Airplane

Airplane financing is available for individuals or businesses that cannot or choose not to purchase an aircraft outright.
Applying for aircraft financing is similar to applying for a home loan. The lender will have the borrower submit information about the aircraft. That will include the make, model, year, registration and purchase price.

The lender also will have the borrower submit personal financial information. If the aircraft is being purchased by a corporation or limited liability company, copies of organizational documents will be necessary. If there are personal or corporate guaranties, financial and organizational documentation will be required for each guarantor.

The lender may require an appraisal of the aircraft, especially if the lender is a bank. A non-bank finance company may not require an appraisal for a small, single-engine or twin-engine aircraft. Such an aircraft lender knows the market value of those aircraft.

The lender will obtain an aircraft title search to confirm ownership and find out if any security interests or liens are recorded. The title company will search the FAA Registry in Oklahoma City, Oklahoma. If the aircraft is covered by the Cape Town Convention, the international registry in Ireland will be searched as well.
The title company will issue a title report to the lender. The lender will perform name and judgment searches to be sure the seller can convey clear title to the airplane.

Usually the lender will purchase a title insurance policy. Should any title issues come up after the closing, the title insurer will protect the lender's interest.

The standard loan documents are a promissory note, an aircraft security agreement, and a guaranty.
A promissory note states the loan terms and the borrower's promise to pay. In addition, it gives remedies to the lender if the borrower defaults on the airplane loan.

An aircraft security agreement is a pledge of the aircraft as security for the promissory note. If the borrower does not pay, the lender may repossess the aircraft. The lender then can sell the aircraft to recover the loan balance that is outstanding. If the aircraft is sold for more than is owed, the borrower receives any surplus after deduction of the lender’s costs.
A guaranty requires a guarantor to pay the loan if the borrower does not pay.

Most times, the title company or the lender will handle the closing. Sometimes an aviation attorney will handle the closing for the lender.

Usually the borrower pays the lender’s costs and recording and registration fees. That is negotiable.

Like home loans, aircraft loans usually are available for credit-worthy borrowers. There are lots of aircraft finance companies. During times of tight credit or a credit crunch, however, airplane financing also feels the pinch.