If you’re considering financing an aircraft, it’s smart to make sure your finances are in order well before you put in an offer to purchase. A little preparation will go a long way towards helping you secure the best rates and terms. Whether your aircraft is for personal use or to enhance your company’s operations, your personal creditworthiness plays a pivotal role in determining the success of your aircraft financing endeavors. Taking stock of your credit profile prior to applying for financing can lead to better interest rates, more favorable loan terms, and a smoother approval process.
Understanding Creditworthiness in Aircraft Financing
The Importance of Creditworthiness
Lenders assess creditworthiness to gauge the risk associated with lending funds for aircraft purchases. Creditworthiness consists of the 5 Cs: capacity (debt-to-income ratio), capital (the amount of liquid cash the applicant has) credit score, cash flow, and character. A strong credit profile signals to lenders that you’re capable of meeting financial obligations, which can result in more competitive airplane financing rates. Conversely, weak credit can lead to higher interest rates or even denial of financing.
Factors That Lenders Consider
When evaluating creditworthiness, lenders typically examine:
- Credit History: Past repayment behavior on loans and credit lines.
- Debt-to-Income Ratio: The ratio of your monthly debt obligations to your gross monthly income.
- Net Worth: Total assets minus total liabilities.
- Liquidity: Availability of liquid capital to cover loan payments.
- Business Financials: For corporate borrowers, financial statements and business performance metrics.
Strategies to Improve Your Creditworthiness
- Optimize Financial Statements: Presenting strong financial statements can significantly enhance your credit profile. This applies to both your Personal Financial Statement and the financial statements for your business, if you have one. You may want to consult with your CPA or financial advisor for help. Good aircraft financing brokers can also assist you in preparing a good financial package.
- Improve Cash Flow: Demonstrate consistent and healthy cash flow. Lenders prefer borrowers who can show stable income streams capable of supporting aircraft loan payments.
- Reduce Debt Ratios: Lowering your debt-to-income and debt-to-asset ratios can positively impact your creditworthiness. Consider paying down existing debts to improve these metrics.
- Build a Strong Credit History: A solid credit history reflects reliability and responsibility in managing debts.
- Timely Payments: Ensure all existing credit obligations are paid on time. Late payments can adversely affect your credit score and, by extension, your financing options for aircraft loan financing.
- Manage Credit Utilization: Keep your credit card balances low relative to your credit limits. High utilization can indicate over-reliance on credit.
- Offer Additional Assets as Collateral: Pledging other valuable assets can reduce the lender’s risk. This could include real estate, savings accounts, or other investments. However, not all lenders are open to this. Another option to increase an applicant’s chances of approval is to establish a savings or other depository account with the lender.
- Ensure Accurate Asset Valuation: Have professional appraisals conducted to establish the true value of the aircraft you want to finance. This can strengthen your negotiation position with aircraft financing companies, not to mention the seller.
Explore Different Lenders
Not all lenders have the same approval criteria or the same rates and terms. Aircraft financing brokers such as The Aircraft Lenders can help place the loan with the lender that has the best rates and terms for the aircraft, its mission, and your credit profile.
Financial Consultants
Experienced aircraft financing brokers can help you prepare financial statements, optimize your credit profile, and navigate the complex landscape of aircraft financing companies.
Frequently Asked Questions
What Credit Score Is Needed for Aircraft Financing?
While requirements vary, a higher credit score improves your chances of approval and securing better terms. Lenders typically look for scores above 700, but each lender has its criteria.
Can I Finance an Aircraft with Existing Debt?
Existing debt doesn’t disqualify you. In fact, lenders like to see that you have borrowing experience at a comparable level to the loan request you are making. Lenders will assess your debt-to-income ratio after adding in the proposed debt to ensure you can manage additional loan payments.
