NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, answers your aircraft financing questions about co-ownership.
Question: I’m in the process of forming a co-ownership divided into 4 shares. I have everything planned out but the financing part. I’m not sure if financing can be done under the LLC and bill each partner a monthly loan payment 4 ways? I’m wanting to find a simple way that will be attractive and easier for the other co-owners. How many ways are there to set up financing for a co-ownership? What is the best way? Can the whole aircraft be financed under the LLC and loan payments split 4 ways to each co-owner?
Answer: As a broker, we have many different lenders to consider for aircraft financing. With partnerships, many lenders have a limit on the number of partners they will allow to be involved. Four partners is often the maximum lenders will allow. Lenders will require that each of the partners qualify for and provide their personal guarantees on the loan. The loan will not be divided between the partners, so each partner would need to qualify as if they were the only one buying the airplane. This method provides assurance to the lender that any one of the partners could continue to service the debt if one or more of the other partners is unable to. Lenders will not divide the loan payment between the partners, so the decision of who pays how much is up to the partnership. It is common for partners to create an ownership entity, such as an LLC, for the purposes of the loan and aircraft ownership. It is also common for partnerships to create a new bank account for the partnership to handle any financial transaction associated with the airplane or the loan. Because each partner will personally guarantee the loan, any change in partners would require the loan to be refinanced.
This article was originally published by AOPA Aviation Finance Company on May 1, 2023.
