Lenders tighten up

October 27, 2010

Looking to buy a pre-owned business jet? Then get ready to face more stringent financing requirements. General aviation analyst Brian Foley says that banks are ready to lend, but often turn down loan applicants.

“Loans are evaluated very differently now,” Foley said. “Residual values have plummeted, so today’s loans are based more on the borrower’s balance sheet and less on the asset value of the aircraft, although that continues to play some role. Most banks won’t finance jets more than 20 years old. For some, even 10 years is the cut-off point.”

Foley reports that down payments are now higher. Much higher. In a statement, Foley said “Gone are the days when a buyer could borrow more than the aircraft’s price—say, 115 percent—with no money down, and invest the difference in improvements. Today’s buyer can expect to pay 10- to 20-percent down.” As a result, Foley’s brokerage contacts report that upwards of 70 percent of their sales this year have been all-cash.

Foley goes on to say that this situation won’t change until the glut of used-aircraft inventory sells first. Still, Foley says that pre-owned buyer should know that there is still good financing available—but only to the best credit-risk operators seeking younger, better-quality airplanes.