Marine Financing: What You Must Know

Business Yacht Ownership®Learning Center

Why marine financing? Don’t tie up your other lines of credit. It’s much like home financing, only easier and with almost no closing costs. Find out what’s possible, the pitfalls, and how to use marine financing to your advantage. This article is for those going to the boat show and who seriously want to know more.

What boat is in my budget?

Which boat? You need one that suits your needs and has a down payment and monthly payment that meet your budget. If you use the Business Yacht Ownership approach, your net monthly cash out- flow will likely be $0, but you will still need to cover the down payment.

One of the best ways to start is to take a quick look at the down payment you will be required to make; it is typically between 15-25%, with 20% considered normal.

Typical Monohull down payment–Note this is only a guide with minimum down payment.

Monohull Minimum Downpayment by Size - marine financing

Catamaran Minimum Downpayment by Size - marine financing

Are You Qualified?

  1. Down payment available?  (Above)
  2. A boat qualifies as a second home, so you can deduct the interest to reduce the monthly cost of the loan. Financing $320,000 for a boat, the payment would be $1,932.20. With the second home interest deduction, this cost is reduced to $1,283.20 (out of pocket cost). Here is the simple math: Take the price of the boat, less the down payment and multiply the amount to be financed in thousands.Here’s an example: Without second home interest deduction: The boat you wish to buy costs $400,000. Less 20% or $80,000 down payment. Finance balance is $320,000. So, the payment is calculated as $6.06 X 320 = $1,932.20. With the second home interest deduction: the formula becomes 320 X $4.84 = $1,548.80 per month — a significant reduction in out of pocket cost (this assumes you’re in an upper tax bracket).
  3. Debt to income ratio is about 35-40%. First figure your boat payment: Divide the total of all your debt (monthly or annual but including the loan cost calculated–$1,932.20/mo. in our example) by your total income. Example $10,000 in payables (incl. boat) divided by $25,000/mo in income = 40% debt to income ratio.

What To Look Out For, Especially at the Boat Shows

  1. Teaser rates. Low rates offered for a limited time that go up to above average rates.
  2. Make sure the loan is simple interest, and that there is no pre-payment penalty.
  3. If you’re planning on a Business Yacht Ownership® approach, do not file an application until you have talked to us! These brokers will discourage you, or convince you that they can finance a business boat. They can’t — at least not at the normal terms they’re talking about. Talk to us — we have proper sources.
  4. Do not submit applications to multiple brokers or loan brokers. They all use the same banks and you’ll just muddy the waters. Multiple inquiries lower your credit score — again, talk to us and let us submit your application to a source we know will likely approve you. We do this by submitting a simplified application (see link below) first, with no credit inquiry, just to get you pre-approved. Then, when all is ready, we submit the final application.

Other Things You Should Know

  1. Documentation. The bank is going to require U.S. Flagging of the boat (C.G. Documentation, Federal, not State Registration). This is in your and the bank’s best interest. They get their lien recorded and you get a clear title that’s easy to deal with at settlement when you sell, It also gives you the full protection of the U.S. government in foreign ports, and many other benefits, instantly making your worth more! Settlement costs are typically about $500 for documentation and about $300 – $400 if you want to set up an LLC, which is good for business boats, or anyone who wants to help protect their investment.
  2. Possibly sales tax–more later. All and all, they will probably be under $700-$800, which is often included in the loan and tax deductible with Business Yacht Ownership (BYO). You do not avoid sales or use taxes by registering the boat in Delaware (or any other non-sales tax state). It doesn’t matter if you’re a state resident or not. In most states, it’s a use tax (one way or another). If you use the boat in the state a majority of the time, it’s due, no matter what else is at play. Often by Following the Sun, and not being in the state a majority of the year, it can legitimately be avoided. Ask us for more details. If it’s due, it’s 5% in MD and capped at $15,000. Generally, once you pay it in any state, you don’t have to pay it again in another (unless they have a personal property tax, like VA–no wonder you don’t see so many VA hailing ports).
  3. You can use any name and any hailing port you like, even if the name is already used, and it doesn’t matter where you live.
  4. When Atlantic Cruising Yachts (ACY) arranges your loan, whether for private ownership or via Business Yacht Ownership, we provide a complete amortization table which shows your monthly and annual interest costs so you can reduce the taxes you’re paying by that amount and reduce your out of pocket costs. In the example above, $1,932.20/mo without interest deduction, $1,548.80/mo after interest tax deduction.

Contact your Yacht Consultant for more details or to calculate your pre- and post-tax monthly payment. We can also provide a full amortization table that outlines the month-by-month break down and the month-by-month loan payoff for the length of the loan.

Want to reduce your loan cost to $0? Investigate the Business Yacht Ownership approach. Build equity with taxes you’re already paying and two streams of income. Hey, why are you paying for a boat you don’t have? Those taxes could be going towards equity!

Learn about the Business Yacht Ownership approach now!

Eric Smith

Senior Sales Consultant, Partner
More from Eric >> Videos, Blogs, Learning center and more.

DisclaimerThe information, viewsopinions, and conclusions expressed in any article, blog, video, or other form of media posted or linked herein are those of the authors and do not necessarily reflect the views of Atlantic Cruising Yachts, LLC.  Nothing contained herein has been approved or otherwise endorsed by Atlantic Cruising Yachts, LLC and such company shall have no liability for any content.

ESE, LLC is totally responsible for the content of this article. We are not tax advisers. You should obtain tax advice from a professional tax adviser for any matters relating to setting up a business, or tax implications.