Bottomry is a form of maritime law that dates back centuries, but its relevance is still incredibly pertinent in modern business. In short, bottomry is a loan agreement for a ship’s captain, whereby the lender pays for the voyage of the ship itself, not the captain. The loan is “secured” by a lien against the ship and its cargo.
Under this arrangement, the captain is expected to repay the loan plus interest if the ship is able to sail from the port of origin to the destination identified in the loan contract. If the ship should be lost, the lender faces the risk of default and will not recover the loan or interest-only the premium paid when entering the agreement.
Modern Applications of Bottomry
In modern business, bottomry contracts are primarily used to secure maritime loans, protect private and commercial investments, and to provide risk sharing between shippers and trading partners.
Bottomry arrangements are also useful for a wide variety of companies that work in industries related to navigation or transportation. Ship owners, financial institutions, ship builders, insurers, and logistics companies can all use bottomry to obtain protection against unforeseen losses during a voyage.
Benefits of Bottomry
Bottomry provides a great deal of flexibility and security for both the lender and the borrower. For instance, since the loan is secured by the ship itself, the lender is protected whether or not the voyage is successful, meaning they are able to secure their investments and have peace of mind that the loan will be repaid even if the ship is lost. Similarly, the borrower has the benefit of the loan being secured against an asset, meaning they can still receive the loan even if their credit rating is poor.
By providing an agreement that can secure a loan while limiting risk for all involved parties, bottomry is an increasingly popular solution in the modern business world for many different ventures.