Aircraft financing

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    Chris Godfrey

    Page written by Chris Godfrey. Last reviewed on July 18, 2024. Next review due October 1, 2025.

    Purchasing airplanes and helicopters for corporate use with cash can put a serious dent in any organization’s liquidity and seldom makes good financial sense. Instead, most airplane buyers use aircraft financing – special business loans for the purchase of airplanes – to reduce financial headwinds. Get a better plane than you could buy with cash. Spread the cost over time. Keep more money in your bank. Aircraft financing can put you miles ahead.

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      What is aircraft financing?

      Aircraft financing is a type of lending that can be used to buy private aircraft, or to borrow against the value of an aircraft that you already own. In the first instance, aircraft financing can help you to purchase or lease a new or used aircraft. In the second instance, aircraft financing can release cash from a previously illiquid asset – an aircraft that you own – to provide funds that you can use elsewhere.

      Why should I finance an aircraft?

      If you’re buying or leasing a new or used airplane, aircraft financing has significant advantages over paying with cash:

      • Reduce pressure on liquidity – pay the initial down payment on the aircraft and then spread the balance over many years.
      • Buy or lease a better aircraft than you may obtain with cash – spreading the cost over time can make the transaction more affordable and may let you buy or lease a more expensive aircraft. 
      • Affordable financing – aircraft values tend to depreciate very slowly. This typically translates into attractive pricing on fixed rate and variable-rate loans.

      Alternatively, if you already own an airplane, aircraft financing can release the equity that’s tied up in the vehicle:

      • Maintain your investment strategy – unlock the equity in your existing aircraft to generate cash instead of selling or borrowing against other assets you own – such as stock, bonds or property.

      What is the best way to finance an aircraft?

      If you’re not paying for the airplane with cash, there are three ways to finance your aircraft. Choosing which is best for you depends on your long-term goal for the aircraft and your financial situation.

      • Purchase the aircraft with a repayment loan

      The most common form of airplane financing, an aircraft repayment loan works similar to an auto loan – you provide a down payment against the aircraft and then pay the balance over time. Interest and fees are charged on the borrowed sum. This type of financing can be best if you wish to own the aircraft at the end of the loan period. 

      • Use the aircraft with an operating lease

      Similar to many business equipment loans, an aircraft lease lets you use the airplane for the term of the contract, but depending on the type of lease you choose, you may never own the vehicle. When the contract ends, you have three options – buy the aircraft for a lump sum, give the aircraft back to the lender (lessor), or extend the existing lease – often for a lower monthly payment. The key benefit of leasing is that you are not amortizing the full value of the plane. This can significantly reduce your monthly repayments. You may also pay a smaller down payment than you would with a repayment loan. Leasing can work best for aircraft owners who simply want to use the airplane for the most economical cost and who have little interest in owning the aircraft in the future.

      • Purchase partnerships

      Sharing the cost can make buying or leasing an airplane more affordable. Aircraft partnerships are small groups of individuals (typically three or four persons), who agree to buy and operate the cost of the aircraft on a shared basis. As well as reducing costs per owner, a purchase partnership can let you buy a more expensive aircraft than if you were buying a plane on your own. Partnerships can work for both aircraft loans and leases.

      How many years can you finance an aircraft?

      Airplanes, helicopters, gyrocopters and gliders must be rigorously maintained, and according to strict Federal Aviation Authority (FAA) laws. This means aircraft are well cared for and can have long lives. As such, they are usually financed over long periods – typically 15 to 20 years. 

      What credit score do I need to buy an aircraft?

      Aircraft are classed as luxury purchases, so lenders tend to be more discretionary when providing finance. This means you will usually need a good personal credit score – +700 – to get an aircraft loan or lease.

