Commercial boats serve a variety of business purposes: fishing, charter fishing for customers, tourist trips, scientific research, ferries, dinner cruises and more. Buying a boat is the first step to getting into a maritime industry. Commercial boat finance makes it possible, even if you have only 10% or 20% of the money upfront.
TL;DR (Too Long; Didn't Read)
Identify the type of vessel you need for your business. Look at the cost of buying new vs. buying used or possibly buying a different kind of boat and converting it. When you have an idea of how much you need to spend, talk to a specialist in commercial lending. You typically need 10% to 20% of the cost as a down payment.
What Kind of Vessel?
To a landlubber, boats may look mostly interchangeable except for size. If you're going into a maritime business, picking the right boat is as essential as choosing the right commercial boat loan. If you're new to the commercial boat world, take a crash course to identify the kind of vessel you need.
Consider the variety of cargo boats, for example:
- Container ships carry either 40-foot or 20-foot containers, which makes a difference to your choice of cargo.
- Geared ships are equipped to load and unload their own cargo, whereas ungeared vessels are not.
- Bulk carriers ship goods such as cement, scrap metal, grain, flour or rice.
- Ro-ro (roll-on/roll-off) ships have ramps for cars or trucks to be driven on board. Some vessels ship vehicles for sale; others ferry them across water.
- Tankers carry liquid cargo, from oil to molasses, and pump the load off when they reach their destination.
Fishing boats are similarly diverse. Commercial vessels include trawlers, seiners, longliners and gillnetters, each with different equipment and methods. A charter boat for recreational fishing has to prioritize passenger comfort and amenities as much as its ability to catch fish.
There are plenty of manufacturers around the country who are eager to custom design the vessel you want if you meet their price. If you'd rather not take out a bigger commercial boat loan than necessary, do some research first.
One possibility that can save money is to buy a used boat from another business. If you're doing this, it's best to shop locally, which makes it easier to inspect the boat before buying. Research the boat's ownership, resale price, and whether the specific vessel you want to buy has any liens attached to it.
If you find a boat bargain that's not quite right for your line of business, buying and converting it is an option. If the boat was built for something similar to your purposes, it might work, but conversion can be expensive. One rule of thumb for conversion is that it costs twice as much and takes twice as long as you think when you commission the work.
Commercial Boat Finance
When you know what you want and you have an idea of what you have to pay, it's time to talk to a lender about commercial vessel financing. Ideally, you look for a specialist in commercial boat loans. Lenders who handle pleasure boats often don't handle commercial vessel financing. Boat makers and boat sellers are used to working with commercial lenders, which can smooth out some of the possible bumps in the transaction.
You can usually take out a commercial boat loan with longer terms and lower monthly payments than you could with, say, an auto loan. Commercial maritime lenders know that a water vessel can potentially outlast a car, so they can afford to stretch out the commercial vessel financing timeline.
A commercial boat loan doesn't cover the entire cost. Down payments typically run 10% to 20%, although some loan programs allow smaller down payments. The exact amount depends on the type of vessel, its age and the purchase price, as well as your credit profile. A specialist can often crunch the numbers and give you an answer in 24 hours.
- TCF Capital Solutions: Providing Vessel Loans and Leases
- National Marine Lenders Association: Why Finance With an NMLA Member?
- Maritime Law Center: Choosing the Right Boat
- Marine Insight: Types of Fishing Vessels
- 26 United States Code 163. "Interest," Accessed Oct. 7, 2019.
- IBISWorld. "Industry Report 44122c Boat Dealership and Repair in the US," Page 4. Accessed Oct. 7, 2019.
- National Marine Lenders Association. "2017 Annual Report Executive Summary," Page 8. Accessed Oct. 7, 2019.
- The BoatU.S. "Boat Buyers Toolbox," Page 10. Accessed Oct. 7, 2019.
- Consumer Financial Protection Bureau. "What Is a Debt-to-Income Ratio? Why Is the 43% Debt-to-Income Ratio Important?" Accessed Oct. 7, 2019.
- National Marine Lenders Association. "Things to Consider Before You Shop for a Boat," Page 2. Accessed Oct. 7, 2019.
- Office of Comptroller of the Currency. "Installment Lending," Page 2. Accessed Oct. 7, 2019.
- National Marine Lenders Association. "Boat Loan Basics," Accessed Oct. 7, 2019.
- Consumer Financial Protection Bureau. "Get a Prequalification or Preapproval Letter," Accessed Oct. 7, 2019.
Fraser Sherman has written about every aspect of business: how to start one, how to keep one in the black, the best business structure, the details of financial statements. He's also run a couple of small businesses of his own. He lives in Durham NC with his awesome wife and two wonderful dogs. His website is frasersherman.com