Few buyers pay for a ship entirely in cash. Most use a mix of equity and debt — and the way you finance the purchase shapes your down payment, your cash flow, and even who owns the vessel on paper. The good news is that ship finance (vessel financing) is a mature market with well-worn structures. This guide explains the main ways to fund a ship, what lenders want, and how finance fits into the purchase.
The main ways to finance a ship
There’s no single “ship loan” — buyers choose from a few structures depending on their balance sheet, tax position, and the ship:
| Structure | How it works | Best for |
|---|---|---|
| Bank mortgage loan | Bank lends against the ship; a mortgage is registered over it as security | Owners with equity and a bankable trade/charter |
| Finance lease | A lessor owns the ship and leases it to you; you get use (and usually eventual title) | Buyers wanting off-balance-sheet or tax-efficient structures |
| Sale-and-leaseback | You (or the seller) sell the ship to a lessor and lease it back | Releasing cash / owning use without owning the asset |
| Export buyer credit | Export-credit-backed lending tied to a newbuilding from that country’s yards | Newbuildings — see buying from a Chinese shipyard |
Chinese leasing houses and export credit are especially active for China-built tonnage, alongside traditional bank mortgage lending.
Bank mortgage loans
The classic structure: a bank lends a portion of the price, secured by a mortgage registered over the ship.
- Loan-to-value (LTV) — banks typically lend a percentage of the ship’s value; the rest is your down payment (equity). Modern, younger tonnage supports higher LTV.
- Security package — beyond the mortgage, lenders take an assignment of earnings, an assignment of insurance, and often shares in the owning company.
- Repayment — amortising instalments plus a balloon, over a term matched to the ship’s age and earning life.
Finance leasing and sale-and-leaseback
Leasing separates ownership from use:
- Finance lease — the lessor buys/owns the ship; you operate it and pay lease rentals, usually acquiring title at the end. Useful for tax efficiency and preserving credit lines.
- Sale-and-leaseback — an owner sells the ship to a leasing company and leases it back, releasing capital while keeping the ship trading. Widely used to free up cash.
In both, the lessor holds title during the lease, which affects flag, mortgage, and how the deal is documented.
Export buyer credit for newbuildings
For a newbuilding, financing often comes as export credit — lending supported by the builder country’s export-credit agency, tied to the shipbuilding contract’s staged instalments. It complements the yard’s payment milestones and the bank refund guarantee covered in our Chinese shipyard guide.
What lenders require
Financiers lend against a ship’s value and its ability to earn — so they scrutinise both:
- Valuation — an independent valuation of the ship.
- Condition — a satisfactory pre-purchase condition survey and maintained class.
- Classification society and flag — a recognised class and an acceptable flag state where the mortgage is well protected.
- Insurance — H&M and P&I with the lender named and an assignment of insurance; often mortgagee’s interest cover. See marine insurance for buyers.
- Earnings — a charter or a credible trading plan supporting repayment.
- Corporate & KYC — the borrowing structure, ownership, and compliance checks.
Tip: Line up finance before you go firm on the MOA. A lender needs valuation, survey, class, flag, and insurance in place, and the deal’s payment and closing must line up with drawdown at delivery.
How finance fits the purchase timeline
- Indicative terms early — so you know your down payment and LTV before committing.
- Deal on subjects — often subject to finance until terms are firm.
- Due diligence — valuation, survey, and legal run alongside the buyer’s own checks.
- Drawdown at delivery — the loan funds are released to pay the balance at closing, and the mortgage and security are registered as the ship transfers and re-flags.
Quick ship-finance checklist
- ☐ Structure chosen (bank mortgage / finance lease / sale-and-leaseback / export credit)
- ☐ Indicative LTV and down payment known before going firm
- ☐ Valuation and condition survey arranged for the lender
- ☐ Class and flag acceptable to the lender (mortgage well protected)
- ☐ Insurance with lender assignment (H&M, P&I, mortgagee’s interest) arranged
- ☐ Earnings/charter or trading plan supports repayment
- ☐ Security package (mortgage, assignments, shares) agreed
- ☐ Finance timeline aligned with MOA subjects and delivery drawdown
- ☐ Corporate/KYC and borrowing structure in place
- ☐ Total cost — interest, fees, and repayments — budgeted
Frequently asked questions
How do people usually finance a ship purchase? Most buyers combine equity with debt. Common structures are a bank mortgage loan (secured by a mortgage over the ship), a finance lease or sale-and-leaseback (a lessor owns the ship and leases it to you), and — for newbuildings — export buyer credit tied to the shipbuilding contract. The right choice depends on your balance sheet, tax position, and the ship.
What is loan-to-value (LTV) and how much deposit do I need? LTV is the share of the ship’s value a lender will finance; the rest is your down payment (equity). Younger, modern tonnage supports higher LTV, so the deposit is smaller; older ships require more equity. Get indicative terms early to know your figure.
What is a ship mortgage? A ship mortgage is security registered over the vessel in favour of the lender. Alongside it, lenders usually take an assignment of the ship’s earnings and insurance, so they can recover the loan if the borrower defaults. The mortgage is registered under the ship’s flag at delivery.
What is sale-and-leaseback? Sale-and-leaseback is where an owner sells a ship to a leasing company and immediately leases it back — releasing capital while continuing to operate the vessel. The lessor holds title during the lease; the operator keeps the ship trading.
Do I need finance arranged before signing the MOA? Ideally yes. Deals are often done “subject to finance,” but you should have indicative terms early, since lenders require valuation, survey, class, flag, and insurance, and the loan drawdown must line up with paying the balance at delivery.
Financing your next ship? Golden Shipyard helps buyers coordinate survey, class, flag, insurance, and delivery — the pieces lenders and lessors need. Browse current availability under vessels for sale, or get end-to-end help with our ship sale & purchase brokerage services. To receive full particulars under NDA, email [email protected].