Ship financing can be an effective way to free up working capital and help management manage financials. It also provides an opportunity to negotiate longer loan terms and more equal hire payments. Lenders want to see that the ship’s value is being managed effectively. They may also require periodic appraisals of the ship.
The shipping industry has made mistakes over the years. The most common mistake is ordering too many ships when the market is strong, resulting in an oversupply of ships. Oversupply causes negative price pressure and negatively impacts earnings. Therefore, it is crucial for ship owners to obtain capital and plan their finances accordingly.
The ship finance industry is undergoing a period of transformation. Commercial banks and other traditional players are exiting the industry, allowing new players to step in. This has filled a gap, but there are risks and opportunities associated with ship financing. New entrants, such as private funds, can offer more flexible structures.
In order to get a ship financing loan, you need to have a clear collateral structure in place. Your assets may include the ship itself, insurance policies, earnings, ancillary contracts, bank accounts, and more. Lenders typically lend a certain percentage of the asset value. A 50-to-60% loan-to-value ratio is common. In addition, the parent of the SPV often provides credit support, such as a parent guarantee. This boosts the borrower’s creditworthiness.