Financing is a complex area for aircraft owners to navigate. Beyond the interest rate involved, how can you tell if you’ve got a good deal that’s fair to both parties? Gerrard Cowan asks aviation finance experts for their tips.
Aviation lending is considered a specialty in the banking industry. And, since not all banks offer the service to their clients, loans vary in terms of how favorable they are – but they are almost always structured to mitigate risk for the lender.
“This means banks include covenants, clauses, interest rates, and terms that are favorable to the lender until the note has been repaid,” Chris Lee, President of the Aircraft Division at 1st Source Bank says.
Still, “competition in the marketplace helps to keep the general terms of many deals fairly close to one another”.
There are a range of factors that could influence a bank’s ability to offer favorable loans to individuals or businesses, Lee adds. A good bank will evaluate each aviation finance deal individually, based on many factors. Some deals are more attractive to banks than others.
Aircraft usage is important, he says, because some aircraft loans are made for Part 135 commercial uses while others are for personal and business transport (Part 91).
On top of this, there are factors that are common for essentially any financing deal, not just aviation. For example, the applicant’s credit score will have an impact, as will income and employment history, debt-to-income ratio, loan-to-value ratio, and any collateral involved.
This article was originally published by AvBuyer on April 15, 2024.
