My name is Davide Ramponi, I am 20 years old and currently training as a shipping agent in Hamburg. In my blog, I take you with me on my journey into the exciting world of shipping. I share my knowledge, my experiences, and my progress on the way to becoming an expert in the field of Sale and Purchase – the trade with ships.
One of the most exciting — and often misunderstood — aspects of ship transactions is how banks decide whether to finance a project. To some, it might seem like a mysterious black box of credit scores, balance sheets, and financial ratios. But in reality, bank evaluations follow a structured process based on clear criteria and risk analysis tools.
Banks aren’t just looking at the ship itself — they evaluate the full picture: market dynamics, the vessel’s value, the shipowner’s financial health, and the project’s future earning potential. Understanding this process can help shipowners and brokers prepare better financing proposals and significantly increase the chances of success.
In this article, I’ll break down the key criteria banks use to evaluate ship projects, the tools and models behind their decisions, and real-world case studies of successful financing deals. Whether you’re a broker, an owner, or just curious about how ship finance works behind the scenes — this post is for you.
How Do Banks Evaluate Ship Projects? The Big Picture
When a shipowner approaches a bank for financing, they aren’t just selling a vessel — they’re pitching a business case. And like any smart investor, banks want to minimize their risk and maximize their returns.
Here are the three core pillars banks use to evaluate any ship financing proposal:
1. Market Conditions: Timing Is Everything
The first thing banks look at is the broader market context. Even the best ship can struggle if delivered during a market downturn. Banks will assess:
🔹 Freight Rate Trends
What’s happening in the segment (e.g., bulk, tanker, container)?
Are rates rising, stable, or falling?
🔹 Supply and Demand
Is there overcapacity in the market?
Are newbuild deliveries flooding the segment?
🔹 Regulatory Outlook
Are upcoming IMO regulations likely to affect earnings or increase retrofit costs?
Bank Perspective:
If a ship is being financed during a bull market, lenders feel more comfortable due to higher expected cash flows. In contrast, a bear market may lead to stricter terms, lower loan amounts, or even outright rejection.
2. Ship Value: The Collateral Check
Banks typically use asset-based lending models, which means the vessel serves as collateral for the loan. This makes **accurate ship valuation** a critical step in the process.
Key Considerations:
Current market value (from brokers or valuation firms).
Depreciation and resale potential.
Age and condition.
Technical specifications (fuel type, EEXI/CII ratings, scrubbers, dual-fuel engines).
Flag and class status.
Common Metrics:
Loan-to-Value (LTV) ratio: Usually between 50–70%.
Residual value: How much the vessel will be worth at the end of the loan period.
Broker Tip:
Providing an independent third-party valuation — along with recent sales comparisons — can help strengthen the financing application.
3. Shipowner’s Creditworthiness: Trust in the Operator
Even the best ship isn’t enough if the bank doesn’t trust the person behind the project. The shipowner’s track record and financial strength are just as important as the vessel itself.
What Banks Examine:
Financial statements (balance sheet, income statement, cash flow).
Profitability and liquidity ratios.
Debt-to-equity ratio.
Previous loan performance.
Fleet size and operational capacity.
Bonus Points:
Long-term charter contracts with reputable counterparties.
History of successful projects.
Compliance with ESG standards.
Red Flags:
Poor credit history.
Highly leveraged business model.
No clear exit strategy.
Bank Insight:
A shipowner who can demonstrate consistent earnings, low default risk, and transparency will always have better access to capital — even in tough markets.
Tools and Analyses Banks Use in Ship Financing Decisions
Behind every financing decision lies a stack of spreadsheets, market reports, and modeling tools. Let’s look at the most commonly used ones.
1. DCF (Discounted Cash Flow) Models
Banks forecast the vessel’s expected cash flows (from charters, spot rates, etc.) and discount them back to today’s value using a risk-adjusted rate. This gives them an idea of the ship’s true earning power.
