What It Takes Financially to Buy or Charter a Ship
Making an offer: the Letter of Intent and Proof of Funds. A friendly word of advice from QPS Marine Ships to anyone preparing to buy or charter a cruise ship, ferry or passenger vessel.
You have found a ship that fits your plans, and you are ready to make an offer to buy or charter her. It is tempting to think that the price or the charter rate is the only thing the shipowner will look at. It is not.
When an owner receives an offer, the first question is rarely "how much?". It is "does this buyer or charterer actually have the money?"
Buying a ship, or chartering one, can involve millions of dollars. When a buyer or charterer turns out not to have the funds, the damage to the owner can be catastrophic. The ship may have been taken off the market and other interested parties turned away. Weeks or months of income can be lost while the ship sits idle, and the costs of crew, insurance, maintenance and berthing carry on regardless. A charterer who stops paying hire part-way through a charter can leave the owner with a ship far from home and no income at all.
Owners receive many enquiries and offers, and a good number come from parties who never close. So owners are careful. The offer that is clear, complete and backed by evidence will be taken seriously. Sometimes it is accepted over a higher offer that is not.
Here is what we suggest every buyer and charterer gets right before sending an offer.
1. Send Proof of Funds with your offer
This is the most important point in this article. Along with your Letter of Intent (LOI), the best evidence that you can pay for the ship, or for the charter, is Proof of Funds (POF). Without it, many owners will not reply at all. Most will not open their ship or records for inspection without it either.
What good Proof of Funds looks like:
A letter from your bank on the bank's letterhead, signed by a bank officer, with name, title and contact details that can be checked.
It confirms that the funds are available, in an amount at least equal to the price you are offering, and the currency.
It is issued in the same name as the buyer in the LOI, the company that will sign the contract and pay.
It is recent, normally dated within the last 30 days.
The bank will confirm the letter if the owner or the broker contacts it.
If you are financing the purchase, send the lender's term sheet or commitment letter for the loan. Add Proof of Funds for your own equity share: lenders typically want the buyer to put in 30 to 50 percent of the price. Our post Can the Shipowner or Broker Finance My Ship Purchase? explains where ship finance comes from.
What does not work:
A screenshot of an online banking page, or a bank statement with no bank confirmation.
A letter in the name of a different person or company than the buyer, without a clear explanation of the relationship.
An old letter, or one that shows less than the offered price.
A general "ready, willing and able" letter with no amount.
We treat Proof of Funds confidentially. It is shared only with the shipowner and only for this transaction. If you prefer, the POF can be shown to the owner after you sign a non-disclosure agreement (NDA).
Sample Proof of Funds letter
Below is an example of the kind of letter owners like to see. The exact wording will come from your bank. Everything in brackets is a placeholder.
[BANK NAME] [Bank address] · [Telephone] · [SWIFT/BIC code] [Date] To: [Shipowner or Sellers' broker] Re: Proof of Funds – [Buyer company name] Dear Sirs, We confirm that [Buyer company name], registered in [country], with its registered office at [address], is a client of this bank and has held an account with us since [year]. As of the date of this letter, the client has cleared and available funds of not less than [currency and amount, in figures and words] in its account(s) with this bank. These funds are not subject to any lien or encumbrance known to the bank. This letter is issued at the request of our client, for the purpose of its proposed purchase [or charter] of the vessel [QPS stock number / vessel name]. It is valid for [30] days from the date above. The bank may confirm the authenticity of this letter on request to the officer named below. Yours faithfully, [Signature] [Name], [Title, e.g. Vice President, Relationship Manager] [Direct telephone] · [Email]
This sample is for illustration only. It is not legal or banking advice, and the wording of any letter is decided by the issuing bank.
2. Chartering a ship? Owners need the same assurance
Everything above applies to charterers too. A charter is a commitment to pay hire, often for months or years, and the owner is trusting you with a ship worth many millions. Owners will want to see:
Proof of Funds covering the charter hire for at least the first part of the charter, plus any security deposit.
For a bareboat charter, where you crew, operate and insure the ship yourself, evidence that you can also fund the running costs: crew, fuel, insurance, maintenance and port costs. Owners will also look at your operating experience.
Security for the hire. Hire is normally paid in advance, and owners often ask for a security deposit, a bank guarantee or standby letter of credit, or a guarantee from a parent company.
