asking you questions to understand how much you want to borrow and by when, what type of yacht you want to buy or commission, your financial situation and background. Your broker will also ask about any ''non-negotiables'' you have too – these tend to centre on any specific terms you are aiming for in terms of lenders, rates and so on.

Yacht finance is complex to arrange, but it is essential to remember that you are entering into a long-term relationship with a lender. Much like a mortgage, you will be looking at paying back your loan over several years, especially if you are making a high-value yacht purchase and placing assets under management with your lender. Ensuring that you benefit from the right financing and that the deal is structured in a way that will be advantageous over several years is imperative. Having access to a choice of lenders and negotiating the deal that’s right for you is central to success.

Negotiating superyacht finance requires finesse, consummate access to specialist lenders and an ability to generate healthy competition between the different players in the space. Operating alone, it is very challenging to create the right environment to ensure you enjoy the best deal. A broker like Enness will also be able to open superyacht finance negotiations.

Regardless of how much finance you want for a superyacht purchase, this kind of specialist financing deal is a two-way street. Everything is negotiable, especially if you have a high profile or a lot of business that your lender can benefit from. Enness will open up negotiations and will be able to entice lenders to offer the best rates and terms. 

How Long Is Yacht Finance?

The length of your loan will depend on how much you want to borrow. Superyachts and mega yachts that cost several million pounds will be repaid over more years than a smaller, less expensive boat. For large vessels, terms are usually twenty years, but your broker may be able to negotiate longer or shorter terms. Smaller vessels will typically be repaid over five to seven years.

Yacht Finance Interest Rates

Interest rates are usually fixed rates, which helps to safeguard against fluctuating interest rates over the course of your loan. Interest rates vary significantly from lender to lender. Because you will benefit from a hand-crafted deal, there is no fixed rate or standard interest rate that can act as a guide.  Your wealth, profile, what income you generate and what other assets you own will all play a part, as will the size of your yacht and how much you want to borrow.

Enness will source and negotiate the very best interest rates available in the market.

Contact Enness to Discuss Yacht Finance

Contact Enness to Discuss Yacht Finance

With access to more than 500 global lenders, Enness will be able to negotiate the best superyacht finance deal for you.

Contact Enness to have a no-obligation chat about your plans for purchasing a super or mega yacht and explore how Enness can help you structure and streamline yacht finance. 

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