Marina bank remains afloat by staying the course with boat loans.

Financial institutions that make boat loans have never had smooth sailing. But one bank in L.A. has managed to stay afloat despite the recession and the dreaded luxury tax that nearly knocked yacht sales off the map.

Marina State Bank, headquartered in Marina del Rey, has been making boat loans in Los Angeles since its launch in 1980. It has seen competitors come and go.

Most of California's big-name banks, including Bank of America and First Interstate Bank of California, have reduced their loan business with local sailors. Big non-bank marine lenders such as Yegen Associates have closed their doors.

Marine lending became popular in the 1980s when several banks beefed up the boat-lending part of their portfolios. Scores of non-bank players got into financing yacht purchases.

But few of those who arrived 10 years ago are still around. According to those who work it, the marine-lending business takes a special understanding of boats - one which big bankers could never acquire.

According to Roger Hedges, sales manager of National Horizon Inc., a Newport Beach-based marine lending company, boat lending attracted banks mainly because customers who want to buy boats are usually upper-income individuals. Most loan officers viewed the risks as minimal.

But many soon discovered the down side of lending on boats -- the collateral rapidly depreciates if not taken care of.

"If you buy a boat and let it sit in a slip, it will deteriorate rapidly," said Hedges. "You would be shocked at what happens in the first year of things."

And usually the lender is the last to know. Keeping a boat entails many expenses, but the hardest to put off is the payment to the lender. By the time the boat owner gets behind on loan payments, explained Hedges, the lender finds a trail of problems.

"The marina owner is owed money on rent; the diver has stopped coming around to scrub the bottom of the boat and the engine has not been run in a year," he said.

The only way to prevent the collateral on the loan from rotting away in the salt water is to know your customer base, said Hedges.

Marina State Bank has only one office, in Marina del Rey. It lends only to boat owners in the marina. Proximity to clients enables bank officers to keep a close watch over its collateral. Bank President Allan Culliver explained that not just any loan officer is qualified to work in marine lending. The lenders, he said, must understand boating as well as the borrowers.

"You need to be sure the borrower is experienced," said Culliver. "And the only way to tell that is by asking, so you need to know what you are asking about."

Culliver himself does not own a boat because he well knows the commitment involved. He said the expense of getting a boat and the work involved in properly maintaining one are not worth it.

"They say the happiest days in a boater's life are the day he gets his boat -- and the day he sells it," said Culliver.

He claims few areas of banking business are better than marine lending. First the recession and then the federal luxury tax that was slapped on purchase of more than $100,000 kicked out a lot of competition. Like so many of its rivals, Marina State had some problems in the late 1980s and early 1990s, but the bank appears to be recovering.

There is no lack of lending business for him these days, Culliver added. Since the repeal of the luxury tax in January, demand for boat loans has been on the upswing.