For a full-ship charter for an event or group, a payment schedule with a deposit when the contract is signed and the balance paid before the ship sails.
Our posts on bareboat vs. time charter and the cost to charter a cruise ship explain how charters are structured and priced.
How much security will an owner ask for? Every shipowner has slightly different security deposit requirements. Owners assess the risk based on the charterer's maritime experience and financial stability. An experienced operator with strong finances will usually be asked for less than a new company entering the business. Once the charterer and the shipowner get to know each other, we will have a better idea of what security will be required.
3. Make the Letter of Intent clear and complete
A Letter of Intent sets out the main terms of your offer. It is usually not binding until the parties sign the contract, the Memorandum of Agreement (MOA). But it is the document the owner judges you by. A complete LOI should include:
Item | What to include |
Buyer | Full legal name of the buying company, country of registration, address, the person signing and their position. |
Vessel | QPS stock number, and the ship's name and IMO number once released to you under NDA. |
Price or charter hire | The amount and currency, e.g. US dollars. For a charter: the daily or monthly hire, the period, and when hire is paid. |
Deposit | Once an agreement is reached with the shipowner, the deposit is normally between 10% and 20% of the agreed sale price. Most ship sales use the Norwegian Saleform MOA, published by BIMCO, which uses 10% unless the parties agree a different amount. The deposit is lodged in a joint account within three banking days after the MOA is signed. State in the LOI the deposit you are offering. |
Inspection | When and where you want to inspect the ship and review her class records. See our pre-purchase inspection checklist. |
Delivery | Where and when you would like to take delivery (a date range), and the expected condition, e.g. "as she was at the time of inspection, class maintained without recommendation". |
Bunkers and spares | Under the Saleform, spares on board become the buyer's, and the buyer pays separately for remaining fuel and unused lubricating oils. Mention it if you want something different. |
Conditions ("subjects") | Any conditions your offer depends on, such as inspection, board approval or financing, each with a deadline. |
Validity | How long the offer stays open, for example five working days. |
Documents | Mention that Proof of Funds (and, if financing, the lender's letter) is attached. |
4. Keep conditions few, and give each one a deadline
Every condition in an offer is a reason the deal might not happen, and owners know it. An offer "subject to inspection, subject to financing, subject to board approval, subject to finding a charter for the ship" looks to an owner like an option, not an offer.
Keep conditions to the ones you really need, and put a date on each one, for example: "subject to physical inspection and review of class records, to be completed by 15 December." An offer with fewer conditions and clear dates is worth more to an owner, and often wins over a higher one.
5. Offer a realistic price, and explain it
Make your offer close to the real market. A very low offer with no explanation can end the talks before they start. If you believe the ship is worth less than the asking price, say why: her age, upcoming dry-dock or class renewal, certificates that need work, or refit costs you will face. Owners respond much better to a reasoned offer than to a number with nothing behind it.
How do you decide what price to offer? As brokers, we can give you our best estimate of the current market value of a comparable ship, based on her age, size and condition. It is an estimate only. The final decision on what price to offer is always the buyer's.
6. Be ready for "Know Your Customer" checks
Shipowners, their banks and flag states must check who they are selling to. They screen buyers against international sanctions lists and confirm who owns and controls the buying company. Have these ready:
Company registration documents (certificate of incorporation, good standing)
The names of the directors and ultimate beneficial owners
Identification for the person signing
An outline of how the ship will be used and where she will trade
Providing these quickly, and openly, builds trust.
7. Make it clear who the buyer or charterer is
Owners are wary of offers that come through a long chain of intermediaries, where nobody seems to know who the end buyer really is. If you are an agent or broker acting for a buyer, say so. Name your principal, or confirm that the buyer will be named under NDA, and show that you have authority to act. An offer straight from a named buyer, or through one appointed broker, is always taken more seriously.
8. Move quickly and stay in touch
Good ships do not stay on the market long, and other buyers may be looking at the same vessel. Reply promptly to questions, keep to the deadlines in your offer, and tell the broker early if something changes. A buyer who is easy to deal with often gets the ship.
What happens after a purchase offer is accepted
Once the main terms are agreed, the next steps are usually:
The MOA is drawn up and signed. It is normally the Norwegian Saleform, adapted for the deal.
