Bottomry

It could be said that a lender has hit bottom if they make any kind of bottomry loan. A ship owner might be out at a distant location when urgent repairs are needed on the vessel, so he or she decides to take out a bottomry loan using the value of the ship as collateral.

But what if the ship happens to sink? The lender is left holding the bag (not colostomy, fortunately) since the collateral is now at the bottom of the sea.

If the ship doesn’t sink, the lender makes out well, as a bottomry loan usually involves a higher rate of interest than “non-maritime” loans.

Bottomry is not really a typical loan, as the lender is assuming part of the risk, and it’s not really insurance, since the ship owner isn’t paying premiums and has to pay the loan back.