Tuesday, January 28, 2014

Aircraft financing

Thinking of buying an aircraft?  

Dream planes don’t come cheap.  If you are the type of person that is buying an aircraft for personal use (which is probably 95% of the buyers) the money is probably coming out of the discretionary income account.  That’s the extra stuff you have burning a hole in your pocket every month.  The money we spend on the things we really don’t need, but want.  Don’t get all up tight and try to tell everyone how important an aircraft purchase is, how you need it!  We've all been there and done that!  It may be necessary, but it’s not always rational!  Buying an aircraft is a very emotional decision.  Since an aircraft is extremely hard (if not impossible) to rationalize, you need to think of the money that you spend like fun money or maybe a stock market account.  And just think most aircraft have increased in value better than blue chips stocks.

If you have to buy...and it is always a have to... you need to come up with the money.   Either you dig into the savings accounts or you borrow money from a lending institution (or you've got the money stored in your mattress).  Do you need to finance?  That’s really a personal decision.  Many a good aircraft deal was missed because my funds were tied up in the wrong place (food, housing, clothing, etc.) 


But borrowing money can sometimes be the right means to the end!   Financing comes into play when you need to preserve your existing cash or when you need cash to begin with.  It’s even been said that another good reason to finance is because the average aircraft is only owned for a few years.  Why tie up one’s own money in equity in an aircraft that you don’t plan on owning for a very long time.  And one other thing, at this time, borrowing money is relatively cheap. 

Where will you go for the money?  After you've exhausted all your friends’ relatives and neighbors, you can go to your local lending institution (bank, credit union, savings bank) and ask for an aircraft loan.  In fact, most aircraft lending groups recommend that you check there first.  It may even be easier to get a local loan because of the existing banking relationship the buyer has with the institution.  But most local banks are not fluent in aircraft.   If the loan officer didn't bust out laughing, you might have a chance.  If they stared glassy eyed straight past you at clock on the wall, mumbling something about a break, start looking elsewhere.

Below are six basic tips to make your financing experience a good one. 
1. Choose a finance source that understands aircraft
2. Select an aircraft that fits your needs (be realistic)
3. Review your credit history prior to applying for a loan (make sure your information is current and correct)
4. Put together a complete financial package which include: detailed loan application, Up to date personal financial statement, at least two years of income Verification (w-2, Payroll stubs, Tax returns and business tax returns if self-employed).
5. Provide a thorough description of the aircraft which could include log book copies, airframe and engine hours, equipment lists, result of pre-purchase inspection, pictures
6. Explain how the aircraft will be used, estimated hours of use, location of home base and any other details.

If you plan ahead and contact the loan underwriter with the above information the loan process can be completed in a few days (and that includes title searches, credit checks and insurance binders.)  Whichever airplane is your dream plane and no matter how much it cost or whatever financing method you use...remember, it’s only money!

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