Getting boat finance for commercial use

[Gedimin]

I'm about to start a small chartering venture and looking for ways to finance the boat as I can't afford buying it at full cost. Please don't question viability of this venture in the thread: there is enough said about this and my idea is quite different anyway. It will generate some money from paying customers, but it is not being built as a proper business (i.e. source of income).

The problem is that financial institutions do not want to lend money to newly formed businesses and do not take a boat as a guarantee. At the same time, taking a marine loan for myself and then letting it out to others does not seem to be a working concept either (don't want to be a sole trader and take all responsibility for the business). Is there a way to buy a boat for yourself and then legally pass it onto a newly formed business? But then the lender will not allow to do it either, right?

What I have here might be less of a sailing question, but more about general business approach in the UK: how to finance buying a big asset?

 

[bedouin]

Are you prepared to take responsibility for the loan yourself?

The cheapest way would probably be to borrow the money yourself and lend that to the business or to buy the boat yourself with a mortgage and lend the boat to the business. In either case you remain liable even if the business folds. The cheapest way of all is to borrow against the value of your house - if you have one with sufficient equity.

Many small businesses/start ups are funded with loans from the directors.

 

[Tranona]

I'm about to start a small chartering venture and looking for ways to finance the boat as I can't afford buying it at full cost. Please don't question viability of this venture in the thread: there is enough said about this and my idea is quite different anyway. It will generate some money from paying customers, but it is not being built as a proper business (i.e. source of income).

The problem is that financial institutions do not want to lend money to newly formed businesses and do not take a boat as a guarantee. At the same time, taking a marine loan for myself and then letting it out to others does not seem to be a working concept either (don't want to be a sole trader and take all responsibility for the business). Is there a way to buy a boat for yourself and then legally pass it onto a newly formed business? But then the lender will not allow to do it either, right?

What I have here might be less of a sailing question, but more about general business approach in the UK: how to finance buying a big asset?

Seems odd to be planning a risky business that you don't want to talk about and then not being prepared to take any risk yourself. The way you have described your situation is exactly why no individual or organisation would ever lend you money.

Sorry to be harsh, but entrepreneurial businesses are all about taking personal risk.

 

[ashtead]

I’m not certain your proposal is that attractive -even with corporate property loans to small companies which have real security a personal guarantee is recommended approach to secure the directors on basis they have assets. It’s usually limited but enough to make them feel some pain and behave but primary recourse is against the corporate property assets. Now clearly you could lend to anyone with capacity if the loan to value was low enough and the interest high enough but I guess a non recourse loan of say 10% of your yachts value at say 15% interest wasn’t quite what you had in mind . I don’t in summary think that the security works just based on boat value in absence of other assets charged.

 

[dunedin]

If you re-read your own posting it will make clear why any finance house “due diligence” would result in sensibly declining a loan ……

I'm about to start a small chartering venture and looking for ways to finance the boat as I can't afford buying it at full cost. Please don't question viability of this venture in the thread: there is enough said about this and my idea is quite different anyway. It will generate some money from paying customers, but it is not being built as a proper business (i.e. source of income).

The problem is that financial institutions do not want to lend money to newly formed businesses and do not take a boat as a guarantee. At the same time, taking a marine loan for myself and then letting it out to others does not seem to be a working concept either (don't want to be a sole trader and take all responsibility for the business). Is there a way to buy a boat for yourself and then legally pass it onto a newly formed business? But then the lender will not allow to do it either, right?

What I have here might be less of a sailing question, but more about general business approach in the UK: how to finance buying a big asset?

For a business loan you would need to have
(a) a documented, credible and risk assessed business plan, showing clear cash flows and sustainable profit from the chartering venture - “generating some money“ does not sound like a clear business plan;
(b) credible business leader with track record (in some related area, not necessarily this specific line of business) and proven commitment to make it work - “don’t want to be a sole trader and take all responsibility” does not sound like much commitment?

Perhaps if want to make this happen need to take out a personal loan, or remortgage on house. If not willing to risk your own cash, when only you know the detail viability of the proposed venture, why would anybody else?

 

[Graham376]

Having had to prepare business plans in the past for start-ups and put my house and everything else on the line with director's personal guarantees, I would certainly not expect anyone to lend me money on the basis of what you've told us. If you're not willing to take the risk, you can't have much confidence in your plan.

 

[dankilb]

Or start trading without the asset somehow (outsource to an operation that already have a coded vessel, offer related ‘marine services’, arrange one-off events, etc.) to build up some accounts and ‘credit’ and then borrow when ready?

A friend and I turned our marine hobby into a small business during lockdown. Now turning over about £500 a month and with just over a year on our business account and we’re already being offered (modest) loans by our bank (which we don’t need or want!).

