NAFA member, Greg Holst, President of 1st Source Bank's Aircraft Financing Group, discusses what prospective borrower's should know when it comes aircraft financing in an interview with Matt Harris, Commissioning Editor with AvBuyer.
There are some obvious points and some less obvious ones a prospective borrower should know with regard to getting aircraft financing. What are these, and what do they all have in common? We asked Greg Holst, President, 1st Source Bank’s Aircraft Financing group.
When searching for a financier to provide a loan for your next aircraft purchase, the natural thing would be to scrutinize the lender – and rightly so… Often, though, prospective borrowers fail to check their own expectations and commitments, which can lead to disappointment.
With this in mind, Greg Holst spoke with us to offer more insight into what a borrower can do to send the right signals to a finance provider.
AvBuyer: What are the basics that a borrower can expect all creditors to be looking for before approving an application for financing?
Holst: There are various items that allow the lender a basic understanding of the loan request, a background and credit check, and some indication of the financial capacity and trends of the borrower. These include the following:
- The name, address and State of organization, along with the date of birth and tax ID of the borrowing entity and any guarantors;
- Information on who the principals of the primary borrowing/operating entity are, with brief bios;
- Three years of financial statements and tax returns for each borrower/guarantor; and
- Some details on the aircraft you wish to purchase, its purpose, and any loan structure preferences.
AvBuyer: Presumably the ‘basics’ differ slightly from one lender to another. Where can borrowers get the information that will enable them to approach a preferred lender prepared?
Holst: The best place to get the specific items a lender will be seeking is to go to the lender’s website or, better yet, call them and ask by phone.
Each borrower’s situation is different. A conversation with an aircraft loan officer can help you learn specifics needed to properly evaluate your unique situation without unnecessary document production.
AvBuyer: Moving beyond the basics, what are some of the less well known items someone seeking aircraft financing could do to enhance their chances, and make a lender’s decision easier?
Holst: Most folks prefer to keep the activity of borrowing money as simple as possible. Actually, most lenders have this same goal too.
However, having a few added details on you or your business can greatly benefit the processing speed of your request and may improve the terms or rate for which you qualify. Some topics to address or share may include:
- The history/background of your business.
- A business forecast, information on recent expansions or new contracts.
- Detail on any previous whole aircraft ownership, fractional ownership or charter experience.
- Reviewed or audited financial statements.
- A synopsis of the pedigree/maintenance history of aircraft being purchased.
- A pre-buy inspection or independent appraisal.
- Detail on whether the aircraft is a beneficial business tool – and if so, how? Will it be required to generate revenue of its own?
Borrowers should also research which lenders are leading activity in the aircraft category they’re pursuing financing in. Reputable dealers and brokers should be able to offer at least a couple of names that are knowledgeable and consistent lenders, and will provide good service - not just in the good times, but year-in, year-out.
The bottom line is to seek a relationship, not just a rate.
AvBuyer: With the used aircraft market picking up at this time, presumably there are plenty of lenders looking for opportunities. How can a borrower distinguish one seeking to cherry-pick opportunities in an up-market, versus one they can build a relationship with? What are the tell-tale signs a borrower should look for?
Holst: This is difficult to determine at best. In favorable times most lenders are aggressive and put their best foot forward.
A phone call to multiple lenders may tell you little about who is who in this field. Your best resource, however, is a seasoned dealer or a reputable aircraft broker. They will know who was doing business when the markets were on their knees and which lenders consistently work with their clients through challenging business cycles.
Borrowers who expect to be long-term aircraft owners should seek a relationship with a lender that carries them through their successes and their setbacks with a minimum of pain.
Essentially, experience and transaction volume are strong positive indicators.
While rate-driven lenders may be inclined to cherry-pick opportunities, a relationship lender should be there for the long-haul, even in a down-market when you may need to renew your loan, or finance an engine or an upgrade.
It’s clear that a prospective borrower should be thinking not only about their immediate need for financing, but for the longer-term. A good business plan for buying and operating an aircraft will also include a forecast on when it may be necessary to sell the aircraft and upgrade into something more capable.
You can use that plan to assess whether a potential lender could also help with your projected need for your next purchase beyond the current one.
The more prepared and open you are with your lender as to your present and future needs, the higher the likelihood both you and your lender will be able to develop a mutually beneficial relationship that can keep both parties happy for many years to come.
More information from www.1stsource.com/business/specialty-financing/specialty-financing/aircraft-and-helicopter
This article was originally published by AvBuyer on June 4, 2018.