NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, shares two important final steps when securing an aircraft loan.
What happens once I’m approved for an aircraft loan? There are still two steps remaining to secure a loan. Approval means the bank has approved both you and the airplane. Now the question is, are you ready? The second step, post-approval, is getting the bank everything needed to fund.
Once a lender is comfortable with the aircraft, the borrower, the ownership structure of the borrowing entity, and the global financial picture of the entities in which the owner or owners have a controlling interest, they’ll signal they are OK to scheduling closing. How do they get there though?
You now do your part by providing the remaining paperwork—any missing financial documents necessary, copies of the ownership documents (the EIN document, the articles of organization, and the operating agreement), if applicable. Note if you intend to have a holding company own the aircraft, the time to form the company correctly and completely is earlier on because the lender will need to verify the legal structure and documents before it can approve the loan and issue loan documents.
It’s been our experience that people frequently take the organizational structure of an aircraft holding company too lightly when they shouldn’t. Lenders take it very seriously. There’s a legal difference between how a member-managed LLC signature block is executed versus a manager-managed LLC. So get, and heed, good advice and do so before getting approval (otherwise let the lender know it’s in the works and discuss the specifics).
Next, a title and escrow company will review the aircraft’s ownership and title history and share that with the lender. The lender will review the aircraft’s logbooks for completeness, the purchase and sale agreement, as well as the pre-purchase inspection or signed off documentation from an A&P to confirm that the airplane is in airworthy condition. The title and escrow company handling your transaction may even assist with the last document required prior to closing, the certificate of insurance (COI).
The escrow and title company will also handle the coordination of payments to the lender, you, and any third-party vendors attached to the aircraft at the time the lender releases the funds. Finally, the lender will authorize the release of funds once any requested supplemental documents have been received and vetted.
This article was originally published by AOPA Finance on October 23, 2020.