09/19/2018

When Choosing Marine Financing, Know Who You Are Borrowing Money From

by Noelle Norvell, President, Luxury Financial Group

When it comes to financing in today’s world, lenders have tightened their belts and added suspenders.  Within the world of marine financing, the belt is squeezed tight to the very last hole because a disposable asset is not a necessity; but instead, it is considered a luxury expense and lenders don’t like giving out money for toys.  If you are a buyer of a pleasure boat or yacht that will be financing the purchase or if you are a broker of a buyer doing this, well then, you have basically two choices, 1) go through a bank or private banker, or 2) contact a marine finance broker.  The best option is to choose a marine finance broker who has had the knowledge and experience of once being a private banker that now works for a marine financing company that has expansive banking resources to find the buyer the best financing terms available to them based on their financial profile.

When a buyer uses their private banker to obtain marine financing, it gives them the confidence and comfort in knowing that the private banker is already knowledgeable of their overall financial profile. Historically, private bankers are known for quarterbacking their customers’ relationship and addressing all their financing needs from home mortgages to commercial banking while also overseeing their investments. However, the problem here is that a marine loan is not a necessity, so very few banks know how to underwrite a marine loan without asking for very large down payments and shrinking the amortization or demanding a deposit relationship from the borrower. These are unattractive requirements that will increase the borrower’s monthly payment, decrease their cash position and people typically prefer to leave their money in their chosen accounts and not split it up and move it around to qualify for financing. The private banker also has only one lender to submit your file it and that is your bank.  Usually unknown to most private bankers is that most US banks do not have an appetite for marine loans in their consumer/commercial lending portfolios at all because the risk associated with a marine loan make these loans very hard to bundle and sell to another service provider.

That leaves the other option which is using a marine finance broker.  Although this title might suggest that the marine broker is a specialized finance individual, but have you ever stopped and asked for the marine brokers resume or experience to qualify that they have the financial experience and knowledge that is right for the borrower?  Yes, many marine finance brokers have excellent skill sets and usually a long-standing history being employed in the marine industry. However, it is good to inquire on what their background is.  Have they worked in a bank before?  Did they earn a finance degree?  Are they purely a sales person or do they understand the serious role that a lender’s underwriter plays in reviewing the borrower’s confidential finance documents and rendering a decision on whether or not to lend the borrower money to purchase a boat?  

Whoever the buyer chooses, this person must be able to intelligently understand and discuss the buyer’s Schedule E’s, passthrough income and cash flow at the outset can mitigate lots of surprises down the road during the underwriting part of marine financing. Remember, that the person who are dealing with, usually is not the decision maker of whether or not you get the money.  On the initial review, if the buyer is told that they should be fine and that their financial documents look great, the ultimate decision is made by an underwriter.  Therefore, without using a person knowledgeable of underwriting process, then the buyer may be asked for the wrong documents, asked for the same document multiple times, not collected important documents upfront delaying the financing process which will then delay the closing of the boat.   

When going to a marine broker, understand the difference in the roles of the people who work there.  Usually the marine broker is a sales person who collects the financial documents and application and packages up the buyer’s file presenting it to an underwriter at various banks.  If the sales person does not collect the right documents or supporting documents concerning questionable pass through income, then the underwriter’s first impression of the buyer will be one of a less than stellar financial impression of the buyer and this will hurt the buyer’s chances for the best interest rate, loan terms and even an approval at all. 

Therefore, before choosing or referring a marine broker, ask some important questions. How long has the marine broker been lending in the marine business? How does the broker shop the borrower’s file to the lenders?  Who does the marine broker have relationships with? Most banks have strict criteria that all marine brokers should know about before submitting a file to a bank.  Does this marine broker know this information?  It is critical for the marine broker to approach the right lender based on the buyer’s profile.  Is the buyer purchasing a sportfish, center console or motor yacht?  Will the buyer be charter?  How will the buyer own the vessel?  Where will the buyer use the vessel?  Where will the buyer document or register the vessel?  Will the marine broker chosen to push the lender that they submit the buyer’s file to in order to get them the lender’s best deal?  Will the marine broker argue professionally if the approval is a short call (meaning dig deep on your behalf to see if the lender cleared off any business debts, added back in depreciation and gave consideration for a NOL)?  Does the marine broker know the lender’s underwriter, or do they only know the lender’s representative who then presents the buyer’s file to the lender’s underwriter?  This can eliminate any leverage that the marine broker has in order to achieve the buyer’s financing goals.  Go further, is the marine broker invested in the marine community and staying current about market in the marine lending world?  Is the marine broker professionally qualified to talk to the buyer’s CFO, accountant or tax attorney when dealing with large loan amounts and/or sophisticated lending files?  

It’s essential to ask the marine broker who they are sharing the buyer’s financial soul to!  What about the buyer’s social security number, account numbers, and financial documents, are they treated confidentiality? What does the marine broker do with your confidential tell-all financial documents?  Where are they stored and how?  Are these documents seen by multiple parties and who are these people?  What is the marine brokerage company’s standard operating procedure concerning wires and the wire verification process? This is important to know in a world rampant with cybercrime and wire fraud. What if the buyer’s funds are intercepted by cybercriminal and stolen?  Does the marine brokerage company have cyber insurance to cover this loss?  

Pretend that you are the one that is going to borrower the money.  Choose the professional that you would be comfortable in knowing your financial soul.  Buying a pleasure vessel or yacht should be a wonderful experience, so carefully choose a knowledgeable, strategic, confidential and service oriented financing professional when choosing or referring a marine lender.

Learn more about Noelle Norvell, President, Luxury Financial Group.