
Most people don’t have the kind of disposable income that would allow them to pay cash for a plane. And those who do are savvy enough to know that you rarely want to use your own money to make large investments like real estate, office space, or even private jets.
However, Honeywell reports that the average cost of a private jet is $90 million, making it clear why most buyers would need jet finance to get their dream aircraft anyway.
Keep reading to learn more about jet financing, your alternatives, how to pick the right financing options, and how to apply for a loan.
How Jet Financing Works: a brief overview
Are you ready to experience new heights of luxury, comfort, and efficiency?
Financing a jet may seem impossible to some, but with the right lender, you can make your dreams of flight a reality…even if you’re on a budget.
When buying a jet, whether new or old, you’ll likely need to borrow a substantial amount of money (from $100k on up to millions of dollars). Given the amount of capital needed, you may find it challenging to get jet financing.
That said, there are some strategies and avenues to pursue to increase the chances of approval, and to get better terms on the loan. For example, a lender that you already have a connection with, and who is acquainted with your financial condition, might be useful when borrowing such a large sum of money.
Similarly, it might be possible to get a lower-interest personal loan if you have something to put up as security. Loans for the acquisition of private planes are available from a wide range of financial institutions that focus on this niche market, but keep in mind that it’s not uncommon to require a minimum down payment of 15% to 20% when financing a private aircraft.
Three Primary Options for Paying for a Private Jet
These three forms of credit are the most common while shopping for jet financing:
1. Conventional Loan
Conventional loans, which are similar to personal loans used for assets such as automobiles and boats, may have either a fixed or variable interest rate. It is possible to get jet financing with a hybrid interest rate that allows you to lock in your rate, reap the benefits of early payback, and shield yourself from future interest rate hikes.
The amortization period for a loan for a private jet might be as long as 240 months, with durations ranging from 30 to 120 months. Remember that the interest rate you pay will likely increase in proportion to the length of the period you choose.
2. Secured Loan
To qualify for an asset-based loan for a jet, you won’t need to submit your tax returns or K-1s from the last several years. For business jet purchases, secured loans have the advantage of requiring little or no personal guarantees, with the financing instead being ‘secured’ by another asset. To further clarify, if you fail on an asset-based loan, the lender may take back the plane (and/or other secured assets) but cannot prosecute you for the remaining loan balance.
3. Lease an Aircraft
Many companies who need a jet for business purposes find that leasing is a more affordable choice than purchasing. The only way to know for sure is to crunch the numbers, but in the end, leasing may be a better option than purchasing, although each could offer distinctive tax advantages that should be weighed with your accountant.
There are essentially two categories of private jet leases:
1. For tax reasons, the lessee (you) retains ownership of the aircraft even if the lease is non-tax. This is especially useful if the jet’s value declines throughout the lease term.
2. In a tax lease arrangement, the private jet owner (the lessor) retains ownership of the plane and is entitled to the tax deductions associated with its depreciation. To that end, you might negotiate a lower rate of interest.
Finding Money for a Jet: where to start
When it comes to financing a private jet, you have a few choices. Although it’s not necessary, many jet buyers begin their search with a financial institution with which they are already familiar.
Traditional Banks
For jet financing, traditional banks are a fantastic place to start since they already have a comprehensive portfolio of your financial information, and probably a good working relationship with you.
Banks with Aircraft Finance Groups
Although not all financial institutions provide jet financing, your bank may be able to put you in contact with a partner institution that has a specialized aviation finance group invested in private jet financing.
Private Lending Groups
Organizations that specialize in private lending use stock markets to fund the expansion of their loan portfolios and the provision of aircraft financing. Although this is a less common route to take, it may be the best choice if you don’t want to deal with your main bank or if they don’t provide jet financing.
Finding a Reputable Lender for Private Jet Funding
Getting Approved for Jet Financing
Getting approved for jet financing, be it a secured or unsecured loan, or through a personal lender, is not much different from getting approved for other sorts of financing. You’ll need to meet various lender requirements surrounding a down payment, your credit score, your job history, and income. Lenders may also need you to give tax records, financials, and information about your personal net worth, in addition to showing evidence of cash for future payments in the form of accessible liquid assets.
Finding the Right Financing for Your Private Jet
Consider these questions when you search for a lender to provide jet financing…
Have you worked with this lender before?
It may be simpler to get financing from a lender with whom you are already familiar, yet this doesn’t mean they will automatically provide you with the best rates or terms. Even so, this is often the path of least resistance.
Can you get answers to your questions about whether or not the lender understands FAA regulations?
You should choose a lender that is well-versed with the latest FAA rules and requirements.
Is aviation finance an area of expertise for the lender?
The National Business Aviation Association (NBAA), the International Aircraft Dealers Association (IADA), and the National Aircraft Finance Association (NAFA) are just a few examples of important trade associations that can validate a lender’s legitimacy; while membership is not required, it can be helpful.
How to Get Private Jet Financing: final thoughts
The process for obtaining financing for a private jet is much like that of any other asset. You can expect to jump through the same types of hoops that you would for a boat or car, along with the red tape that follows.
That said, a private jet can be a considerable asset to you both personally and professionally, and may bring with it several tax advantages to consider.