These days, it can be tough to obtain a loan for any major purchase — whether you’re buying a home, a business, or a private jet.
But, according to the AIReport by Conklin & de Decker, the money to buy private jets is available. But these days, qualifying for one is like getting into an Ivy League school.
Although banks are pickier today about the terms of the loans they provide for private jets, those in the market for such a purchase have a better chance of obtaining financing if they are qualified.
The AIReport says financing isn’t available for “crazy aircraft deals:”
- deals requiring 100-percent financing
- no-interest loans with big balloon payments
- deals in which the lender will take the borrower’s word that he or she is “good for it”
- loans for aircraft that will exceed 20 years of age by the time the loan is paid back
According to AIReport, to qualify for financing to purchase a private jet, you need three qualities:
- Credit: You need to be able to prove you have the finances to buy and operate the aircraft through an examination of assets and liabilities — and that you have sufficient income to cover the deal.
- Character: Not only do you need a stable, well-run company, but you and your shareholders should have “reliable, dependable, salt-of-the-earth character.” If you have a good, long-term relationship with a particular financial institution, that’s your first stop in shopping for a loan.
- Collateral: You’ll need a 20-percent down payment on a new business jet and sufficient cash or cash-equivalent to secure a loan for the aircraft. The older the aircraft, the bigger the down payment — as much as 50 percent down for a 10- to 15-year-old jet.
BJTonline reports that lenders are considering their own previous experience with potential borrowers, such as:
- whether the borrowers over-extended themselves in the past or missed payments on other credit facilities
- the changes that have occurred in the borrowers’ financial position over the life of the relationship
- whether the borrowers have another aircraft they will try to sell after taking delivery of the new jet, their ability to bear the financial burden of two airplanes and whether they have credit exposure on the first jet
Where you should look for financing to purchase a private jet depends on the relationship with your current lending institution. Although being an existing customer may move the approval process along, having done too much business with the bank — resulting in too much credit exposure — could kill the deal as well.
You are less likely to have an existing credit relationship with a “non-bank aircraft financial institution” unless you already own an aircraft, and such an institution won’t require a deposit or previous relationship to do the deal, according to BJTonline.
The question of whether you’re in need of specialized financing, such as non-recourse financing, may narrow your lending institution options, as many banks will turn those deals away, BJTonline reports. Non-recourse financing will probably require a hefty down payment to the institution making it, but the interest rate may be low enough to make such financing appealing. Regardless of your financing needs, obtain proposals from several institutions and seek advice from a consultant who knows the business inside and out.
You will also find that obtaining financing is a longer process than the few days it once took. These days, according to BJTonline, it may take a month or longer, so plan ahead and don’t wait until the last minute to seek financing.
Rates are lower for short-term deals, so more aircraft buyers are seeking loan financing in the three- to five-year range, BJTonline reports.
Finding a loan to buy a private or business jet may not be as simple as it once was, but it is not impossible if you do your homework and are a buyer whose business and financial relationships are in good standing.