Aircraft financing types

If you’ve purchased a piston aircraft in the past, you might be familiar with the process of a credit-based loan. This type of loan requires documentation to substantiate your personal finances, as well as those of any other individual or entities involved in the purchase. Asset-based loans typically involve less financial documentation, but a larger down payment.

Normally, a credit-based lending product needs a 15 percent to 20 percent down payment. For asset-based loans, lenders generally require 30 percent to 40 percent down.

In some instances, a borrower may prefer to put 30 percent to 40 percent down to shed some cash from their balance sheet and avoid the hassle of getting their CPA to provide reviewed business financials, multiple years of tax returns, and any other business or financial information a credit-based option may require. Other appealing aspects of asset-based loans include shorter transaction times, limited or zero financial disclosure, and limited requirements for personal guarantees. For one, or any combination of those advantages, asset-based might be the best solution.

Whichever loan type you choose, focus your search on turbine aircraft less than 25 years old to have the most financing options available. Financing tends to come with shorter terms and amortizations on turbine aircraft compared to pistons. Turbine financing tends to be medium on amortization and short on term. Typically, the maximum amortization is between 10 and 15 years with a five-year term. Common loan structures often include a balloon payment for the remaining loan balance at the five-year mark.

AOPA Finance has seen terms negotiated as short as three years to as long as seven. Such instances are subject to the specifics of the situation, such as the year, make, and model of aircraft; intended use; and the financial situation of the buyer. A conversation with AOPA Finance can help determine the available options based on your circumstances.

In certain cases, it may be possible to offset short amortizations by taking advantage of accelerated depreciation on the aircraft. The goal in this scenario is to take the maximum amount of depreciation in the shortest period. This strategy can help businesses save on taxes and in many cases, the aircraft can be depreciated and sold prior to the balloon payment coming due.

The benefit of this strategy can continue from purchase to purchase and is often why business jet owners rarely keep one more than five years. Lenders are aware of, and generally approve of, this strategy because it makes good business sense for them as well.

As is common with aircraft purchases in general, the intended use of the aircraft often plays a role in the loan structures available. If you wish to add a commercial component, like leasing your jet out part time to a charter operation or aviation management company, it’s best to have a discussion with AOPA Finance up front to be sure you are lined up with the lending option that will work best for you.

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