Airplane Financing
Whether you are interested in purchasing your first aircraft for personal use or upgrading or expanding your company fleet, aircraft financing provides immense benefits. Structured lending solutions such as those offered by Zulu Bank allow you to preserve your capital while at the same time building equity in a high-value asset.
Even so, aircraft financing does differ significantly from purchasing any other type of asset. Aviation financing involves distinct underwriting requirements and loan structures. Making the right decision involving these elements ultimately affects how much you can save over the cost of the loan. The guide below is designed to provide you with a concise overview of what you need to know about aircraft financing, including how it works, what we look for at Zulu Bank when considering a request for an aviation loan, and what you should know about the various loan structures.
What Is Aircraft Lending?
Aircraft lending refers to a lease arrangement or structured loan that makes it possible for individuals and businesses to purchase aviation assets without the need to pay the full purchase price at the time of acquisition. The aircraft itself typically serves as the security for the loan.
Aircraft Financing Loan Structures
Term Aviation Loans – In this type of structure, the borrower will finance a percentage of the aircraft’s value and repay that principal amount along with interest over a specified period of time. The loan terms for aircraft loans typically range from five to fifteen years.
Capital Lease – Also known as a finance lease, this type of structure provides you with the benefit of being able to treat the aircraft as if you are the owner, while simply leasing it over a period of time.
Operating Lease – An operating lease offers the ability to make monthly payments for the use of the aircraft with no expectation of ownership at the end of the term.
Leaseback – In this option, the original owner of the aircraft immediately leases the asset back following the sale. The benefit of this arrangement is that it frees up capital for the individual or business procuring the aircraft.
Types of Aircraft Available for Finance
Financing options are available for a broad array of aviation assets. It should be understood that the type of aircraft selected for purchase will affect every aspect of your financing solution, including loan terms.
Single-Engine Aircraft and Piston Aircraft
Single-engine aircraft, such as the Piper Cherokee, Cessna 172, and the Beechcraft Bonanza, are often considered to be entry-level assets for aircraft ownership. These types of aircrafts are commonly purchased by flight schools, small business, and owner-pilots.
Multi-Engine and Light Twin-Engine Piston Aircraft
The Piper Seneca, Beechcraft Baron, and other twin-engine and multi-engine aircraft tend to be preferred by small charter operators and business flyers who are more serious about aviation ownership.
Turboprop Aircraft
Regional business aviation entities often prefer turboprop aircraft, such as the Cessna Caravan, the Pilatus PC-12, or the King Air series.
How Financing Works for Aircraft Purchases
Aircraft financing works in a similar manner to financing for other types of assets; however, there are some aviation-specific requirements.
Determine Aircraft Type and Budget
Before you begin the process of inquiring about lending options, take the time to evaluate your budget as well as your needs. It is important to be able to provide as much information as possible regarding the type of aircraft you wish to purchase, why you are interested in purchasing it, and how it will be used. For instance, are you an owner-pilot interested in investing in your own airplane, or are you planning to use the aircraft for executive transport? Do your plans extend to aerial photography, charter revenue, or cargo transport? The intended use of the aircraft will impact your eligibility for a loan, as well as insurance requirements for the aircraft after procurement.
Pre-Qualification
Pre-qualification is an important step for any lending request and aircraft financing is no different. At this step, you will need to provide information regarding your financials to determine the amount for which you are pre-qualified as you begin shopping. Keep in mind that aircraft prices typically vary based on many factors, including the age of the aircraft, the number of airtime hours it has logged, and specific avionics.
The Selection and Appraisal Process
After identifying a specific aircraft you are interested in purchasing, the next step in the process is often an independent appraisal. It is critical for lenders to assess the current market value of the aircraft. This appraisal is usually based on the craft’s avionics, logbooks, engine hours, and maintenance records.
Inspection
Prior to finalizing the lending agreement and purchase, it is necessary for a certified aircraft mechanic to inspect the aircraft to ensure there are no uncovered airworthiness or maintenance issues that could affect the value.
Loan Approval
The next step is for a formal loan commitment to be issued which outlines the loan rate as well as the term of the loan, required down payment, and any other loan conditions. This document should include the purchase agreement for the aircraft as well as the insurance binder, maintenance records, registration, and any other relevant financial documents and statements.
Loan Closing
At the time of the loan closing, the funds for the purchase will be released, the title of the aircraft will be transferred to you, and any relevant liens lifted.