Not every club requires financing, but it is important to understand the options available to you and your future members. For the most part, clubs that own their aircraft are the primary users of financing. For these clubs, financing can include the plane, a future plane, a hangar, avionics or engine upgrades.
Financing will depend on the type of aircraft you purchase, as well as the willingness of members to invest in the club and the ownership model you choose.
In an equity club, an aircraft purchase requires capital. There are a few options a club may consider – the club could require a large buy-in, receive a loan from a member, or finance a portion of the purchase with a commercial lender. But when it comes to loans, most banks want to see your club’s ability to repay, so they may require a member or members to cosign.
You’ll need to consider whether your club wants a member to personally guarantee the loan, or if the club will guarantee the loan without a personal guarantee. When a personal guarantee is exercised, if the club defaults on the loan the individual is now responsible for fulfilling the financial obligation of the club. Most clubs prefer to avoid personal guarantees for this reason.
In order to receive a loan without a personal guarantee, banks generally require clubs to have been in operation for at least two years. The bank will ask for statements of cash flow to help determine the credit worthiness of the borrower (the club).
Financing for Non-Equity Clubs
Members of a startup club seeking an aircraft loan may be discouraged when they learn they must have a personal guarantee. These clubs will usually consider leasing an aircraft for a period of two years, with the intent to buy that aircraft, or another, once financing is possible. This approach will allow your club to start as a non-equity club until you meet the bank’s time requirements to purchase an aircraft. At that time, it can become an equity club.
Non-equity clubs using the leasing model can also take advantage of financing; however the financing would be in the name of the aircraft owner leasing the aircraft. If you choose to lease an aircraft from an individual or company that has a loan on it, be sure to check with the financing company to ensure leasing is not a violation of the terms of the loan.
Some clubs may even consider having a member buy and finance an aircraft for lease to the club. The lease agreement might include a right to buy option once the club has existed long enough to finance the aircraft without a personal guarantee.
AOPA Aviation Finance has developed four pathways to aircraft financing that are specifically tailored to meet the needs of flying clubs.
Option 1: Loan With No Personal Guarantee
An established flying club may qualify for a loan with no personal guaranty. The flying club, not an individual, is the borrower. With this particular loan solution, the club can borrow up to 70% of the aircraft value. In finance terms, that’s expressed as 70% LTV, meaning “loan to value.” The life of the loan is up to 12 years at competitive interest rates.
Option 2: Loan with Leaseback to a Flying Club
If your flying club is brand new, you might have an individual member who would be willing to take personal responsibility for an aircraft loan with the understanding that the aircraft is put on leaseback to the flying club. With this solution, a personal guarantee is required for a 70% LTV loan and the term is up to 15 years at competitive interest rates.
Option 3: Credit Enhanced Flying Club Loan with Personal Guarantee
With this financing solution, the flying club is the borrower, but the loan is backed by an individual’s personal guarantee. This solution provides for an 85% LTV loan with up to a 15-year term at a competitive interest rate. Each flying club’s age and financial stability is considered individually when assessing this financing solution.
Option 4: Flexible Aviation Loan with Leaseback
With this loan, the individual is the borrower and provides a personal guarantee. This loan is an uncollateralized loan and is based solely on credit and debt to income. The term is up to seven years with competitive interest rates. The borrower names the flying club as lessee of a leaseback. This option is available to both startup and established flying clubs. These loans are limited only by the individual’s credit for amounts up to $100,000.
For more information, check out AOPA Aviation Finance options online
or call 800/62-PLANE (800/627-5263).