Questions to help you find the right lender for your business aviation financing needs
One of the reasons business aircraft finance is popular with buyers is that it allows corporations to acquire the aircraft without tying up cash that could generate a better return of investment elsewhere.
If you are considering financing an aircraft purchase, however, it is important to remember that not all financing companies are created equal. Some lenders specialize in the aviation field, while others are more generalist, and are less experienced in offering aircraft finance.
Different Business Aviation finance providers tailor their packages for different types of borrowers, meaning that buyers in the market for financing will need to identify potential lenders who are more flexible to tailor deals to their needs.
Some of the questions that will help filter through the prospective lenders might include:
- What type of business aircraft are you planning to buy?
- If shopping from the pre-owned market, how old will the aircraft be?
- Where will the aircraft be based when it’s placed in operation?
- How long would the preferred term of the loan be?
- How risk-averse are you to aircraft value deterioration?
Let’s take a closer look at each point…
What Type of Aircraft are you Planning to Buy?
Certain lenders specialize in specific aircraft categories and types more than other. When you’re seeking a lender to provide financing for an aircraft, it’s important to ensure they are happy and experienced providing financing for the type of aircraft you are hoping to buy.
How Old Will the Aircraft Be?
Most lenders are willing to finance the acquisition of newer aircraft (particularly those aged between 0 and 5 years). As the aircraft’s age increases, the pool of lenders willing to offer finance becomes smaller.
Moreover, you may find that while some are willing to provide financing for older aircraft, the length of the loan is shorter, meaning higher monthly payments. Explore all of the options.
How Long is Your Preferred Loan Term?
As mentioned above, while the length of the loan will be partly determined by an aircraft’s age (the older the aircraft is, the shorter the term of the loan is likely to be), some lenders will be more prepared to offer longer loan terms than others, generally.
If you are seeking financing over a longer than usual loan term, you will again be shopping a smaller pool of more specialized lenders.
Where Will the Aircraft be Based When it is Operational?
It can be a good idea to work with a lender located in the same region as the aircraft you’re planning to buy will eventually be based. The lender will be familiar with the region and structure a deal based on their knowledge of the risks of basing and operating an aircraft there.
Moreover, lenders will be more willing to provide financing for aircraft they can more easily repossess if, for any reason, you are unable to honor the terms of the loan.
How Risk-Averse are you to Value Deterioration?
Aircraft values invariably deteriorate – they are essentially depreciating assets. Some aircraft owners more concerned by this than others.
For would-be owners and operators who would prefer to enjoy the benefits of aircraft ownership without the worry of how and when to dispose of it, a lease arrangement could be preferable. With a lease, operators may exclusively access the aircraft as lessee for the length of the agreement, though the aircraft is ultimately owned by the lessor.
The lessor will determine how the aircraft is to be maintained, and possibly where it can fly since they are ultimately the ones who are exposed to the impact on the aircraft’s value. At the end of the lease term, though, the lessee simply hands the aircraft back to the lessor with no concern for the ultimate resale of the aircraft, or the impact of depreciation on its value.
There will be other questions to consider when choosing the right finance lender for your next business aviation acquisition, but the above should illustrate that not all lenders and offers of financing will be the best fit for all borrowers. The importance of considering the right questions to find a lender and a loan that fit your needs best cannot be overstated.