In the world of luxury assets and sizable investments, aviation stands in a class all its own. Owning a personal or corporate aircraft provides unparalleled convenience as well as travel efficiencies and comfort. For businesses, it can also open up new growth opportunities. Most buyers want to finance their aircraft purchase rather than paying cash, and they look for the best aircraft financing options available to them.
Aircraft financing usually involves full financial disclosure, in which you need to supply Tax Returns and bank statements to prove income and liquidity. However, if you are seeking an easier way, low-docs, asset-based financing may be available if you are willing to put down a higher down payment, such as 30% – 50%. . With a multitude of aircraft financing options available, acquiring a private plane or jet is within reach more than ever before.
Aircraft Loan Financing: Untangling Your Options
Understanding how to finance an aircraft is a critical step in the acquisition process. Financing companies offer a range of airplane financing options catering to different borrower needs, budgets, aircraft missions, and the age and price point of the aircraft itself. The Aircraft Lenders can help buyers find the best financing fit for them, at competitive airplane financing rates, and tailored loan structures. Here’s an overview of aircraft financing options:
1. Traditional Term Loan with full financial disclosure:
These generally require 2-3 years of Tax Returns, a personal financial statement, and bank statements to back up liquid assets, such checking and savings accounts or investment accounts.
2. Asset-based loan:
Leverages the value of the aircraft as the only guarantee for the loan, and requires no or minimal personal financial disclosure. This is not a widely available financing option. In fact, it is often restricted to a specific lender-approved list of the most popular makes and models of in-production turboprops and jets that are no older than 15 years old.
3. Lease Financing:
The two main categories of leases are:
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- Operating leases, in which the aircraft is leased under a rental type agreement for a fixed period of time. The lessor retains title, so the lessee gets no depreciation benefits.
- Finance leases – These are usually for businesses only. They usually offer 100% financing, with a residual payment at the end of term. Full financial disclosure is required. These are usually only available to businesses.
Navigating Aircraft Financing Companies
Instead of calling dozens of lenders yourself to find the best financing deal, it is often most efficient to work with an experienced aircraft financing broker such as The Aircraft Lenders. Not only can a good broker guide you to the best lender for you, they will also ensure your financial package is in the best shape possible, providing everything the lender needs to decision the loan.
The Aircraft Lenders pre-underwrites all loan applications to ensure we are targeting the lender that will give you the best chance of approval at the best rates and terms. It’s not just about supplying what’s on the required documents list. It’s about anticipating lender’s potential concerns and addressing them up front — highlighting the positive, and explaining any negatives. For efficiency and best chance of approval, using a reputable financing broker makes a lot of sense.
When choosing an aviation financing broker, consider the company’s reputation, their depth of knowledge of the niche aviation industry, and their responsiveness in terms of communication, as well as their attention to detail.
Understanding the Airplane Finance Industry
Traditional Aviation Lenders: when evaluating an aircraft financing application, these lenders consider:
- Cash flow – this is the biggest factor in approval. Have you show sufficient income, over a 2-3 year average, to service the proposed debt and still meet acceptable debt-to-income or debt-service ratios?
- Operating costs of the aircraft you want to finance. Lenders want to see that you have additional cash flow and/or liquidity to service the cost of ownership, without taking into account any charter or dry lease revenues.
- Liquidity is another major factor in approval. Lenders look for you to have the down payment plus a good cushion.
- Credit – lenders look to see that you have been responsible in re-paying your debts.
- Character – lenders do a background check on applicants
- Asset evaluation – lenders (including banks, private lenders, and leasing companies) will finance against the book/appraised value of an aircraft, or purchase price, whichever is less. The also consider the popularity of the aircraft make and model and how the values of are trending.
Asset-Based Lenders: Asset-based lending is not available for every aircraft
There are actually relatively few asset-based lenders. It’s also important to know that down payment requirements are much higher for asset-based loans than they are other loans. That’s because they only thing the lender has to fall back on in the event of default is the value of the aircraft itself. So they will typically only lend up to 50% – 70% of its value. They need to ensure they are not upside on the aircraft at any point in the loan. Aircraft are usually depreciating assets. Here are some makes and models that may fit into an asset-based lending program, as long as they are no older than 15 years old:
- Turboprop — Socata TBM, Pilatus PC-12, Beechcraft King Airs, Piper M600
- Light Jet — Mustang, CJ1+, M2, CJ2+, CJ3/3+, CJ4, Encore+, Phenom 100
- Mid-Size Jet — Phenom 300, Citation: Excel/XLS, Sovereign, Latitude, Hawker 850/900
- Super-Mid Jet — Challenger 300/350, Gulfstream G280
- Large Jet — Challenger 605/650, Falcon: 2000 series, 900 series, 7X & 8X, Gulfstream: G450, G550, G650/ER, Global: 5000/5500, 6000/6500, XRS
Aircraft Funding: Realizing Your Ownership Dreams
Aircraft funding enables prospective owners to fulfill their dreams of owning a plane or jet. There are various routes to obtaining aircraft financing, from traditional loans, asset-based financing, to leasing. The best fit depends on individual needs, financial health, and the intended use of the aircraft.
Frequently Asked Questions
What are the options for aircraft loan financing?
Options include traditional loans, asset-based financing, and leasing.
How can one finance an aircraft?
You can finance an aircraft through direct loans from banks, finance companies, or through lease contracts from aircraft leasing companies. The Aircraft Lenders can help guide you towards the best possible aircraft financing approval.
Conclusion
Aircraft financing can help make your aircraft ownership dreams a reality. With different financing options and numerous companies servicing the sector, the sky is truly the limit. It’s essential to understand the risks, benefits, and obligations tied to each financing method. Armed with this knowledge and the right guidance, you are on your journey to possessing an aircraft and soaring the skies. The Aircraft Lenders is standing by to assist you on your journey.
