Successfully Navigate Business Aircraft Financing with an Aviation Attorney and Acquisition Consultant

With business planes at record low prices, buyers have a rigid set of rules to now adhere to in order to get financing. The key is to start looking for financing early on in the process to take advantage of motivated sellers and outstanding prices.

Banks are scrupulously cautious and require a lot of buyer documentation and their own due diligence to ensure the aircraft’s value, so borrowers do not want this part of the purchase to knock them off a great deal. A reputable aviation transaction attorney and acquisition consultant can assist with pre-purchase finance agreements and inspections to calm a lender’s nerves about the value.

Lenders look to assist with financing for the most well maintained aircraft, and shrug their shoulders at anything more than 20 years old. Because of elevated supply levels, five to 10-year-old planes are the most attractive, unless the buyer wants a special airplane, can put more money down, and have a shorter loan term to help protect the lender’s outlay of money.

“Our firm helps buyers navigate the difficulty of finding a bank, accounting for escrows, and even planning for years down the road should you want to sell or lease the aircraft you buy today,” said Stewart Lapayowker, aviation attorney.

Loan commitments and closing can easily take a month or more, and patience is key with the whole process. Lenders are hawks, and take a hard look at the prospective borrower. Missed payments, overextension of credit, defaults, and level of financing on current airplanes are examined thoroughly. Lenders have been hit hard and want to make sure clients can afford two or more airplanes or could realistically sell one if that is the objective after closing on the new one.

With investment grade businesses and high-net worth buyers, it comes down to what’s the better use of their capital. If the $6 million purchase price is financed at a low percentage, which is often tax deductible, it might be more attractive to finance and use $6 million of liquid assets on other investments. The norm is 15 percent down with three to five year loan schedules, and sometimes clients can go down to 10 percent depending on the credit profile. A lot of lenders want the borrower to have enough money to cover damages the aircraft manufacturer might be entitled to if the borrower defaults. Or, some clients prefer to go with lease financing that offers greater flexibility than normal borrowing, and has five to seven year loan terms.

Banks will have varying stances on the most worthy borrowers. Some banks want only existing customers or soon-to-be ultra high-net worth clients. But if the bank has already given out other margin loans, boat or real estate loans, or for certain clients membership in a bank loan syndicate, banks are wary about lending them more money and increasing their risk. That’s when you’ll want to turn to aircraft financial institutions to see what they have to offer since they specialize in accommodating new buyers every day.

With delays and maximum scrutiny, many buyers have gone the cash route, and have accounted for close to 75 percent of all transactions in 2010. “Many clients use liquidity margin accounts to close a deal quickly,” Lapayowker said. “We can then help them assess whether it is smart to finance long term.”

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