The deposit is lodged, normally 10% to 20% of the agreed price, in a joint account with the agreed deposit holder.
Inspection and class records review, if not done before the MOA, and the buyer accepts the ship or not within the agreed time.
The buyer's flag, class and insurance are arranged, and closing documents are prepared.
Closing and delivery: the balance is paid, the bill of sale and ownership documents are handed over, and the ship is delivered.
Our step-by-step guide, How to Buy a Cruise Ship, covers the whole process in more detail.
For a charter, the steps are similar: the charter party (the charter contract, such as BIMCO's BARECON form for a bareboat charter) is agreed and signed, the first hire payment and any security are paid, and the ship's condition is recorded in an on-hire survey when she is delivered to you.
Can QPS Marine Ships provide purchase or charter funding?
No. QPS Marine Ships is a ship broker, not a bank or lender, and we do not provide funding for purchases or charters. What we can do is point you in the direction of where funding might be available, such as ship-finance banks, leasing companies and finance brokers. Our Ship Finance guide lists the main sources. Arranging funding before you make an offer will make your offer much stronger.
How QPS Marine Ships can help
As licensed and bonded ship brokers, we help buyers and charterers prepare offers that owners take seriously. We can review your LOI before it goes out, tell you what the owner is likely to expect, and present your offer and Proof of Funds in confidence. Our Managing Broker, Capt. Ken Caine, is a USCG-licensed Master Mariner and was President of Windstar Cruises at the line's inception, so we understand a deal from both the ship's side and the business side.
Browse our current listings and charter pages:
Ready to make an offer to buy or charter, or not sure where to start? Send us the ship's stock number, your proposed terms and your Proof of Funds, and we will guide you from there. Contact Capt. Ken Caine at sales@qpsships.com or +1-516-647-5129 (mobile/WhatsApp), or Jeff Garcia, Mediterranean office, at Jeffgarcia@qpsships.com or +1-954-296-9066.
This article is general guidance for buyers, not legal or financial advice. For a specific purchase, use qualified maritime lawyers and surveyors.
Frequently asked questions
What is Proof of Funds (POF) when buying a ship?
Proof of Funds is a recent letter from the buyer's bank, signed by a bank officer, confirming that the buyer has the money available to pay the purchase price. It should be in the same name as the buyer in the offer, and the bank should be willing to confirm it.
Is a Letter of Intent (LOI) binding?
Usually not. An LOI sets out the main terms of the offer. The binding contract is the Memorandum of Agreement (MOA), normally based on the Norwegian Saleform. Some terms in an LOI, such as confidentiality, can be binding if the LOI says so.
How much deposit is paid when buying a ship?
Once an agreement is reached with the shipowner, the deposit is normally between 10% and 20% of the agreed sale price. Under the Norwegian Saleform contract it is lodged in a joint account within three banking days after the MOA is signed and the deposit holder confirms the account is open.
Will a shipowner let me inspect the ship before I show Proof of Funds?
Rarely. Most owners want to see Proof of Funds, and often a signed NDA, before they release the ship's name, class records or allow an inspection.
Can I make an offer if I need financing?
Yes. Send the lender's term sheet or commitment letter with your offer, plus Proof of Funds for your own equity share, and make financing a clearly dated condition of the offer.
How much security deposit does a charterer pay?
It varies. Every shipowner has slightly different requirements and assesses the risk based on the charterer's maritime experience and financial stability. Once the charterer and the owner get to know each other, the security required becomes clearer.
What price should I offer for a ship?
QPS Marine Ships can give you our best estimate of the current market value of a comparable ship, based on age, size and condition. It is an estimate only; the final decision on what price to offer is the buyer's.
Can QPS Marine Ships provide purchase or charter funding?
No. QPS Marine Ships is a ship broker, not a lender, and does not provide funding for ship purchases or charters. We can point you in the direction of where funding might be available, such as ship-finance banks, leasing companies and finance brokers.
Do charterers need Proof of Funds too?
Yes. Shipowners want to know that charterers, like buyers, can pay. Expect to show Proof of Funds for the charter hire and any security deposit, and for a bareboat charter, evidence that you can fund the ship's running costs.
Can QPS Marine Ships help me write my offer?
Yes. We regularly help buyers and charterers prepare and present offers and Proof of Funds to shipowners. Contact us at sales@qpsships.com or +1-516-647-5129.
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