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24 MN March 2011 It seems that the longer marine jobs remain scarce, the more folks feel the need to try to make it on their own. As layoffs continue and new jobs fail to appear, many un- or underemployed, yet highly-qualified marine profession- als are now looking to self-employment as their next career step. It’s better than waiting for unemployment to run out. I know how this works. When the banking industry melted down a few years ago, I opened my marine finance consulting practice because I could not get work in banking. Believe me, it is one tough job to be self-employed. But it is not impossible. There is good news and there is bad news. First the bad news. I receive two or three phone calls a month now from well-intentioned, well-qualified folks from the marine industry looking to start their own busi- nesses. Some are feeling the effects of the pullback in cor- porate entertaining as their dinner boat and excursion jobs evaporate along with the bubbly. Others have lost their jobs due to economic conditions in ports around the country, some because of ill-conceived moratoriums in the Gulf of Mexico, some because the ports are slow. Others are simply not getting enough work to make ends meet. All have something in common, they want to buy a boat, get financed and make some money. I’ve spoken with captains, mates, chefs and dishwashers with dreams of owning their own vessels and getting a bank to finance it for them. Without a real plan, it’s just a nice dream. I can and have offered the following sobering advice: • For a start-up business, securing operating capital or vessel financing from a bank or other lender is nearly impossible in today's lending market. Either you start with a big pile of money of your own or find someone who has some. Regardless of your business model, you are going to need real money, not debt. If you don’t have the cash to fund the startup and buy a vessel, a bank is going to be of very little help. What you actually need is venture capital. And for that you have to get in line, a very long line. • Currently, even large, well-established commercial marine companies with significant market share and strong banking relationships are having trouble finding a steady source of financing. As the financial statements of marine businesses continue to show declining revenues or losses, finance sources are limiting their exposure to the industry. Occasionally, opportunistic lenders will cherry pick the best credits with the enticement of cheap money, then walk away from the industry when their bellies are full. With the lack of qualified, dedicated lenders and underwriters who understand this business, even the big guys have had to turn over rocks to find financing. As a start-up with no track record, what chance do you really have? • With rare exceptions, lenders do not really lend money on the vessel you want to buy. They lend money on your cashflow and your ability to pay them back with interest. While they’ll take security in the vessel, your last three or four years financial performance is all they really care about. If you don’t have a track record for them to review, you really don’t have any indication of what or who you are financially. Remember, banks and finance companies are in the money business, not the boat busi- ness. They don't want to own your boat if you have a good probability of being unable to meet your obligations and default. Risk is out and caution is king. Think about it, when was the last time you saw a banker in a three piece suit at the helm of a harbor tug? • If you’ve found a boat, and you think that it’s really worth twice as much as the asking price, remember: fair market value for the boat is what you pay for it. There is no built-in equity simply because you are buying it cheap. The days of paper equity are gone, be prepared to put down a lot of money if you want the bank to be your lender. But all is not as bleak as it seems, if you have a plan, you can end up as your own boss. In this market, there are some real opportunities to get your own piece of the pie. FINANCE Starting Your Own Business Rocking Your Dreamboat By Richard J. Paine, Sr.
