Understanding Aircraft Loan Options: Personal versus Business Loans

Should you finance and register your aircraft in your personal name? In a personally owned LLC? In a business name? In an LLC owned by your business? Should you choose a personal aircraft loan or a business aircraft loan? The answer is, it depends. There’s a lot to consider when making these decisions, and The Aircraft Lenders is here to help.

Here we examine the different options available for aircraft loan financing,  airplane financing rates and terms, and the role of aircraft financing brokers, such as The Aircraft Lenders,  in this process. Want to know “how to finance an aircraft”? Start with this overview, and then give The Aircraft Lenders a call to talk it through.

Aircraft Financing: Defining Ownership and Mission

Personal Aircraft Loans

If you’re looking to purchase an airplane for your own enjoyment, travel, or time-building, personal aircraft loans are likely to be your best option. Personal loans are more straightforward than commercial loans. Lenders decision personal loans after considering your personal income and liabilities, your personal credit profile, and your cash reserves, although some lenders will still do global underwriting to include business income, assets and debts if you are a business owner.

Personal loans generally offer lower interest rates than commercial loans or leases.  Things to know:

  • Terms — It’s possible to get a personal loan with a 15-year or even a 20-year fixed term.
  • Debt-to-income ratios — Maximum debt-to-income ratios for approval are 40% -45%, including the new aircraft payment
  • Liquidity — banks look for borrowers to have the down payment in cash, plus a cushion for operating expenses and debt coverage, usually for 6-12 months.
  • Registration — The aircraft can be registered in your own name or in the name of a single-purpose holding LLC owned by the borrower(s).
    • Registering in an LLC provides a certain amount of liability protection, and it also can allow related or unrelated partners to purchase together under one entity.
    • When aircraft are registered personally, tax laws don’t allow taking bonus depreciation, but it can be possible to take straight-line depreciation.
  • Tax implications — Navigating the tax implications of aircraft ownership structures is complex, and it’s best to consult with an aviation tax attorney if your situation is not straightforward.

Business Aircraft Loans

There are several important things to understand:

  • Time in business is important — true business loans are usually only available to businesses that have at least two years of filed Tax Returns.
  • Holding LLCs are not considered businesses. You can register your aircraft in a holding LLC, but your main business will have to guarantee.
  • Personal guarantees — When pursuing a business loan, all owners that own 25% or more of the company must also be guarantors on the loan, and must supply their personal Tax Returns and financials.
  • The ability to take bonus depreciation is a huge factor when registering an aircraft in a business and taking out a business loan. However, your mission really does need to be business-centric top a large extent, with all flights well documented as to whether they are for personal or business use. Business use must exceed 50% of total usage. Personal flights must be documented as such. Not doing so can get you into trouble with the FAA and the IRS.
    • It’s extremely important to consult with an aviation tax attorney when pursuing business aircraft ownership.
    • Dry leases have to be structured properly between holding entities and corporate entities, and recording-keeping for corporate versus business flights must be accurate.
    • The IRS and FAA can issue hefty fines for violations of proper structures and procedures.

For businesses, the options for aircraft loan financing are slightly different. They are:

    • Term loans at 80%-85% LTV, often with 5-year terms and 15-20-year amortizations.
    • Finance leases, offering 100% financing, but they usually offer 5-year fully amortizing terms, so payments are higher. These are not usually available to personal borrowers.

Work-Around: a Personally-Owned LLC, Dry Leasing Back to a Business

An “in between” approach to ownership is to set up a personally owned LLC to register your aircraft in, and then dry leasing it back to your business for business use. This can be a great way to go if your mission is a mix of business and personal, or if you are partial, owner of a business.

Aircraft Mission is a Factor — Are you Chartering the Aircraft?

Another factor when choosing a loan product is mission. If you plan to charter the aircraft, you often need to choose a business loan, as charter missions are considered commercial use. It’s also important to know that personal guarantees are standard in aircraft financing, whether you are taking out a business or a personal loan, unless the corporate guarantor is an investment grade or publicly traded company.

Aircraft Financing Brokers and Lenders

The best way to ensure you are pursuing the best aircraft financing option is to work with a reputable aircraft financing broker such as The Aircraft Lenders. Good brokers stay current on all aircraft loan rates and terms, and do the work of shopping the market for you. Working with a broker also means you can explore several loan options simultaneously with more ease.  The Aircraft Lenders also has a deep network of aviation attorneys, tax planners, insurance contacts, and appraisers to refer you to, ensuring all aspects of the purchase are planned for and considered.

A Look into Airplane Financing Rates

The airplane financing industry is very diverse and nuanced. There are a wide range of rates and terms available, and they vary with the ownership structure, mission for the aircraft, and the aircraft age, type, and price point. The Aircraft Lenders is a great resource for understanding the available options.

Frequently Asked Questions

How do I decide between personal loan or business loan for financing an aircraft?

You’ll need to consider the purpose of the aircraft, the mission for the aircraft, the ownership structure of your business, your budget, and the conditions attached to the financing options available.

Is a personal guarantee still required for a business loan?

Yes, commercial aircraft loans do usually require personal guarantees, unless the business is a publicly traded company or it has no owners with 25% or more ownership.

Whether you’re interested in acquiring a personal airplane or looking into business options, aircraft financing comes with a diverse range of options. The choices you make will ultimately depend on your needs, government regulations regarding ownership and aircraft missions, and the current financing options in the airplane finance industry.