How can you find the best lender to finance your new airplane?
First, understand the marketplace, advises David Madden, who is a pilot and executive vice president of Aircraft Banking.Com.
There are many ways to buy an airplane: with cash, going down to your local bank, using a broker or going to a finance company. Each has its pros and cons, so you must do some legwork. Hit the Internet and search for “aircraft financing” companies. Read industry trade magazines, especially the ads.
Madden suggests finding a lender who has aviation experience. When you work with a company that knows aviation, the staff not only can help you structure the best financing deal, they also can advise you on other aspects of ownership, such as how to register the aircraft (individual ownership, partnership, LLC, etc.), tax ramifications, insurance and more.
“Ask if the person is a pilot and aircraft owner,” he says. “If they are, they can give you great direction.”
But before you make that first call, “pre-qualify” yourself for the loan. Pull up your credit report at FreeCreditReport.com and make sure it’s accurate. If you’ve had sloppy credit in the past, make sure it is cleaned up. It’s important to know that banks are looking for a credit score of 670 or better. Next, look at your finances. Dig out your 1040s from the last two years and look at the adjusted gross income. Lenders will average that over the past two years, then look at your liabilities to reach your Debt to Income Ratio. “Including the airplane, that cannot exceed 45%,” Madden says.
If the numbers look good, make the call. Start asking questions. Is the organization a bank, a loan broker or well known finance company? What are the closing costs? What is the interest rate and terms? Are there any prepayment or balloon penalties?
Once you find someone you want to work with, be open about any problems with your credit report. “Disclose that up front,” Madden advises. “You don’t want to waste anybody’s time — and if they pull your credit report, that will impact your credit score.”
Also let the lender know if the airplane you are considering is out of the ordinary, such as a warbird, antique, experimental or helicopter. Some lenders also have restrictions on the age of aircraft they will finance.
If you’ve owned an airplane in the past, that is a plus, Madden adds. “Then you know what it costs to operate an aircraft,” he explains.
As you go through the process, don’t focus solely on the interest rate as the deciding factor in which loan or company you’re going to go with, he notes. “Rate is important, but quality of service, in-depth industry knowledge and whether the person is helpful is also important,” he says. “If one lender is 1/4% higher, but you like dealing with them, stick with them. On a $100,000 loan, a 1/4% difference in rate is inconsequential.”