Key Inputs:
Charter rates (historical and projected).
Operating expenses (OPEX).
Bunker costs.
Dry docking schedules.
Inflation and interest rates.
Outcome:
A positive Net Present Value (NPV) supports financing approval.
2. Sensitivity Analyses
What happens if freight rates fall 20%? Or if fuel costs rise? Banks run "what-if” scenarios to test how resilient the project is under different market conditions.
Tested Variables:
Freight rates.
Time charter equivalents (TCE).
OPEX increases.
FX fluctuations (especially for international operators).
Outcome:
More stable projects are more financeable — even if returns are modest.
3. Comparative Benchmarking
Banks often compare your vessel’s financials and specs against a peer group.
How does your ship’s fuel efficiency compare to similar tonnage?
Is your daily OPEX above or below market average?
Are your charter rates competitive?
Outcome:
Being above the benchmark = better financing terms.
4. Internal Risk Rating Models
Most banks have proprietary models that assign a risk score to each project. This rating influences:
Interest rate offered.
Loan size and tenor.
Security requirements (e.g., guarantees, mortgages).
Case Studies: How Real Projects Secured Bank Financing
Let’s look at two real-world examples where shipowners secured financing by aligning with what banks look for.
Case Study 1: Green Bulk Carrier with Long-Term Charter
The Project:
A shipowner based in Norway sought financing for a newbuild bulk carrier equipped with dual-fuel engines and a scrubber.
Key Factors for Success:
Signed 10-year charter with a AAA-rated mining company.
Fully compliant with future EEXI/CII requirements.
Provided a third-party green ship rating.
Bank’s Decision:
Offered 70% LTV at a reduced interest rate through a green loan facility.
Lesson:
Combining sustainability with contract-backed income can significantly reduce financing costs.
Case Study 2: Second-Hand Tanker Purchased During Market Recovery
The Project:
A mid-sized operator based in Greece acquired a 5-year-old MR tanker from the secondary market.
Key Factors for Success:
Freight market was showing signs of recovery.
Owner had prior relationship with the bank.
Delivered an updated DCF model showing strong cash flow over 3 years.
Bank’s Decision:
Approved a 60% LTV loan with flexible repayment tied to TCE performance.
Lesson:
Timing the market right and maintaining good lender relationships matter — especially in asset-heavy segments like tankers.
How Brokers Can Support Financing Applications
As brokers, we’re not just ship matchmakers — we’re often the bridge between the shipowner’s vision and the bank’s requirements. Here’s how we can add real value:
✅ 1. Prequalify Projects
Before sending a proposal to a lender, help clients assess:
Market timing.
Charter opportunities.
Vessel compliance.
Financing readiness.
✅ 2. Compile a Solid Dossier
Help your client prepare:
Vessel technical specs.
Charter agreements.
Financial models (DCF, sensitivity analysis).
ESG documentation (if applicable).
✅ 3. Introduce the Right Bank
Not all banks fund all ship types. Some prefer LNG, others specialize in bulk. Use your network to match the project with the right financier.
✅ 4. Stay Involved During Due Diligence
Answer questions. Chase documents. Keep communication smooth. Your involvement can keep the deal on track — and boost client trust.
Conclusion: Understanding Bank Thinking Leads to Smarter Deals
At the end of the day, securing ship financing isn’t about luck — it’s about preparation, strategy, and understanding the bank’s mindset.
💡 Key Takeaways:
Banks assess ship projects based on market conditions, vessel value, and the owner’s creditworthiness.
Tools like DCF models, sensitivity analysis, and internal risk scoring guide their decisions.
Brokers play a critical role in shaping financing applications, building lender relationships, and guiding clients through the process.
By understanding how banks think, we as brokers and shipping professionals can build stronger cases — and close better deals.
Have you been involved in a ship financing project recently? What challenges did you face, and how did you overcome them?
Share your stories in the comments — I look forward to the exchange!
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