Financial Items Needed to Apply for an Aircraft Loan

When applying for an aircraft loan through any of the industry leading aviation lenders, you will need to supply additional financial information beyond just an Aircraft Credit Application.  The standard Credit Application informs underwriters of basic information about you, i.e. name, address, date of birth, social security number, etc. and its primary function is to allow lenders to pull a credit bureau to check your credit history and score.

A Personal Financial Statement (PFS) assists in analyzing your total financial net worth, assets such as cash, marketable securities, retirement accounts, value of residence(s), etc., and liabilities - outstanding loans/debt, and monthly payments.  Additionally, most PFS will have questions regarding whether or not you’ve filed for bankruptcy, have and outstanding judgements, or are a party to any legal suits.

The third set of items needed to accurately determine your cash flow/income stream will be obtaining copies of the most recent two years Federal 1040 Personal Tax Returns with all schedules.  If you are self-employed and file separate business tax returns, the lender will also require those too.   Additionally, a Year to Date Profit & Loss Statement with a Balance Sheet will be required to evaluate company liabilities and liquidity.

Lastly, lenders will want to see current bank/brokerage summary statements to confirm individual and company liquidity (cash reserves) to verify what was indicated both on a PFS and business Balance Sheet.

Depending on the dollar amount and complexity of the credit application, credit reviews can take anywhere from one business day to a week or even longer for a final decision. Most transactions are reviewed within the one business day time frame however. It is wise to discuss credit decision timelines with lenders prior to applying to confirm they can meet applicant’s needs and expectations.

Financing Older Corporate Jets

          When the “Great Recession” hit in 2008, older corporate jet aircraft values were hit hard. In many cases, values dropped between 30% - 40% from their prior high values.  The significant drop in values and overall national decline in business revenues of companies operating such equipment created a large volume of available aircraft for sale in the market which further reduced values.  Many lenders who financed older aircraft either stopped lending on them or totally got out of the aircraft financing business altogether.  These events created a new problem; it became almost impossible locate a source for lending on such collateral.
          Today, Banterra Bank offers, via affiliate banks and lenders through syndication, competitive older corporate jet financing on collateral as old as 1980.  Aircraft must be owned and operated by U.S. applicants and not used 100% for FAR 135 charter.  Contact the Aircraft Division for rates and terms.

National Business Aviation Association 2015 Conference

The NBAA 2015 Annual Convention & Exhibition extravaganza starts November 17th and runs through November 19th in Las Vegas, Nevada. Most all General Aviation and Business Aircraft manufacturers display new products at the static display ramp, which is at Henderson Airport in Nevada. Shuttle busses run attendees to and from the main convention center and airport every 10-15 minutes. This year there will be over 1,000 exhibitors and approximately 100 new business aircrafts on display, in addition to used corporate jets being offered by numerous aircraft brokerage businesses.
If you’re in the market for an aircraft and are considering attending the convention, Banterra Bank offers aircraft loan pre-approvals that are valid for up to 90 days (subject to credit review and approval). With a pre-approval in hand, buyers are more likely to negotiate more favorable terms when negotiating prices on aircraft if they have already arranged for aircraft financing, as sellers know they have serious and qualified buyers.

Now is the Time to Re-finance Your Aircraft

Now is the time to refinance your aircraft to take advantage of industry historic low rates. Re-financing your airplane is a fairly straight forward process. Banterra Aircraft Finance offers prompt professional service, extremely competitive rates and terms and with no application fee(s).  To expedite your refinance request, it is recommended you gather the following items for the credit review process: Updated Aircraft Specification Sheet with current aircraft times, installed options, avionics, etc., most recent two years personal 1040 complete tax returns with all schedules (to verify income), complete a simple Credit Application, and fill out a Personal Financial Statement .   Once the Banterra Aircraft Finance Underwriter receives this information, a credit decision usually can be processed in one business day or less.  Once your refinance request is approved, you’ll simply need to contact your current aircraft lender and request a pay-off letter and their wire instructions.  Now is also a good time to add any upgrades to the aircraft and finance a portion or all of those costs with your new loan. The majority of aircraft lenders will not advance “cash back” on new loans unless it’s for reimbursement of recent verifiable upgrades.  Cash back for other ventures not relating to capital improvements on the aircraft is not available.  

