Your Guide to Yacht Finance in 2024.

For many people, owning a superyacht is the ultimate statement of wealth. It’s a way of life associated with exclusivity, liberty, and adventure that symbolises status, from relaxing excursions along the Côte d’Azur’s blue coast to flashy parties on deck during the Formula 1 Grand Prix in Monaco.

However, financing a yacht can be complex and must be handled carefully. This article will explore how novice and seasoned boat owners alike can join the superyacht elite and get the best possible yacht finance deal.

The State of the Global Yacht Market

Yacht ownership is the ultimate declaration of wealth and is only a viable option for ultra-high-net-worth individuals. Purchasing a yacht provides independence and seclusion that a typical Mediterranean tourist could never dream of. And the yacht market has experienced record-breaking growth over the past two years.

The Global Yacht Market: Outlook & Forecast by Research and Markets caps the global yacht market’s value at USD 26 billion in 2023, with an annual growth rate of 7.62% from 2023 to 2030. Furthermore, the first half of 2023 saw a 6% increase in the value of yachts sold compared to the same period in 2022, with the average deal value for newly built and used yachts being $11.6 million, according to International Yacht Company data.

However, yacht prices can vary drastically. Megayacht and superyacht vessels often surpass $20 million and can cost up to $200 million.

What is the difference between a yacht and a superyacht?

Watching the boats in the famous Spanish port of Puerto Banus, you can quickly notice the difference between yachts and superyachts. The first observation is that size matters. Yachts vary from 10 to 24 meters long, while superyachts average from 40 to 60 meters. You’ll also see high levels of customisation from the outside and inside.

Superyachts are designed to be self-sufficient. Their power sources, water supply, and sophisticated navigational systems make them fully autonomous for long fares over the deep ocean. They may have swimming pools, helipads, cutting-edge entertainment systems, and room for enough crew to keep the boat up and running, including engineers, chefs, and stewards.

To keep a vast yacht running smoothly demands around 10% of the vessel’s annual value in maintenance fees. For example, a yacht valued at $20 million would require $2 million to cover regular maintenance and repairs, including fuel, staff salaries, and docking costs.

How to Finance A Pre-Owned Yacht?

Purchasing a pre-owned yacht is similar to obtaining a regular loan. You negotiate with the lender to borrow a specific amount to buy the vessel. Once you agree, you start making regular payments that cover the borrowed amount and interest over an agreed-upon period. This structure enables you to distribute the cost of buying the yacht while enjoying ownership from the beginning. How you finance a pre-owned yacht can depend on whether you have assets under management (AUM), which allows you to use the total value of your portfolio as security in a purchase.

Financing With AUM

Buyers with AUM often get better credit conditions when financing a yacht. Lenders see AUM as an additional type of security that lowers their perceived risk. As a result, investors with high AUM may benefit from cheaper interest rates, a higher loan-to-value ratio, and more flexible repayment schedules. Financial leverage can help to speed up the approval process because lenders are more confident in the buyer’s ability to repay the loan.

Financing Without AUM

Financing a yacht without considerable assets under management (AUM) is challenging but not impossible. Buyers in this scenario usually have to meet more severe credit and income requirements. Lenders will check credit ratings, debt-to-income ratios, and other financial indicators to determine risk, financing rates may be higher, and loan amounts may be less generous.

Lenders may also seek a personal guarantee from the buyer, a commitment to repay the loan that may put other personal assets at risk in the case of default. Buyers are often expected to make a significant downpayment to reduce the lender’s risk, lower the loan-to-value ratio, and secure the financing arrangement.

Using a Corporate Structure To Secure Yacht Financing

Yachts, especially megayachts and superyachts, are rarely purchased by individuals. They are far more likely to be purchased via a corporate structure, which is more financially efficient. When buying a yacht, buyers enter a long-term business partnership with the lender and the purchase is repayable over several years.

As a result, lenders are heavily involved in the repayment process and require regular updates and oversight of the buyer’s financial position. As a result, buying a yacht isn’t simply a case of finding a boat you want and purchasing it outright. The deal typically involves multiple complex elements and requires a transparent ownership structure.

Additionally, the loan agreement will be highly detailed. Lenders need to know information like your nationality, where you’ll register and moor the vessel, and how you plan to use the boat before they can structure the finance plan. For example, if you plan to use the yacht as a chartered vessel, a lender may allow you to borrow more as you’re likely to generate income from the boat.

A corporate structure offers essential liability limitations and ring-fencing benefits critical for successfully operating a significant asset, such as a yacht. When a valuable asset is ring-fenced, any related issues will be addressed and managed independently of other assets. Nowadays, there is an increasing focus on a yacht structure’s privacy and anonymity benefits.

In this setup, the buyer can be replaced by experienced, responsive, capable nominee directors, director companies, or trusts, along with an entity name, ensuring confidentiality. Corporate structures are crucial to yacht financing, as they simplify the process of title, lien and mortgage registration, leasing, and Lombard loan arrangements.

Purchase Your Dream Yacht With Hectocorn

Securing favourable terms on a yacht finance agreement can be challenging for even the most experienced investors. Every aspect of a yacht finance agreement needs to be personalised, so an optimal deal demands a deep understanding of the complexities and lenders’ requirements.

Hectocorn has established relationships with hundreds of specialist yacht lenders, enabling you to secure the best yacht finance deal possible. Our expertise in this specialised field means every agreement aspect becomes negotiable, especially if you possess significant assets, business interests, or a prominent public profile. This demonstrable knowledge of yacht purchases allows us to negotiate the most favourable deal based on your needs and tailored to your unique portfolio.

Hectocorn thoroughly analyses your background to gauge its attractiveness to lenders. This includes essential details such as the type of yacht you intend to purchase, the desired loan amount, and the repayment terms.

Discover how we can secure the best financing deals for your yacht purchase by contacting [email protected].