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Prudent approach to boat loans will help us ride out the storm

Perspective is sometimes difficult to maintain, particularly in tough economic times. It’s easy to get wrapped up in headlines and the bleak outlook they often portray. We’ve certainly had no shortage of that in the marine industry, including some recent headlines specific to the business of marine finance.


For dealers and manufacturers who are already facing a full plate of challenges to meet business goals in a down market, there’s a natural tendency to jump to unsettling conclusions about what’s ahead for their financing needs. At KeyBank, our more than 50 years of marine experience tells us that no, the sky isn’t falling. But now is the time to carefully consider the finance side of your business and get expert advice to help you navigate through the tricky waters.

Current market trends and negative news in the marine market have motivated many dealers and manufacturers to re-examine their businesses and find ways to improve.

It’s a psychological challenge as much as a business challenge. Yes, it’s a tough market, but don’t get to the point where your team is accepting lower performance. Now, more than ever, is the time to motivate and strive for more — better practices and greater efficiencies in all aspects of the business, including financial operations.

This involves asking some tough questions. For example, when it comes to marine finance, take the time to ask:
• Will our marine finance partner be there to help us ride out this rough patch?
• Will we continue to have ready access to the capital we need?
• Is there more we can do to monitor and improve cash flow?
• What can we do to continue offering competitive rates and attractive incentives to our customers?

The lenders you work with should be part of the process when you consider these questions and be a resource not just for data, but for added perspective and advice.

Unfortunately, there are no easy answers. Every business is different and it takes serious evaluation, sustained effort and trusted advice from a strong finance partner to raise the bar. However, we can provide some general perspective to help jump-start the process.

Regarding the overall strength of lenders, the marine finance industry is faring far better than a number of other financial sectors. Yes, there has been some attrition and consolidation — a trend that began long before the subprime real estate loan crisis or the run-up in energy prices. Tough market conditions tend to accelerate this trend, weeding out weaker players and less-than-prudent market practices.

Credit-worthy commercial and retail customers still have a variety of lenders to choose from — a statement echoed by a market analyst in a May 9 Reuters story on boat lending. The analyst noted that credit-worthy borrowers won’t have any trouble finding lenders. We agree, and we expect that to be the case going forward as we ride out this strained economic climate.

There is no question that access to capital today is more challenging than 12 months ago. However, capital is available for both dealers and manufacturers. Lenders are paying closer attention to financial performance, credit history and collateral, but the marine sector is not being hit as hard as the residential real estate market. There is also recognition among the lending community that there are pockets of positive economic performance in certain sectors of the country.

Any quality lending institution should be careful and thorough, in tough times and in boom times. But remember that lenders committed to the marine market are looking to build successful, long-term relationships with their dealer and manufacturer customers. They want to provide you with the capital you need to manage and grow your business through the ups and downs of business cycles.

The question of rates is one we face in all economic climates. It’s a complicated issue — one that can confuse consumers and business owners alike when they see news of rate changes by the Federal Reserve and expect lending rates to mirror such changes immediately. Current lending rates in the marine industry are not at historic lows, nor are they at historic highs.

This is where experience and perspective are especially important. Lenders with irrationally low rates generally find they cannot sustain such practices without running into difficulties. The adage applies: “If it looks too good to be true, it probably is.” Consider that when choosing a marine finance partner. And keep in mind that experienced, full-service lenders have special services and programs that can help you manage your rate risk on the commercial side, and offer attractive rates on the retail side, while still maintaining a prudent approach to interest rates.

When KeyBank first started doing business with marine dealers in the 1950s, times were good. Since then, we’ve seen multiple economic recessions, wars, the oil boom and bust, the telecom boom and bust, the REIT boom and bust, the “dot-com” boom and bust, the debt crisis, the luxury tax and the terrorist attacks on Sept. 11, 2001. We’ve survived, and indeed grown, throughout and so have other lenders with consistent, prudent lending practices.

To echo this message, I close with a quote from Key’s Bill Otto in an article he wrote in 2005. Otto is a bit of a legend in our business of marine finance. He is a founding member and past president of the National Marine Bankers Association, and the namesake of the association’s annual William B. Otto III Marine Lending Industry Service Award.

“As an industry, we have to continue to strive toward meaningful consumer equity positions. Realistic down payments and loan amortizations are not always an easy sale, but far better than trying to explain 24 to 36 months later why it is their boat is worth 15 to 25 percent less than they owe on it …

“Further partnering between lenders, dealers and the manufacturing sides of the business is an absolute must. Let’s face it, boating is not inexpensive, and unless we create a positive and hassle-free experience, we may lose existing boaters and fail to recruit the new boaters we desperately need. It will take far better efforts than have been exhibited in many cases in the past, but the results will be well worth it.”

In good times and in bad, Otto’s advice rings true. Prudent lending practices and solid partnerships between lenders, dealers and manufacturers will help us stay the course and steer toward better times.

This article originally appeared in the July 2008 issue.



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