This might be mainly US centric, but the same principles I assume apply worldwide. A few years back (OK, last year.. 
) I checked what it would take to finance a later turborprop model, just for the fun of it.
I spoke to the main players in the field: Dorr, Air1st, AOPA and a few others when I was inquiring. Dorr was the most responsive, but after awhile it was clear that most aircraft lenders you see in the US are only brokers – so is Dorr. Very few of them actually carry your loan. They’re selling them on as soon as they’re approved, and therefore they need to be conforming loans. So the only thing you’re going to get out of brokers are vanilla loans. What I mean by that is they’ll look at your tax return and cash flow and that’s it. They don’t care if you own real estate outright, if you are multimillionaire in assets, if you have stocks, if you own an aircraft previously, care very little if your company is profitable etc – they only care about your personal tax return. And you will have to personally guarantee the loan, even if your corp or trust buys the plane (fair enough).
If you want someone to see the bigger picture, or take other assets into account, you need to find a bank that actually carries the loan themselves. Maybe your local bank or credit union if they’re aviation friendly.
Again, just an exercise in calculation: to be able to fit a $800K (let’s say with 20% down) plane on your tax return (which is the garden variety new Cirrus or used Meridian) with a debt-to-income ratio of max 40% (which is where they max out), you’re looking at an income of about $200K if you have no other loans whatsoever. Most of us have a house payment and a car payment on top of that, so in reality are looking at $400-500K/year on your tax return. I don’t know about other self employed people, but very few people I know pull that kind of money out on paper, even the really successful ones. The ones I know find ways to keep that in the company and not tax it all away.
Maybe the bigger corporations have access to capital etc that I don’t know about (I doubt the board members of Apple have to personally guarantee their Gulfstream loan, or show a better than 40% debt-to-income ratio..). All the lenders I spoke to want max 40% DTI ratio and you to personally guarantee the loan (even if your corporation buys the plane). Feels to me that if you can pull out $500K on paper on your tax return, you can probably also afford to save the cash one year in the company and pay $800K and own outright. So not sure who these airplane loans are made for or who actually gets them…
Wouldn’t a lease-to-buy be the normal way to go in such a case? Could be better taxwise, too.
AdamFrisch wrote:
you’re looking at an income of about $200K if you have no other loans whatsoever. Most of us have a house payment and a car payment on top of that
I think if you’re on an income of $200K+ and have a car loan, you’re probably either in special circumstances (live somewhere absurdly expensive) or are doing it wrong.
I drive a 45 year old car, finance free, however for new cars a 0% loan may actually secure the best purchase price. The car salesman incentives may be skewed in a way where you get a better discount with finance, than without. In theory there should be a solution where the net present value is equal, but in the mystery of new car economics it doesn’t always work that way.
Too bad the GA industry never offers 0% loans…
For me personally the capital cost of airplane ownership is way more prohibitively expensive than the running costs, despite discussions on EuroGA often focusing on the running cost and more or less ignoring the capital cost of aircraft ownership.
Generally I’d never finance an aircraft with loans (unless, as mentioned, the kind of 0% loans you can get for cars), because an aircraft is not an investment like a house, which is the only thing I would want to finance at all (once again due to the prohibitively expensive capital cost of around 500k€ minimum for a suitable family home in my area)
That is economically unreasonable. Why would zero make such a difference?
Your quoted arguments about a loan for a plane hold just as well at 0%
The question would rather be what do you do with the money that you free up with the loan and is that more attractive for you (investment)…
Given how much you may have to shell out at short notice if something breaks or an annual has some findings, i still see the initial amount has easier – because that one is planned and timed ;-)
I don’t know about the US, but I think you’d be better off taking out the loan on the property and providing it to the company for it to buy the plane. Not that I would want to finance a plane either, just like MedEwok.
Lease-to-buy and even 0% interest loans affect the debt-to-income ratio just as much. This is what the banks look at – not the interest. You’ll be struggling to get any lender to lend you anymore than 40%, maybe 45%.
And Cirrus has sold how many planes? 4-5000? All these owners can’t be millionaires that pay cash. So they must finance them. Like I said, to finance a Cirrus and have a mortgage for a home and a new car, you’ll need $500K/year in taxable income. I guess I’m just surprised there are that many people that can do that…
It’s an interesting Q.
I don’t know much about the US culture in this area but from the “feel” I have got over the last 18 years that I have been in this game I don’t think a big % of US GA SEP owners got a loan. Maybe 10-20%.
Some for sure did, and these people get really pi$$ed off when somebody suggests a given plane is worth $X. I got a taste of this in the Socata owners group 
I really do think most new SR22 buyers do pay cash. I know one guy who buys a new one every 2 years and I am sure (circumstantially – I have had dealings with him ) he pays cash. Also, going over to the Cirrus Jet thread where their launch customer owned ~7 (seven!) SR22s before the jet, buying ~ 1 a year, I don’t think he got a loan either.
Loans don’t give you anything if you buy a new SEP every year or two. The cost of the depreciation will be massive and clearly these people don’t give a damn. They don’t need to borrow money.
I also don’t think SR22 owners are “millionaires” in the sense of having $10M to play with. If they had they would not buy an SR22 – (or any other SEP) for reasons which remind me of Jeremy Clarkson’s test of a Maserati, when he commented that the only difference between it and a washing machine is that the Maserati goes a lot faster. They (being mostly in the USA) would buy a turboprop, which – as anyone who has ever flown in one will know – outclasses a SEP by an absolutely massive margin in every department. A real millionaire will buy something like this. I think the $1M SR22 buyers have actually got only maybe $2M to play with, or they are people who can’t or don’t want to do the extra training.
I think you’re right, Peter. I think a very little percentage of personal GA aircrafts are financed. It will be interesting to see how this will work with the new Cirrus Jet. Will these people who paid $1million in cash for an SR22 find another couple of millions to pay for a jet? Only time will tell. Certainly their pre-orders seem to suggest they will.
Personally, what I struggle with, is if you do have $1 million sitting in your bank account, then why would you go for an SR22 when you could have a few year old TBM or Meridian instead? This is very perplexing to me. But I’m glad for Cirrus that my thinking is in the minority.
