It is common for aircraft buyers to seek out financing for their aircraft purchase. If you choose to go this route, the number one piece of advice we can give you is to talk to your financier before you start your aircraft search. Your financier will want to do two things:
- Ensure that you are financially capable of repaying the loan. This credit process can take some time so you should do this first. Timing will vary but it is usually longer for new clients the financial institution is unfamiliar with.
- Make sure they are happy with the aircraft you are interested in purchasing. In effect, your financier will actually be the buyer of your aircraft, so they will want to confirm the aircraft meets certain standards and criteria for them to lend against it.
Your bank will want to see the aircraft they are lending against and this usually involves sending out a technical auditor to see the asset, review the records, and ensure it is in compliance with their internal standards. These reviews have become much more detailed since 2007. Pre-2007 saw lenders lending against assets that they didn’t fully review nor complete due diligence on, and there were significant financial consequences after the financial crash. Planning for these auditors to come see the aircraft can take time. They are hired and chosen by the bank and are usually from an outside company. This means you will have to work with their schedule as to when they can come and see the asset.
Your financier will also want to review the Purchase Agreement before you sign it to make sure they agree with what is being signed. They will want to run KYC checks on the parties involved in the contract (more on this at: Why You Are Being Asked to Provide KYC Documents). Furthermore, it is common to have to plan your closing call around your bank’s availability.
Because banks are large institutions, these tasks can take weeks. With the contract, they usually have to send it to their counsel for their review which adds time. We’ve seen KYC checks take two weeks and auditor reviews up to 4 days. Lenders add another layer that can add time to your transaction. However, each financial institution is different and some can be very fast in turnaround and will not require as much time as others, but be aware that some can take weeks and require extensive involvement in the transaction process.
While the above is mainly targeted towards a buyer who is seeking lending, a seller who has a loan on their aircraft will also have certain considerations when they are selling their aircraft. If you have a loan against your aircraft, your bank will usually choose to review your contract to make sure they are comfortable with what it contains and in what manner your closing procedures line out how the mortgage gets released. Each institution is different and some only release the mortgage when funds hit their account (which can add a level of complication), and some will release it on the word of the escrow agent. And here again, your bank will most likely want to run KYC on the buyer.
The bottom line is to bring in your lender as soon as you possibly can if you are planning on getting financing and give everything an extra cushion of time. Your lender needs to be comfortable and aware of everything that is happening. The quicker they are brought in, the easier it can be for everyone.
Blogs are written from real world experience by Colibri Aircraft’s individuals. If you have any questions or comments about the topic of this blog, please feel free to contact us at email@example.com