Plane & Pilot
Tuesday, May 7, 2013

Dream Big: Buy A Plane

Financing and insurance are the first steps in making your ownership dream come true

Most individuals who want to purchase an aircraft either don't have the cash to do so or have business and tax reasons that prevent them from buying the aircraft outright. Third-party lenders will loan the money to these individuals. Financing the purchase of a private aircraft is similar to a home mortgage in many ways. The basic financing process for a small personal (or even corporate) aircraft is as follows:

1 The prospective buyer ("borrower") fills in an application with basic information about themselves and the aircraft they propose to buy and submit the application to a lender.

2 The lender performs an appraisal of the aircraft's value.

3 The lender performs a title search based on the aircraft's registration number. They confirm that no liens or title defects exist. The lender might procure a title insurance policy to protect against any undetected problems with the aircraft's title.

4 Lender prepares the following transaction documents:
Promissory note: This makes the borrower responsible for any loan balance not covered by repossession of the aircraft, if the borrower defaults on the loan.
Security agreement: Establishes a security interest in the aircraft by the lender so they can repossess it, in the event the borrower defaults on the loan.
Third-party guarantee: If the borrower has a questionable credit score, the lender may require a security assurance from a third party (or parties) that confirms they'll cover the loan if the borrower defaults.

5 At closing, the loan documentation is executed (signed), funds are wired to the seller and ownership title transfer is completed.

An aircraft buyer looking for financing has a choice of lenders to approach. Some banks, like Bank of America, have special relationships with pilots and are accustomed to making aircraft loans. In Bank of America's case, they've established ties with AOPA and offer a number of financial products specially geared toward pilots. The advantage of a bank that has experience with aircraft lending is the speed and efficiency with which the transaction is completed. Experienced lenders can do the title search quickly because they already have relationships with those entities. The same thing goes for securing the right paperwork and accurately appraising the aircraft. Credit unions are similar to banks and often offer aircraft loans.

Independent dedicated lenders are the third option for financing. These include companies like Dorr Aviation, AirFleet Capital, AirLoan and National Aircraft Finance Company, among a few others. Dedicated aviation lenders like these know exactly how to handle your transaction and are experienced in the nuances of aircraft purchases.


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