Part Two: Financing My New Toy

by ANN Associate Editor Annette Kurman

While yesterday I went on in this space about choosing my plane and listening to advice from Falcon Insurance Vice President Bob Mackey, today I am looking at how I go about actually securing the financing I need. 

As Aviation Insurance Resources (AIR) reminds all of us who have cars and homes, the US general aviation marketplace is unique because it is small.

Consider this: According to the General Aviation Manufacturers Association, there more than 211,000 general aviation aircraft in the US. There are 10 insurance companies, and literally hundreds of aviation insurance agents... many of whom use aviation as a sideline to their primary insurance offerings.

As Aero-News reported last April, AirFleet Capital and EAA partnered to offer members a comprehensive aircraft-loan program that would bring aircraft ownership within reach of those of us who don’t have an extra $100,000 in our wallets.

According to EAA President Tom Poberezny, “This revolutionary new member benefit can substantially reduce EAA members’ concerns about aircraft affordability and payment options -- the two factors that most commonly deter people who love aviation from their ambition to fly their own airplane (You got that right, Tom!) ... By providing highly competitive rates and terms for the purchase of a variety of aircraft, this benefit perfectly aligns with our mission.”

And the new LSA market, in particular? "Coupling the lower cost of light-sport aircraft,” said Poberezny, “with the financing terms under this new benefit opens up exciting opportunities for prospective buyers who previously thought they were priced out of the market for a new airplane."

My mother didn’t raise no fool, so off I trotted to the EAA tent and up to the intern who was available to speak with me, as the “official” AirFleet Capital representative was talking with someone else. (Hopefully someone who was actually going to purchase a plane in the very near future.)

What I found, answering her questions, is that the best rates no doubt go to those who already hold certifications and not the new kid (me) currently learning to fly for the first time. That makes a lot of sense, but will probably pinch me more in the pocketbook than the private pilot stepping into sport aviation.

After all, who is more apt to experience an incident --- me, or the 50-year-old private pilot with 30 years experience? (Sort of reminded me of car insurance and the young, inexperienced driver versus someone who has been driving for 30 years, like me. Who’s the better risk? No, it’s me!)

What my intern offered me for a new $90,000 LSA (granted, this was without any financial paperwork on my part and just an estimate) was a 15-year fixed “mortgage” (Okay, it’s really a loan) at 8.1 percent interest, and 20 percent down. With swift calculator fingers, she told me monthly payments would be $692.23, somewhere between a car and house payment, I figured.

Typical term periods can range anywhere from five to 20 years. You can choose fixed or adjustable rates, full payout or balloon payments; one’s rate is based on numerous factors, including that bane of credit card holders everywhere, the personal credit rating, or beacon score.

To comply with the Patriot Act in today’s world, federal law also requires all financial institutions to obtain, verify, and record information that identifies me. So be prepared to share your name, address, date of birth, and other information, as well as a photo ID like a passport or US driver’s license.

Downloading and reading the loan application reminded me a bit of my home mortgage application -- but at only three pages, is much, much easier to understand and complete. Yes, they want my financial and credit information, my personal financial statement with assets and liabilities, my marketable securities, and any real estate I (and the bank) own.

And because its in the best interest of a finance company to confirm what I claim, they request verification of my liquid assets; the last two years’ signed Federal income tax returns, including schedules, W2s, K-1s (Whatever those are); a payroll stub (Yes, I am employed); and an aircraft spec sheet. And this is just for individual ownership. Privately held corporations, partnerships, and LLC’s require additional business information.

A pleasant surprise is that AirFleet usually gives approval to uncomplicated applications within one business day. And, amazingly, closing takes but two business days -- one day to prepare and overnight documents to me and one day for me to sign and return said documents. And all for a closing cost of $395. (How much were your mortgage’s closing costs?)

J. Jeff Graber of Alexander Aviation Associates offers this advice when evaluating an aviation insurance agency:

• Ask about your agency’s history of uncovered losses and proof of E&O (Errors and Omissions) insurance coverage (for businesses). Avoid the agent who has a poor record, recent unpaid losses, or refuses to cooperate with these requests.
• Carefully read and review what is covered by your insurance policy. Confirm they are complete and accurate, with correct registration numbers and addresses.
• Request coverage changes in writing, obtain written confirmation of coverage changes, and expect and endorsement from the underwriting company to arrive shortly. If any part of this process is interrupted, immediately follow up with your agent.

Alexander Aviation Associates sums it up well for those of us entering sport aviation: “Today it falls to LSA pilots and related businesses to maintain a good safety record to keep insurance costs down and prevent addition restriction from the FAA. Insurance will continue to be a major factor in the success of light sport aviation, and the long-term availability and affordability of that insurance relies on a positive safety record.”

FMI: www.aigaviation.com, www.aerospaceim.com, www.airfleetcapital.com