Owner Financing for Airplanes: A Viable Option?

Dreaming of owning your own airplane but struggling to secure traditional financing? Owner financing, also known as seller financing, could be a potential pathway to the skies. This arrangement bypasses traditional lenders like banks and credit unions, instead relying on the current owner of the aircraft to act as the financier.

The basic premise is simple: you, the buyer, agree to a payment plan with the seller, including a down payment, interest rate, and repayment schedule. The seller retains ownership of the airplane until the loan is fully repaid, acting as a lienholder much like a bank would. Once the final payment is made, ownership is transferred to you.

Advantages of Owner Financing:

• Easier Qualification: Owner financing often has less stringent qualification requirements than traditional loans. Sellers may be more willing to consider factors beyond credit score, such as your experience and intended use of the aircraft. This is particularly helpful for buyers with limited credit history or those purchasing older or less common aircraft.
• Faster Closing: The approval process is typically much faster since it eliminates the lengthy underwriting process associated with banks. This can be a significant advantage in a competitive market.
• Negotiated Terms: You have the opportunity to negotiate the terms of the financing directly with the seller. This could include a lower interest rate, a more flexible repayment schedule, or a smaller down payment.
• Potential for Tax Benefits for the Seller: The seller might benefit from spreading out the capital gains tax liability over the duration of the loan.

Disadvantages and Considerations:

• Higher Interest Rates: While negotiable, interest rates on owner-financed airplanes may be higher than those offered by traditional lenders. Sellers take on more risk by financing the purchase themselves and often compensate for this risk with a higher rate.
• Due on Sale Clause: Be aware that the seller might have a prior lien on the aircraft which contains a due on sale clause. You would need to satisfy this lien by either arranging your own independent financing or having the seller satisfy the existing lien.
• Seller’s Financial Stability: The stability of the seller becomes important. Should the seller experience financial difficulties, it could impact the loan agreement or even the ownership title to the aircraft. Perform thorough due diligence on the seller’s background and financial standing.
• Importance of a Thorough Agreement: A legally sound and comprehensive agreement is crucial. This document should clearly outline all terms of the financing, including the interest rate, repayment schedule, insurance requirements, maintenance responsibilities, and procedures in case of default. It’s essential to have the agreement reviewed by an aviation attorney.
• Appraisal: An independent aircraft appraisal is still highly recommended to ensure you are paying a fair market price for the airplane.

Owner financing can be a valuable tool for aspiring airplane owners, particularly those who might not qualify for traditional loans. However, it’s crucial to proceed with caution, conduct thorough due diligence, and engage with experienced aviation professionals to ensure a smooth and secure transaction. This can include an aviation attorney, an aircraft appraiser, and a qualified mechanic for a pre-purchase inspection.