Copyright (c) 2011 Avion Lending
The wrong financing on an airplane can come back to bite you in the future. Generally airplanes depreciate faster than their loan balances decline via ordinary monthly payments.
If you purchase a late model or new airplane, chances are your lender will ask for a personal guarantee. If you need to sell in the first 5 years you could be in for a nasty surprise. There is a good chance you will be upside down, owing more that you can hope to sell your aircraft for!
Setting up the right financing ahead of time can eliminate this risk all together.
Your sales person generally wont tell you about what I am about to reveal, because, even among industry ‘professionals’ little is known about non-recourse aircraft loans.
There are very few sources for this product, but it is definitely available, and available at rates comparable to those where the lender asks for a personal guarantee.
What a non recourse airplane loan does for you is provide you with the financing you need without the personal guarantee.
So, whats the catch?
Generally, money sources require a larger down-payment (25-30%) and the underlying asset (the airplane you are planning to purchase or cash-out refinance) must be strong and the loans carry a pre-payment penalty of up to 3 years (although this can be negitiated out).
This financing is available on airplanes newer than 20 years without any deferred maintenance and an impeccable/verifiable maintenance history.
The lender conducts a market appraisal and based the loan amount on that value.
These loans are generally only available on turbine powered airplanes and helicopters. minimum loan amounts are generally $1,000,000. Programs extend up to $30,000,000.
If you are looking for a way to procure an airplane without pledging your personal or corporate assets, non recourse airplane financing is one of the best solutions. With the uncertainties inherrent in today’s economic climate, coupled with lenders being nervous these loans are the only option for many buyers.
Some other guidelines lenders look for in providing these loans are:
Age of aircraft
Down payment percentage
Legal and business background on principal
Limited charter activity on proposed aircraft
Fly a maximum of 300/350 hours/year
Currently on engine reserve program
Primarily operate/base the aircraft in the United States
Non-recourse aircraft loan closing costs are generally similar to those of their full recourse cousins with the exception of a 1% loan origination fee. Generally you can expect to pay about 2% of your loan amount in total fees (including origination).
If you are considering the purchase of an aircraft, you owe it to yourself to look into non-recourse aircraft financing. Compare the pros and cons of each type of financing and I think you will find that if you can get over the relatively high sown-payment, there is really no other way to finance an aircraft.
-Dan Morton is an experienced loan consultant currently working for Avion Lending. Dan specializes in procuring non-recourse aircraft financing (financing without persnal guarantees from borrowers). To see if this is the right financing for you, contact Dan at http://www.avionfinance.com