Finance: Full disclosure

Processing that much information is part of AOPA Finance’s normal business practice. But the question remains: Why do lenders require tax returns instead of accepting profit-and-loss statements? After all, isn’t a credit-based loan application all about cash flow?

Aircraft financing institutions require tax returns as part of the financing process because of what those tax returns imply. Financial statements like P&Ls can be finessed in a way tax returns cannot. Signed documents submitted to the federal government represent a verifiable financial picture. Anything less than accurate and there’s a risk of being audited or succumbing to other unwanted problems with the IRS. Lending institutions can be confident from a tax statement that the financial picture presented should be a conservative estimate of what the financial situation is.

Signed documents submitted to the federal government represent a verifiable financial picture. Anything less than accurate and there’s a risk of being audited.That’s also why the full return, including all schedules, is part of the loan package. Submitting a partial tax statement raises doubt. A lender is left to wonder, Are there any losses there? Are you throwing money after something that we didn’t know about? All those nuances get vetted by going through the entire tax return. 

And remember, if assets are held in a business entity rather than in your name personally, the lender typically also will need a copy of those tax returns, or it may need a copy of a debt schedule for any debt related to an entity which you own or in which you have significant ownership.

Some of our members tell us they don’t have access to their tax returns. Perfectly fine. We liaise with accountants and chief financial officers all the time. As long as borrowers grant us permission to work with their designees, we can coordinate with them and remove all the hassle involved. 

Regardless of our experience and our precautions, we still encounter members who will never be comfortable sharing their tax returns. We understand. Their option would be a collateral-based type of financing. With this type of financing, options are more limited, and the terms are going to be a little different. For example, the borrower will need to put more money down. Also, the amortization likely will be shorter. Regardless, there are several good, collateral-based options.

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Web: aopafinance.com 800-62-PLANE (75263)