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Aircraft Loan Considerations
Provided
by Airfleet Capital – IFA’s Aircraft Finance Partner
Aircraft financing typically draws comparison to
voodoo magic at a committee level - some group of bankers in the back of an
office sitting around a table diving through the credit report and financials
amidst discussions about their golf game. This couldn't be further from the
truth - an aircraft loan is typically a hybrid of the underwriting used for an
auto loan and a home loan. Aircraft loan underwriting has the speed of an auto
loan (typically 1-2 business days), but requires income verification such as
with a home mortgage (gone are the days of the no-doc home mortgages!).
Beyond the underwriting, there are a number of
elements that impact the rates and terms available for a particular aircraft
loan. Below are some of the factors you may wish to consider:
a. Down-payment: larger
down-payment typically provides a lower interest rate.
b. Long-Amortization, shorter-term: a 5- or 7-year balloon may offer a lower
rate with some lenders.
c. Larger Loan = lower rate: traditionally, as the loan amount increases, the
costs of writing the loan are spread over a larger total yield, which would
provide a lower rate (consider the underwriting involved for a $25,000 loan
versus a $125,000 loan - typically the same workload).
d. Keep it Simple: more complicated structures or group financing will typically
cost more to underwrite and document.
e. Age of the aircraft doesn't always rule out a loan, but will impact the rate
and term (i.e. think of a loan on a 1968 Jetstar and the additional collateral
risk that may be implied on this older jet).
f. Fixed or Variable Rate: When rates are decreasing, there's a significant
attraction to variable rates, but long-term fixed rates still offer the best
bang for your buck if you plan to keep the aircraft for 3 or more years.
Rates and terms are also impacted based on the
type of equipment a client is buying. Particularly, you may see different rates
and terms for the following aircraft categories:
1. Part 23 (normally certified
aircraft) piston singles & twins
2. Turboprop and Jet aircraft
3. Helicopters
4. Light Sport Aircraft
5. Experimental Aircraft
6. Kit-build Experimental Projects
7. Gliders, Ultralights, Balloons
8. Warbirds and other Vintage Aircraft
Keep these elements in mind when shopping for
aircraft financing, as each of these variables will impact the rates and terms
offered by the lender, or even the lender's ability to offer a financing
solution.
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