The right aircraft financing is one of the keys to happy ownership
Few of us can afford to buy an airplane with cash. Even if we could, there are tax and other benefits we can realize by financing the purchase instead. The problem is that few airplane buyers understand the nuances of aircraft financing, let alone the process itself.
The first step in understanding aircraft financing is to stop comparing it to automobile financing. Phil Haney of AirFleet Capital tells us, “Financing an airplane is actually closer to buying a home, not a car.” Haney outlines the typical terms of aircraft loans: “Most of the interest is paid up front,” says Haney, “like a house. And because an airplane isn’t a ‘life essential,’ the qualification process is more like that of buying real estate.”
When buying an airplane or helicopter, the biggest factor in financing isn’t whether the aircraft is new or used, but the amount financed. “Basically,” notes Haney, “the more you borrow, the lower the interest rate. It doesn’t matter if the airplane is new or used.” Buyers should know that “used” is more correctly termed “recently used,” since mainstream finance companies won’t lend on aircraft that are too old.
Basic Terms
Prospective buyers should be aware of the basic requirements to qualify for aircraft financing. The example below assumes a new or used (20 years old or newer) aircraft:
• Credit Score: 700 or better
• Debt-To-Income Ratio: 35% to 45%
• Down Payment: 15% to 20%, plus sufficient reserve funds on hand
• Amount: $50,000 and up is standard and yields the best rates. This doesn’t mean finance companies won’t lend less than that amount, but smaller loans are typically more difficult to get and are considered “specialty” loans.
• Repayment Term: 20 years with no prepayment penalty is standard.
• Liquidity: Aircraft are big-ticket items. As such, you’ll need not only a down payment but also enough cash (actual cash, checking or savings accounts) to show the lender you have the resources to back up the purchase (maintenance, depreciation, upgrades, additional training, etc.).
The general consensus in the aircraft-buying world is that “financing is hard to get right now.” This reflects the fact that the loose lending practices of the past decade (and the resulting economic crash) have given rise to stricter requirements and closer scrutiny. Prospective buyers need to know that aircraft loans carry with them strict, government-mandated documentation guidelines, new banking requirements and auditors. “Whether you’re trying to get $25,000 or $1.5 million,” says Haney, “it’s a fixed process. Banks are going to be thorough.”
Where To Begin
Every lender we spoke with recommended that buyers get prequalified before shopping for an airplane. Being preapproved gives buyers the ability to be flexible and act quickly on a good deal when it comes along. Prequalifying usually is good for 90 days.
Most aircraft lending is underwritten through banks that aren’t direct lenders. As a result, there aren’t a large number of aircraft-finance companies. Below are two finance companies that specialize
in aircraft loans and are known in the industry. Both provide useful, pertinent information for prospective buyers, and both have a variety of financing programs. They have a long history in the aviation market and offer great resources for learning about or applying for aircraft financing.
