Yacht and Business Jet Finance – What does the future hold?
To the uninitiated, the adage about luxury asset finance that says: “If you need the finance, then you’re probably not eligible for it” may sound confusing. But, as many of us learned at Quaynote’s recent online conference, The Future for Superyachts, Business Jets & Luxury Property, the fact that wealthy business owners and entrepreneurs would sooner finance their jet or yacht purchase, rather than pay cash, often makes perfect sense.
Why is this? What would lead a high or ultra high net worth individual (UHNWI) to finance the purchase of an asset when they can just as easily pay for it with their own money? “If the buyer of a vessel is an entrepreneur and it’s their first vessel, they’ve not accumulated hundreds of millions of assets and their business is generating say 10-12 per cent returns, then they don`t want to be using more cash than required to buy a luxury asset,” explained Bob Atkinson, partner at B Capital Partners, who joined a panel of finance experts at the conference. With interest rates lower than the rate of return from their business activities, it can make better economic sense to finance a yacht or jet purchase and then retain any cash reserves for investing in a growing business.
Even for an established business owner or UHNWI, the principle of using finance rather than your own cash to buy a luxury asset can apply. Indeed, James Jaffa, partner at Jaffa & Co, who moderated the panel, pointed out an interesting trend amongst his clients. “I’m seeing a pattern where owners are buying with their own finance and choosing to refinance afterwards,” he notes, “And I can’t see that this is due to the pandemic. We’re getting people buying and then financing 48 hours later.” For the client, this means that life is simpler, as they buy the asset with a clean title, they save money on legal fees involved in escrow arrangements and they nonetheless enjoy the benefits that financing offers.
For some buyers, cheaper interest rates have been behind their decision to refinance. “We had a client who bought an aircraft one year ago and then this year, with the interest rates lower, he decided to refinance to take advantage of this,” reports Marie-Laure Gassier, jet and yacht finance specialist at BNP Paribas. Current interest rates vary depending on a range of factors, but via private banking a client looking for a 20million euro loan over a 5-year period would typically expect 2.5-4 per cent.
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