Aircraft financing process

If you’ve identified the perfect plane for your needs, then it’s time to start thinking about financing. Before reaching out to a lender, it makes sense to prepare for the process and answer a few basic questions.

What to expect during financing

The aircraft financing process is very similar to the application process for a home mortgage. The lender requests financial information from the loan applicant, then conducts an appraisal to determine the value of the aircraft. The lender also executes a title search to ensure no outstanding liens or issues exist.

Finally, the loan paperwork is initiated by the lender. Documents include a security agreement (in the event the borrower defaults on the loan) and a promissory note that outlines the terms of the loan. At closing, the paperwork is signed, and the new title is transferred to the aircraft owner. Before you begin, here are some of the key questions to weigh before sitting down with a lender:

  • Who will be responsible for repaying the loan? Will the loan be extended to your corporation, an individual or a corporate subsidiary? Are there extenuating circumstances that may require backing by a third-party, such as a partner or investor?

  • What are the preferred loan repayment terms? How much is the company or individual prepared to offer for down payment? Will payments be made on a monthly or quarterly basis?

  • What are the tax implications of this purchase? Research the best place to register the aircraft to reduce sales tax. Discuss with an accountant the best method to handle depreciation so that overall tax liability is reduced.

  • How many hours will the aircraft fly each year? Will the plane be maintained by private staff or an external management company? Will the jet be made available for charter or a third-party for use?

What’s trending in lending

Because of continued uncertainty in the financial markets, lenders are applying tighter controls to loan terms. In the past, many banks required that the age of the aircraft combined with the term of the loan not exceed 30 years. Unfortunately, that guideline has dropped recently to just 20 years, making newer aircraft an attractive option for many buyers. Lenders also expect to build strong relationships with borrowers, meaning companies must be candid about the health of their business and proactive about turning over financial information. Financing is one of the most important steps in the buying process because of its impact on the total cost of aircraft ownership. Taking time to prepare and think about the best loan arrangement will lead to a sound strategic investment — and more enjoyment of that investment.