Aircraft Loans - The ABC’s of Aircraft Financing

© Copyright 2009
D. Alan Carter, All Rights Reserved

If your bank holds the mortgage for the roof over your head, you’ve already received the hard-knocks education in financing that will serve you well when financing a private aircraft. The financing of a home and a private aircraft share a number of characteristics, not the least of which is a case of the cold sweats that inevitably breaks out at the closing, around the time a signature is required on a promissory note in the 6 digits.

Here’s the ABC’s, a quick summary of the most common steps, procedures and requirements in aircraft financing.

Aircraft Financing ABC’s - Get Pre-Qualified

While not exactly a requirement, we mention pre-qualification because it makes sense. Shopping for an aircraft is time consuming – more so when you’ve finally narrowed the field down to one particular aircraft only to discover that you don’t qualify for the necessary financing. Shop the lending field and get pre-approval first. Many lenders can handle the matter over the phone or online – and you’re under no obligation to use the loan until (or if) you decide to formally apply.

At the very least, with pre-qualification you know your purchasing ceiling and you’ve made a contact that should facilitate processing the eventual loan.

Aircraft Financing ABC’s - Find Your Aircraft And Make A Deposit

Just like a home purchase, when you find the aircraft you’re comfortable with and that aircraft is within your pre-qualification ceiling, you’ll want that plane taken off the market. Do this with a purchase agreement and deposit. The agreement should be conditional upon the aircraft passing a pre-purchase inspection and you – the buyer – securing financing (you can be fairly certain on that last point, given pre-qualification, but it’s wise to leave it in as a contingency). The purchase agreement and deposit effectively keeps the aircraft from being sold out from underneath you while you make arrangement for financing, and obligates you to the purchase so long as everything about the aircraft is as represented.

Some buyers like to add a contingency clause specifying that the aircraft appraisal, should one be requested, meet or exceed the purchase price. This assures that the buyer is paying no more for the plane than it is objectively determined to be worth.

Given the price of aircraft, deposits can be significant. Make sure your deposit is refundable if the aircraft doesn’t meet the inspection criteria, or you don’t meet the financing criteria. An escrow service makes sense if you don’t know the seller. The escrow agent may be the title company or the attorney hired to handle the closing, or someone else entirely. Regardless, make sure you know the fee they charge. And in today’s climate of sudden failures of financial institutions, make sure their services are insured by the FDIC.

Aircraft Financing ABC’s - Get A Pre-Purchase Inspection

Insist on a pre-purchase inspection of your aircraft as a contingency of the purchase agreement. I know what you’re thinking: unless the aircraft is spanking new, the lender (especially traditional financial institutions like banks) will likely require an appraisal. So why bother with an inspection? Why spend the extra money? You bother with the inspection, you spend the extra money, because the lender is only concerned with the value of the aircraft. You, on the other hand, are concerned with value and safety. A good mechanic working on your behalf (and not the lender’s), can provide some peace of mind - at the closing and beyond. Here's further advice on the Aircraft Inspection.

Aircraft Financing ABC’s - Apply For Financing

This is the sit-down (or telephone, or online) meeting with the lender who will be doing the financing. As the borrower, you’ll be required to submit personal financial information. If the purchasing entity is a corporation or LLC, you’ll be required to provide copies of organizational documents. As with a home loan, you should receive from the lender an itemized list of anticipated costs associated with the loan process. See the Top 10 Q&A for Aircraft Loans for more details on loan rates and terms and application requirements. 
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