      How to finance an aircraft

      Obtaining an aircraft loan or lease is no different to obtaining most other forms of business finance – preparation is key:

      Gather your paperwork

      Before applying for aircraft finance, gather the following documentation:

      • Personal financial statement – assets and liabilities
      • Last two years personal 1040 federal tax returns with all schedules
      • Aircraft specification sheet listing avionics & optional equipment
      • Recent bank/brokerage statements – at least six months
      • Two years business tax returns with interim P&L and balance sheet 
      • Business articles and certificate of incorporation
      • Copy of driver’s license or passport

      Get pre-approved for a loan

      It’s easier to shop for an airplane when you are already pre-approved for finance. This means a lender has given you a provisional ‘yes’ and will convert the pre-approval to full loan approval and funding upon sight of the airplane you select and the details of the transaction. Having finance to hand can give you better negotiating power when buying an aircraft – effectively giving you the same leverage as buying with cash.

      To obtain a pre-approval you’ll need to review different aircraft financing deals before settling on a lender. You can do this by approaching banks, credit unions and online lenders one by one, or you can use the services of a loan marketplace that will introduce you to a choice of aircraft financing deals from different lenders. Some marketplace platforms can also give you advice and help you with the application process. This can be especially useful for borrowers who have never taken out an aircraft loan before. 

      Negotiate the purchase and create a sales agreement

      Once you’ve found the airplane you want, you’ll need to agree the purchase details and create a sales agreement for the lender to review. The sales agreement must include these key elements:   

      • Who the buyer is
      • Who the seller is
      • The details of the aircraft
      • The purchase price

      Lenders will use the sales agreement to determine the actual financing they will provide, (which may be different to the sum offered in your pre-approval), calculate the down payment you can afford, and finalize the terms of the agreement.    

      The most important element in deciding the financing you ultimately receive revolves around the aircraft’s valuation. While the true value of an aircraft rests  on the agreement between the buyer, seller and lender, having a valuation serves as a good benchmark for estimating the general retail worth of the vehicle. A valuation will review a range of factors, such as the model’s availability, its damage history, maintenance records and refurbishments and upgrades. Hiring a professional aircraft valuation service can help determine an accurate valuation for the aircraft you are considering.  

      Get insurance

      Lenders will typically insist on insurance as part of the financing arrangement. You’ll need both motion and not-in-motion coverage to fully protect the aircraft in all ‘on-ground’ and ‘in-flight’ scenarios.    

      The closing

      To close the transaction and make the aircraft yours, most lenders will use a title and escrow service.     

      The title company will conduct a comprehensive title search on the aircraft, verifying there are no encumbrances or title discrepancies. This ensures the lender maintains a first lien over the aircraft. The title company can also navigate the complex and often challenging FAA paperwork process to ensure the documentation meets agency standards. 

      The escrow service assumes the important role of transferring funds for the purchase, acting as an impartial intermediary and benefiting both buyer and seller. 

      During closing, make sure you have all the major aircraft documentation:

      • Aircraft log book
      • Maintenance records
      • Annual inspection records

      Lender and broker fees, legal fees, inspection costs, title search fees and any other closing costs are usually added to the final purchase agreement during this stage of the transaction.

      Get started with Swoop

      Buying an airplane isn’t something you do every day, so getting the best financing deal at the best price  is crucial. No matter if you’re seeking your first aircraft loan or you’re a seasoned borrower, working with aircraft finance experts can make all the difference when applying for funding. Contact Swoop to discuss your borrowing needs, get help with your application and to compare high-quality aircraft financing deals from a choice of lenders. Get the aircraft loan you need without all the turbulence. Register with Swoop today.

      Written by

      Chris Godfrey

      Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Wells Fargo Bank, Visa, Experian, Ebay, Flywire, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of US consumer and business finance.

      Swoop promise

      At Swoop we want to make it easy for SMEs to understand the sometimes overwhelming world of business finance and insurance. Our goal is simple – to distill complex topics, unravel jargon, offer transparent and impartial information, and empower businesses to make smart financial decisions with confidence.

      Find out more about Swoop’s editorial principles by reading our editorial policy.

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