Benefits of Registering Your Aircraft in a Limited Liability Corporation

More and more aircraft buyers are registering aircraft in Limited Liability Corporations (LLC).  There are several benefits and reasons to utilize an LLC versus individual/personal ownership. LLC ownership may give you some level of liability protection in the event an incident occurs with the aircraft and you’re not the pilot in command (i.e. you let a partner, friend, instructor, etc. use the aircraft and had an incident, your personal liability may be limited).  Another benefit is to have your spouse be a Member with signature authorization in the event of your death, eliminating probate issues/taxes. Creating a new tax entity ease of accounting purposes, especially if used 100% for business can be beneficial.  With some aircraft lenders, an aircraft loan would not show up on your credit bureau(s) as it is booked in their systems as a commercial loan versus a consumer loan (helps keeps your credit scores up, you would still need to indicate loan to potential creditors as a “contingent liability” however).

If you are obtaining aircraft financing for the airplane, the lender will require copies of the LLC Operating Agreement, Articles of Organization, Certificate of Formation date stamped by the Secretary of State where incorporated and an E.I.N. number (you can use your social security number if it’s a single member LLC, otherwise you’ll need to contact www.IRS.gov for an EIN#).  On newly created and/or first time aircraft registration using an LLC, the FAA requires an LLC Statement in Support document that states date and state LLC formed, who the member(s) are, how managed, confirmation of ownership percentage, and verification of United States citizenship (FAA will not allow an aircraft to be registered in an LLC unless 75%+ of members/ownership are of U.S. citizenship).

For advice in your particular situation, consult your attorney.  

Financing Aircraft Avionics, Engine and Refurbishing Upgrades

Upgrading your aircraft with fresh paint, new interior, engine overhaul, and/or new avionics is an expensive proposition. Banterra Aircraft Finance (division of Banterra Bank) offers very competitive aircraft financing programs specifically designed for such endeavors.  It is recommended that you first obtain written estimates for desired upgrades from reputable shops and submit them to the bank along with a current aircraft specification sheet listing current airframe and engine times, installed options, etc.  Additionally, obtain a current pay-off from your aircraft lender if you have an outstanding loan.  Banterra Aircraft Finance will review your request, appraise your aircraft as it currently exists and also with requested upgrades. Depending on the equity in the aircraft, Banterra may be able to finance all, or a major portion of the desired upgrades.  There is no cost or obligation for a valuation review of your aircraft.  Banterra Aircraft Finance may be reached at (888) 254-5731 or www.BanterraAircraft.com. 

Aircraft Pre-Purchase Inspections

It is highly advisable that you have a qualified maintenance shop or aircraft mechanic thoroughly inspect an aircraft prior to purchase.  If you are borrowing money, most aircraft lenders will require a copy of the inspection report prior to closing on an aircraft loan.  The obvious items that usually “Make or Break” a sale are: undisclosed damage history, corrosion, missing aircraft maintenance logbooks, metal particles in the engine, low cylinder compression(s), engine close to or over recommended manufacturer life (TBO), aircraft out of Annual Inspection, poor overall maintenance, overdue Airworthiness Directives (AD’s), inoperable avionics, etc. 

Generally, once the inspection is completed, the buyer and seller re-group and discuss what impact on the sale the inspection has and who will pay for what, and in some instances, whether or not to proceed with the sale.  In many cases, buyers opt to have the price reduced by the estimated dollar figure for repairs and preform a fresh Annual Inspection to include items noted.  If you are financing the aircraft, lenders will require all major repairs and airworthiness items be repaired prior to closing on the loan. 

Things That Effect Your Credit Score

There are three credit reporting agencies that gather information from creditors on your credit “behaviors”, A.) Trans Union 2.) Equifax 3.) Experian.  It’s well known that simply paying your obligations in a timely manner (never 30 days or later) is the number one way to keep your score in good shape. Items that lower your score are late payments, high debt on credit card and lines near or at limits, new loans, judgements, cancelling long established credit cards that had excellent prior pay histories, tax liens, shortfall sales of property and the number one score killer, bankruptcy.  Credit “Inquiries” minimally lower your credit score and only in a significant way if numerous inquiries are initiated in a very short time period (auto dealers are notorious for having numerous credit reports pulled when they shop your credit to several lenders at the same time).  In general, a Credit Score over 700 is required by most aircraft lenders if you’re in the market for an aircraft loan. Credit data stays on bureaus for seven years in most cases and ten years for bankruptcy data. You may, by federal law, obtain a free copy of your credit score from any of the three credit reporting agencies, once a year and any time you have been denied credit and a credit bureau was pulled. Website addresses for all three credit reporting agencies: www.experian.com ,  www.transunion.com , www.equifax.com

Aircraft Considerations

Selecting your next aircraft can be a challenging task.  Speed, fuel consumption, purchase price, insurance expense, maintenance costs, cabin size, range, vintage, avionics, light sport category, high wing vs. low wing, aluminum, fabric, or composite construction are just a few factors that enter into the equation. Most pilots seem to migrate to aircraft make and models that they initially trained in. It’s uncommon to find a pilot purchase a Piper Cherokee after completing all their training in a Cessna Skyhawk for example.

