The complete guide to getting a boat loan for a charter business

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Ask a Lender
October 2, 2017 | Updated October 5, 2017

Key Points

Buying a boat for a charter business

  • Consider the pros and cons of new boats and used boats.
  • Charter boat owners sometimes partner with a professional charter company that will handle maintenance and operations.
  • Charter companies may assist with insurance and warranty costs.
  • Boat loans generally have long terms of 10 to 20 years
  • Lenders look for strong credit scores and may require a history of boat ownership.

Experienced skippers or business investors can be good candidates for charter boat ownership. But there are many things to understand before investing in a vessel.

Charter boats are generally defined as larger sailboats or motorized yachts capable of housing and transporting several people for a multiday journey. They are primarily used for business ventures such as sport fishing or whale watching. They are commonly maintained and operated by full-time, professional charter companies, and there are multiple ways to structure a charter boat’s operations.

  • Bareboats. Think of a bareboat structure as a plain rental agreement. The rental party receives no crew or provisions and pays for all operational expenses such as fuel and moorage. A charter company may require the skipper, or captain, to have a valid operating license that demonstrates proper training and skills.
  • Cabin charters. The charter company provides a skipper who is in charge of operations and provisions. The rental parties pay for their berth aboard the vessel, and may or may not be required to assist with operational duties.
  • Crewed charters. The charter company provides a skipper and a full crew, including a cook or host, to further reduce the rental party’s responsibilities. Naturally, these arrangements are the most expensive types of charters.

Find a boat

Start the process to charter ownership by deciding which boat suits your needs in terms of price, size and features. If you’re purchasing a new vessel, know how long it will take for the manufacturer to build and deliver it. Once a delivery date has been finalized, you can notify your charter company so they can begin offering the boat for rent, and you can maximize your cash-flow opportunities from the moment the boat arrives.

Previously owned boats are likely in drastically different conditions, depending upon how long and how often they’ve been used. Look to see how thoroughly the previous owner and charter company handled maintenance issues. A boat involved in any type of accident may not be worth an investment. Also, understand that charter companies will likely have a process for phasing out boats that can no longer be sufficiently maintained. They may have “fair wear and tear” policies that absolve their duty to replace items that are naturally degraded over time. However, the owner should expect structural defects, such as cracks in the hull or damaged sails, to be fixed.

Find a partner

Understand that purchasing a charter boat is a major investment, similar to any other business. The boat may not pay for itself quickly, so an owner should be prepared for a multiyear process. The first year may be particularly tough due to startup-business costs and owners should be prepared to pay out of pocket when cash flow is slow.

Unless you’re planning to operate and maintain the boat on your own, finding a charter company that will be a good business partner is also important. You’ll pay the charter company to handle the major duties of renting the boat and keeping it in good condition. A good goal for any charter operation is paying down the existing mortgage loan, rather than turning a profit.

A charter company may handle all of the annual maintenance duties and expenses, as well as inspections of the vessel before and after an expedition. Some companies split the maintenance costs with the owner. Insurance and warranties are another consideration, and a charter company may help defray these costs by charging a fee to rental parties.

Depending on the charter company agreement, the owner may have access to the boat for their own purposes for a portion of the year — two weeks to three months is common. And when a boat has reached the end of its useful life or the owner is ready to sell, the charter company may assist with brokering a sale, helping the owner trade their used boat and finding a new vessel at the end of the agreement.

Find a loan

Lenders generally offer an array of terms and interest rates on boat loans, including those intended for charter business usage. Terms of 10 to 20 years, annual percentage rates (APRs) between 4 and 7 percent, and down payments of 10 to 20 percent are common. A financing model for a $30,000 loan, for example, might include a 10 percent down payment and 6.6 percent APR over 15 years, equating to a monthly payment of about $260.

Boat loans may not have the same types of preapproval rules as home mortgages, for example. You will need to list a particular boat on your application, but because rates and terms are highly dependent upon the individual boat, you may wind up purchasing a different vessel with similar specifications. Lenders usually look for credit scores around 700, a debt-to-income ratio no higher than 35 to 40 percent, and a credit history that is free from major blemishes such as a bankruptcy or foreclosure. They may also look more favorably at borrowers with a good history of previous boat ownership.

Expect to pay documentation costs and business-startup fees of several hundred dollars. Consult state laws to determine the amount of sales tax you’ll be required to pay.

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