As others have said, the only place you’ll likely borrow money for an idea alone is bank of mum and dad. Even Dragon’s Den expect to see a few years’ figures.

 

[dom]

Please don't question viability of this venture in the thread: there is enough said about this and my idea is quite different anyway. It will generate some money from paying customers, but it is not being built as a proper business (i.e. source of income).

The problem is that financial institutions do not want to lend money to newly formed businesses….

Those four words will ensure that absolutely nobody will lend!

…..suspecting some kind of lifestyle choice being undertaken at the lender’s risk.
?

 

[chrishscorp]

I'm about to start a small chartering venture and looking for ways to finance the boat as I can't afford buying it at full cost. Please don't question viability of this venture in the thread: there is enough said about this and my idea is quite different anyway. It will generate some money from paying customers, but it is not being built as a proper business (i.e. source of income).

The problem is that financial institutions do not want to lend money to newly formed businesses and do not take a boat as a guarantee. At the same time, taking a marine loan for myself and then letting it out to others does not seem to be a working concept either (don't want to be a sole trader and take all responsibility for the business). Is there a way to buy a boat for yourself and then legally pass it onto a newly formed business? But then the lender will not allow to do it either, right?

What I have here might be less of a sailing question, but more about general business approach in the UK: how to finance buying a big asset?

As a sole trader with 32 yrs experience the two bits i have highlighted in your opening statement added together will ring alarm bells, even if you have not expressley stated that in as many words to any lender the will pick up on it, thats their job.

With the scant detail you have posted there is little advice or pointers any of us can give you im afraid.

 

[Minerva]

Reading between the lines, are you just looking to buy a shiny new boat, primarily for your personal leisure use but tax free and be able to write off expenses against “income”?

 

[Gedimin]

I see that my post was judged as a pitch to a lender It's not. I'll explain a few things.

1. I'm not going to share all the details of the venture here, but of course, will disclose it to the lender. There is a growing demand for what I'm offering and I have tested it and have a contact base of people who are interested in this service. It's no secret, but I just don't want this to take over the initial topic and shift the focus from borrowing money to discussing how good/bad my idea is.
2. The project will earn money and generate return to pay back the loan while fully maintaining the boat. The detailed financial plan is already available, it's conservative, and will be shared with the lender. I just tried to avoid discussions like "there is no money in charter business now... you can't live off it... better think of other ideas...". I've watched too many topics like this.
3. I understand that any new venture requires some risk and responsibility. I'm happy to be fully responsible to the lender and if my plan fails - I can keep up with payments until I either fix the business model or sell the boat. However, when choosing between sole trading and limited company - I'll always choose the latter.

 

[Gedimin]

Are you prepared to take responsibility for the loan yourself?

The cheapest way would probably be to borrow the money yourself and lend that to the business or to buy the boat yourself with a mortgage and lend the boat to the business. In either case you remain liable even if the business folds. The cheapest way of all is to borrow against the value of your house - if you have one with sufficient equity.

Many small businesses/start ups are funded with loans from the directors.

Thank you! This is the best answer to an actual question so far.
My main question: how do I 'lend' something to my own company?

 

[dom]

Thank you! This is the best answer to an actual question so far.
My main question: how do I 'lend' something to my own company?

Basically, just draw up a loan agreement and comply with the relevant laws and tax authorities of the jurisdictions in which you operate.

 

[Canopy Locked]

Lending to your own company would be done by means of a Directors Loan. You'd be an unsecured creditors and your balance sheet might well show negative and carry a statement to the effect that the business relies on continued funding from the directors. Deffo one for the accountant to advise on how to set up a Directors Loan.

 

[Tranona]

If you already own the boat, as dom says you can keep it separate from an operating company. However that won't help you get a loan to buy the boat as a conventional mortgage would be based on your personal circumstances not on a business plan for a non existent business. Equally unlikely that a bank lender would offer a loan to a non existent business dependent on the use of your private boat without a personal guarantee or a charge on your other assets such as your house. Operating through a limited company is unlikely to distance you from the business, as you will find out. The way you describe what you are doing, you will be a sole trader but with the costs and hassle of operating a company. You will also find HMRC will show a great deal of interest in your affairs. Nothing excites them more than seeing a personally owned boat being used for a business.

No matter what you say making money out of one boat sufficient to cover operating costs and service a loan, never mind a return on the value of the asset is extremely difficult.

 

[penfold]

Thank you! This is the best answer to an actual question so far.
My main question: how do I 'lend' something to my own company?

Director's loans can work in both directions; you need an accountant.

 

[dom]

The way you describe what you are doing, you will be a sole trader but with the costs and hassle of operating a company. You will also find HMRC will show a great deal of interest in your affairs. Nothing excites them more than seeing a personally owned boat being used for a business....

Fully agree with your post
Boats are maybe just a tad below private aircraft, but I'm splitting hairs!