When considering speed issues, fuel consumption usually determines a buyer’s direction on aircraft selection. Mooney aircraft are well known for their speed and low fuel consumption but that comes with a compromise; small cabin and minimal baggage area.  A Cessna 182RG has a much larger, more comfortable cabin, but with a significantly higher fuel burn of 40 to 50% vs. a Mooney for similar speeds for example. 

Aircraft maintenance costs are usually higher on older aircraft, but their initial purchase cost is significantly lower that late model equivalents.  Composite aircraft are not prone to the adverse effects of corrosion when compared to aluminum manufactured aircraft but again, are much costlier to purchase.  Composite aircraft are more susceptible to UV ray damage over a long period of time if left out in the sun so a hangar is strongly recommended.

Avionics and flight instrumentation is another major consideration.  Aircraft produced prior to 2000 all have the industry prior standard “steam gauges” while newer aircraft have multi-function displays, touch screens, new generation GPS units with exceptional situation awareness.  To upgrade older aircraft to the latest avionics technology is a costly venture, in some instances, may cost more than the initial purchase price of the aircraft.

It is wise to speak with as many current and past aircraft owners to get their candid opinions and thoughts as to which aircraft they recommend or suggest to stay away from.  There are many quality general aviation magazines that also regularly have articles on various airplane performance and maintenance issues. Buyers can also spend time searching the internet for aircraft information.  Choosing the right aircraft to meet your piloting skill level, budget, and performance requirements may be time consuming but rewarding in the end!  The good news is, after you have determined which aircraft you want to purchase, the aircraft loan process is easy with Banterra Aircraft Finance.

Financing An Aircraft

When considering a source to finance your next aircraft purchase, it is highly recommended that you select a lender with aviation financing expertise.  Lenders that specialize in aircraft financing can best guide you through the credit, appraisal, title, escrow, and closing processes.  If an aircraft has not yet been selected, you can obtain a credit pre-approval, subject to final review and collateral valuation.

 

The first step is to gather up pertinent credit information for the underwriter. Generally the most recent two years Federal 1040 and Business Tax Returns with all schedules, a current Personal Financial Statement, and liquidity verification (recent bank/brokerage summary statements) is all you’ll need in addition to completing the lender’s Credit Application.  An airplane specification/listing sheet should also be supplied in the event an aircraft has been selected.

 

Underwriters review tax returns for verification of income, consistency and trends, and need the schedules to add back depreciation and carry over losses for example.  Liquidity (cash reserves) as stated on the Personal Financial Statement are verified to confirm that the applicant can meet all “global debt service”, including the aircraft monthly obligation with reasonable reserves after the down payment has been made.  Lenders look at debt to income ratios and obtain numbers from both what was stated on the Personal Financial Statement and what is indicated on the applicant’s credit bureau.

 

The collateral is also a major consideration when reviewing credit applications for approval.  Financial Institutions use the AircraftBluebook and V-Ref Price Guide as their primary source for values. Aircraft with damage history, missing maintenance logbooks, in poor cosmetic condition, or with high time or run out engine(s) are harder to process than aircraft without any of those types of issues.

 

FAA documentation includes an original signature FAA Bill of Sale be in escrow at an industry recognized title and escrow company in Oklahoma City, OK along with an original signature FAA Form 8050-1 “Aircraft Registration Application” and any original applicable lien release(s).  The FAA Bill of Sale is produced by the Seller and the 8050-1 Aircraft Registration Application is signed by the buyer, who then keeps rear pink copy as the temporary registration until the FAA sends a post card hard copy to them.  The lender sends a Security Agreement to the buyer for signature and return to the title company also.  Once the title company confirms they are in receipt of all FAA documents, then funds are wire transferred for the closing.

For more information on financing an aircraft, go to www.BanterraAviation.com.