With economists declaring the recession officially over, boat dealers and brokers have reason to hope that more people will soon be buying boats.
But stricter terms make qualifying for a boat loan harder than it used to be. The days of low down payments and loans given without proof of income or ability to pay are over. Put simply, borrowers have to prove to banks that they can afford the boats they’re buying.
“There is money available, but qualifications are very tight and a high level of documentation of assets is the norm today,” said Tobey Wilkins, a vice president of Viking Bank in Seattle.
“A few years ago, there were no income verification mortgages, and you could get boats that way. Now, the pendulum has swung the other way about as far as it can go.”
Wilkins and other lenders say boat buyers will need to put at least 20 percent down, and possibly more for smaller loans or boats that will be used as liveaboards. They’ll need to provide evidence they can make loan payments, have credit scores in the mid-600s or higher and have a fairly high net worth.
Viking Bank typically requires a net worth of at least twice the loan amount, Wilkins said. For a boat loan of $50,000, for example, a borrower would need a net worth of at least $100,000. That requirement may put boat loans out of the reach of most renters and young people, Wilkins acknowledged.
“It’s very tough on renters, because they don’t build any real estate equity, which is where most of us have our net worth,” he said.
“And if you’re just starting your career, (the chances of obtaining a boat loan) are probably not very good unless you’re a baseball player and sign a seven-and-a-half-million-dollar contract. But generally, even with really good cash flow, a young person without a lot of net worth has a very difficult time today buying a boat.”
Kaycee Pang, a marine loan processor at Peoples Bank in Seattle, said the bank evaluates potential borrowers on four main criteria: character (stability and reliability through confirmed employment and consistency in paying debts), the ability to repay (often referred to as debt-to-income ratio), credit and assets.
“Banks are comfortable lending to individuals with a positive net worth, a steady source of income, limited debt and available cash reserves,” she said, “more than ever in this market where jobs aren’t as stable as in previous years.”
Boats more than 25 years old probably won’t be eligible for financing, and the relatively higher cost of boats in the Pacific Northwest exacerbates the difficulty of securing a loan. The amount lenders are willing to loan is determined by the boat’s blue book value, representative of a nationwide average. Since boats tend to cost more in the Northwest than in other parts of the country, borrowers may need to make up the difference between the boat’s selling price and what a bank will lend.
Despite the tighter restrictions, Alan Bohling, CEO of Seattle Boat Co., doesn’t believe financing is a significant obstacle to boat ownership.
“If you have a solid credit score and are a middle-class American, for the most part, you absolutely can buy a boat today,” Bohling said.
“The terms maybe have been altered a little bit, but it doesn’t mean that the funds aren’t available. It just means we’ve got to meet the criteria. The criteria is more definite and banks cannot bend the rules anymore.”
Nonetheless, tougher terms and increased numbers of boat owners wanting to sell have prompted some innovative approaches to financing. Wilkins said he’s noticed a sharp increase in the number of boat sellers who are willing to hold loans and allow buyers to pay them directly.
“There is more owner financing going on than I’ve ever seen,” he said.
The practice makes sense from a seller’s perspective, Wilkins said—if a seller needing to unload a boat finds a willing buyer who can’t get financing, holding the loan might be preferable to being stuck with the boat. Pang said owner financing has become an increasingly common way to sell older boats, since many banks won’t finance those purchases.
“It becomes a bit more of a personal liability for a seller to carry a private note, but if he or she wants to get rid of their boat badly enough, owner financing might be their only option,” she said.
Several lending institutions including Wachovia, Textron Financial, Pacific First and GE Money have gotten out of marine lending. Molly Holden, owner of Pacific Maritime Title in Seattle, said that’s led to some unusual financing arrangements, such as deep-pocketed boat sellers loaning money to brokers to purchase their boats when they trade up to a new boat.
“You’re seeing the private sector coming in and doing some (lending to dealers),” she said. “People are becoming more creative because the money has tightened up.”
So where does this leave the would-be borrower in search of a boat loan?
Borrowers can contact banks directly to ask about requirements and lending terms or consult with service companies that function as loan brokers, working with various lenders to get the best deal for borrowers. Service companies operating in the Puget Sound area include Trident Funding Corporation, Seacoast Marine Finance and Intercoastal Financial Group, Inc.
Pang said buyers needn’t be discouraged, just prepared.
“First, dissolve the myth that financing isn’t available anymore, because it is,” she said. “With that in mind, take the time to get your ducks in a row and do everything you can to present yourself as an eligible borrower before applying for your loan.”
Holden predicted that more lenders will offer boat loans as the economy continues to rebound. “Boat buyers are traditionally strong borrowers,” she said. “They’re financially strong. It’s a good risk.”