Getting financing for a jet is not as easy as one would think. It is often a time consuming process with many requirements.
The number one obstacle that a lender faces is KYC. The financial institution has to be confident on where the funds are coming from and require quite a few documents to prove it. Many people do not want banks knowing their entire personal financial situation or do not want the hassle of having to provide the copious amounts of documents that some banks require. The process can be quite in depth and intrusive, often requiring details on share structure and profits, different entity details and information on original funding. (see article: Why You are Being Asked to Provide KYC Documents)
European banks almost always require KYC when lending, while American banks are not quite as strict on their standards at this time. Performing a KYC check can take a long time and a lot of customers do not appreciate the scrutiny or hassle that is required.
Another obstacle to financing an aircraft is the guaranty. Most customers want a corporate guaranty, but banks often want personal ones. This can create a problem for some people and can put a pause on any financing that was taking place.
The third obstacle we often see has to do with jurisdiction. On the loan itself, a bank in one European country may not be able to fund in another country without significant due diligence to know their rights and remedies in the event of a default in that country. With regards to the asset itself, where the aircraft is registered matters as it is typically the country of registration that will dictate the laws that the lender must follow to repossess the asset in the event of default. Certain countries have a more “lender friendly” legal system as opposed to other more “debtor friendly” system. In addition, some countries do not recognize mortgages or liens, and instead only utilize lease structures for finance. These nuances in the legal system of each country can make a big difference to the ultimate comfort of a lender to provide funds, so the country of registration is a key requirements of any finance commitment.
The easiest way to go about funding is to have a relationship with your lender. If you have been a long term client and they know your current financial position, this can make financing easier and quicker as there is less financial due diligence to undertake.
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 enquiries@colibriaircraft.com
