NAFA member and President of AOPA Aviation Finance Company, Adam Meredith, shares what you need to tell your finance broker to save you money.
Our goal is to save you as much money in interest rate and loan fees as possible. In order to best do that we need answers to the following 5 questions.
How will you own it?
Who is going to own the plane? Is it going to be a sole-purpose limited liability company you establish? That information is needed in advance to correctly fill out the loan documentation. Are you going to have multiple co-owners? Some lenders won’t even deal with an aircraft that has multiple partners, others limit how many partners they’ll accept. We don’t want to waste our time or yours by contacting lenders who could be eliminated in advance.
How will you use it?
If the aircraft is going to be used to generate revenue, there are specialized lenders that prefer these types of loans and are more willing to lend money. Revenue generating aircraft are often referred to as “essential use” aircraft. Some of these include aircraft used in charter operations, helicopter tours, pipeline patrol, and parachute jumping. In general, if your plans entail essential use on your aircraft, there may be fewer lenders willing to give you a loan. Tell us right away if that is what you intend. Likewise, if you want to use the aircraft for flight training, in a Flying Club or on leaseback, these all also fall into the “essential-use” category and thus require specialized options.
How long will you keep it?
How long do you plan to keep it? Most of our customers have their aircraft less than 4-5 years. If that is your intent, you may want to consider an adjustable-rate loan or vs. a fixed-rate loan. An adjustable rate loan can save you money. Here’s an example: let’s say you want a $500,000 loan. If you went with an adjustable-rate loan (fixed for the first five years, then adjusting annually) you could save nearly $14,000 in interest over the course of those five years compared to a 20-year fixed-rate loan.
Any past problems?
Tell us up front if there have been any past credit issues. Were there past disputes or bankruptcies? Insurance companies using heavy-handed tactics? Don’t just hope it won’t be uncovered during the course of the loan application, because it will eventually be uncovered. You’re far better off having the discussion of any past problems at the start of the application process rather than explaining after the fact.
How do you make your money?
We need to be able to explain to a lender what your cash flow looks like. The end-of-year results may be good, but did the cash come in lumps? Is it dependent on the seasons, or whenever you happen to buy and sell a company? Do you get paid a commission only when you make a sale? Do you plan to retire? Many of our members are small-business owners who may have irregular cash flow but high annual income. It’s helpful if we know in advance so we can make the best possible case to a lender.
Considering aircraft ownership? AOPA Aviation Finance will make your purchase experience as smooth as possible. For information about aircraft financing, please visit www.aopafinance.com or call 1-800-62-PLANE (75263).
This article was originally published in AOPA Finance on August 1, 2018.