Financing a Club Aircraft

December 17, 2015 - Whether you’re looking to start a flying club or expand a flying club’s fleet of aircraft, the process of funding the purchase, building, or restoring an aircraft can be a challenging process. This article will explain the process and pitfalls, enabling you to secure financing with greater ease.

To begin with, it wasn’t until NAFCO formed its relationship with EAA that any financier was willing to fund an aircraft for a flying club without a personal guarantor. EAA convinced NAFCO that established flying clubs run by EAA members offered an acceptable level of risk for a loan without the customary personal guarantor.

Now, a bit about NAFCO. NAFCO has been offering aircraft financing for individuals, flight schools, and flying clubs for more than 20 years, including for-profit and nonprofit clubs. EAA selected NAFCO to be the administrative agent for the EAA Finance Solutions benefits program in 2014. Since then, we’ve secured dozens of loans for EAA members on everything from scratch-built aircraft to kits to standard aircraft. We’ve also secured loans for avionics upgrades to comply with ADS-B requirements and engine overhauls.

In the course of making a particular loan for a flying club, underwriters will consider:

1. The year, make, model, and condition of the aircraft being financed

2. The expected usage of the aircraft

3. The club’s ability to repay

Factors that might cause a lender to refuse a loan on a particular aircraft include:

1. Missing logbooks

2. A high-time airframe (e.g., 10,000-plus hours)

3. An unairworthy aircraft or one having a significant/major damage history

Because an aircraft owned by a flying club is expected to be flown more frequently than a privately owned aircraft, the term (repayment time) of a loan to a flying club will be shorter than a loan made to an individual owner, the down payment required will be 30 percent versus 15 percent for an individual, and the interest rate on the loan will be around .5 percent higher. Such rules are in place to protect the lender from becoming “upside down” on the loan to value as a result of a faster rate of depreciation on a higher usage level for the aircraft.

EAA Finance Solutions has secured through NAFCO two options for guaranteeing flying club financing:

• Option 1: for clubs less than 3 years old, one or more individuals will need to be the personal guarantor of the loan
• Option 2: for clubs more than 3 years old, no personal guarantor is required 

NAFCO does write loans for experimental amateur-built (E-AB) kits and aircraft, within the following limitations:

1. There must be at least 25 examples of that model E-AB actively flying and listed on the aircraft registry in the United States

2. The model must be listed in the Aircraft Blue Book and/or VREF

3. The model must still be offered for sale in the United States

Exceptions to items one and two can be made when a kit is a new introduction from an established kit manufacturer and a comparable aircraft kit from that supplier that meets all three requirements can be identified.

In establishing the rates and term of the loan it will offer a club, a lender will evaluate: the flying club’s length of operation, its overall stability (how long have members been involved), and its corporate structure. A startup can expect a longer loan amortization, a personal guarantor or a credit enhancement (e.g., collateral), and higher rates.

Established clubs will be asked to provide documentation for the business finances, whereas startups will be required to provide document for the personal finance of the guarantors.

For more information on the financing options available to flying clubs, please go online to EAA.org/finance, or contact EAA Finance Solutions administered by NAFCO at 1.800.999.3712 or nafco@airloans.com. Please be sure to mention your EAA number to qualify for $140 off application fees and preferred rates.

For information on all of EAA’s insurance products, please visit the EAA Insurance Solutions Center