Step 4: Financing
Armed with solid information about the value of the fishery, potential earnings, and realistically estimated fixed and variable costs of your proposed fishing operation, you are ready to look for financing to get this fishing business in the water.
We find in working with newer fishermen, one of their biggest challenges is talking with lenders and doing loan paperwork. Don't fear. In the lifetime of your business, the relationships you build with your lenders will be very important and helpful sources of business input and expertise.
Lenders know the fisheries
At its heart, lending means a bank is willing to loan other people's money to you, to help make your operation a success. That's a serious commitment, and bankers use complex formulas such as fishery viability, market prices, stock health, etc., to justify loans. You and your personal creditability are also figured into their decision.
Sources of financing
There are many sources of financing, particularly if you are an Alaska resident. Different lenders will be right for different people at different times in their careers.
The table below lists major lenders, highlights some of the differences in the types of commercial fishing loans available, and provides links to their websites. Call and talk to a few of them to learn what each program can offer you. It is also important to remember that it is not always fiscally prudent to take a out a large loan, even if a lender is willing to fund it. The amount of interest you pay on a large loan could eat up an unreasonably large portion of your annual profit.
Note all of these lenders offer a wide variety of loans in addition to vessel, permit and quota loans outlined here.
The "5 C's" of credit
In the video below, Lea Klingert, president of the Commercial Fishing and Agriculture Bank, talks about the qualities a lender looks for in a borrower. The "5 C's" are character, capacity, capital, collateral, and conditions.
|Lender||Requirements||Lending limit||Origination and/or application fees||Interest rate||Percentage down||Term||Other|
|Alaska State Commercial Fishing Loan Program||These loans are for qualified, full-time Alaska residents. You must have lived in Alaska for at least two years with the intent to remain indefinitely. Loans are classified as either Section A or Section B with eligibility requirements and amounts set in state law.||Vessel = $200,000||$100 and 1% origination fee||Generally, prime rate +2%||Generally, 25% for documented vessels, 35% for Alaska registered vessels||Up to 15 years||Limited entry permits can be used as collateral on loan|
|Permit = Section A $400,000; Section B $200,000||$100 ($200 if you want to prequalify) plus 1% origination fee||Generally, prime rate +2%||20%|
|Quota = $400,000||$100 ($200 if you want to prequalify) plus 1% origination fee||Generally, prime rate +2%||20%|
|Commercial Fishing and Agriculture Bank (CFAB)||Alaska resident for one year||No prescribed limit||$100 purchase of membership stock plus lesser of 2% of loan or $2,500||Variable||No prescribed amount||Up to a maximum of 20 years||Limited entry permits may be used as collateral on loan|
|National Marine Fisheries Service (NMFS)||US citizen, 3 years experience fishing||Vessel = no prescribed limit||0.5% of loan amount requested, plus servicing fees||Fixed, treasury rate +2%||20% minimum||Up to 25 years||Federal fishing rights can be used as collateral, not available for purchase of Alaska limited entry permits|
|US citizen, able to obtain a Transfer Eligibility Certificate, cannot own a vessel larger than 60 ft LOA||Quota = loan cannot extend borrower beyond 50,000 lbs QS|
|Northwest Farm Credit Service||US citizen||Not applicable||1% loan origination fee, generally||Variable||Generally at least 25% down||Generally 10 years|
|Commercial banks||Commercial lenders generally have flexibility in their terms and may offer many types of financing. Establish a good relationship with your local banker early in life by opening a savings or checking account, if possible.|
|Private financing||Family members or others (processors, community development quota organizations, small business loans, etc.) may be willing to lend money for down payments or purchases. For your protection, as well as theirs, be sure to sign a promissory note outlining loan terms, agree on a reasonable interest rate, set up a repayment schedule and stick to it. Make certain you and your family member understand if there are any tax implications with private lending.|