#2. I am considering buying a pre-owned aircraft
because values appear so attractive, but I’ve heard that it’s very hard to borrow money now. What are the current standards for getting an aircraft loan, and what can I do to improve my chances of being approved? You pose your question at an interesting time because it brings up another of those good news / bad news scenarios. Let’s begin with the bad news. The Winter 2009 copy of the Aircraft Bluebook Digest has just been mailed at the time of this writing. For most models it shows no price change from the previous quarter or modest increases for some models. As the Bluebook information is always dated by a couple of months, we’ll add our own anecdotal evidence to suggest that the market has bottomed out or may indeed be recovering. This may indicate you have missed the bottom. The good news is the credit market is showing signs of recovery along with the aircraft market. Last year, when the value of pre-owned aircraft was declining faster than a Cirrus after chute deployment, many bankers were unwilling to lend to any but their best current customers, as they were fearful of borrowers defaulting. As the markets have stabilized we now have bankers and brokers calling looking for new business. Reputable lenders are careful and may require more “skin in the game” than they would have in the pre-recession era. 15 – 20% down may be considered the new normal. Additionally, the lender may require the two most recent tax returns with all attached schedules to help ascertain the borrower’s ability to repay. Lenders start with some underwriting guidelines providing for a minimum income-to-loan service ratio. It is fair to ask the lender up front
| ask THE EXPERTS
as to what their ratio is, just as you would ask for their interest rate, closing fees, etc. Let’s assume a ratio of 125% of your structured debt service including the payment on your new aircraft loan. Let’s further assume your monthly after tax income is $5,000, and you have a home mortgage payment of $1,000 and two $500 car loans with little credit card debt. You could afford a $2000 per month aircraft payment from an underwriting standpoint to borrow approximately $225,000. In short, talk with your proposed lender(s) before you submit your application to determine their underwriting standards, be prepared to pony up the down payment and any sales or use tax charged by your state, arrange to support your financial statement with two years income tax returns and start the process at least three weeks in advance of your anticipated closing to assure adequate time to complete the process.
Reputable lenders are careful and may require more “skin in the game” than they would have in the pre-recession era. 15 – 20% down may be considered the new normal.
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