Yacht Financing Guide

A lender advances part of the purchase price to the owning entity. In return it takes security — normally a registered mortgage over the yacht — plus assignments of insurance and sometimes earnings, and guarantees from the beneficial owner. The loan agreement sets conditions the owner must meet for its life.

Private-bank marine finance desks are an important part of the yacht-financing market, particularly for clients with broader banking relationships. Specialist marine lenders and other structured-credit providers may also participate depending on the yacht, borrower and transaction.

Appetite varies by yacht size, age, builder, flag and the borrower's jurisdiction.

Lenders assess the borrower's wealth, liquidity, source of funds, jurisdiction and existing relationship. KYC and anti-money-laundering checks apply to the owning entity and its beneficial owners and can take time.

The yacht is the collateral. Lenders consider builder, age, size, condition, class, use, resale liquidity and how easily the yacht could be sold if needed.

Loan-to-value (LTV) is the loan amount as a proportion of the yacht's assessed value. Lenders set it case by case, and it can be tested during the loan. This guide does not give typical figures because they vary widely.

The buyer funds the difference between the loan and the purchase price, plus acquisition costs that lenders generally do not finance, such as survey, legal fees, registration and any taxes.

Lenders usually require an independent valuation. The lending value may differ from the agreed price, which affects how much can be borrowed.

The condition survey tells the lender whether the collateral is as described. Findings can affect the loan amount, conditions or timing.

The mortgage is registered in the yacht's registry, so the flag must be acceptable to the lender. Changing flag later normally requires the lender's consent and re-registration of the mortgage.

Lenders require hull and machinery and liability cover at agreed levels, with the lender's interest noted or the policy assigned. Lapsed cover is usually a default.

Yachts are often held by a single-purpose company. The lender may require guarantees from the beneficial owner or a holding entity. Structure should be reviewed by legal and tax advisers.

Loans may be in euro, US dollar or other currencies. A mismatch between loan currency and the borrower's income or the yacht's market adds exchange-rate risk.

Interest may be fixed or floating, sometimes with hedging. Fixed rates and hedges can carry break costs on early repayment.

Tenor is the length of the loan. Amortisation is how the principal is repaid. Many yacht loans leave a balloon — a larger final payment — which must be refinanced or repaid.

Covenants are ongoing obligations: maintaining insurance and class, keeping an acceptable flag and manager, providing financial information, and permitting valuations.

Some loans include a valuation test. If the value falls below an agreed level relative to the loan, the borrower may need to prepay or provide extra security.

Commercial chartering usually needs lender consent and may require an assignment of charter earnings, commercial registration and specific insurance.

Loans and insurance can restrict cruising areas, for example excluding high-risk regions. Plans to cruise widely should be raised early.

Changes such as flag, manager, ownership, major refits or charter use generally require consent. Ask which events need consent and how long it takes.

Funding is released at closing against conditions precedent: valuation, survey, registration documents, insurance, corporate approvals and KYC. The purchase agreement's timetable and any finance condition must align with the lender's process.

Start the financing workstream early — before making a binding commitment that depends on funding. Depending on circumstances, a buyer can begin financing before viewing, while shortlisting, before making an offer or during negotiation. Waiting until after a binding commitment can put the deposit and the buyer's position at risk.

Refinancing replaces an existing loan, often at a balloon or when circumstances change. Early repayment may carry fees or break costs; check the loan terms.

Financing a new build involves stage payments against construction milestones, refund guarantees from the yard, assignment of the build contract and security over an asset that does not yet exist. It requires a lender experienced in construction finance.

Family offices may weigh financing against liquidity, portfolio and relationship considerations. Decisions on whether to finance are for the owner and their own financial and tax advisers.

Financing does not change a yacht's VAT or customs status. Tax and structure questions belong with specialist advisers.

Interest and fees add to annual running costs. Budget them alongside crew, maintenance, insurance and berthing.