To be able to deal with the cost associated with buying and operating a private aircraft, most new aircraft owners usually find some form of financial agreement. This is quite similar to a mortgage for a home / hanger or a loan for a car.
As aircraft do not get less expensive as the years pass by, maintenance wise too, it might help to loan the funds or even lease an aircraft and own the aircraft with several partners, this way cost can be divided.
Before a lender will give you any loan, they will spent some time conducting a research about the value and maintenance background of the aircraft and they want to know if you, the borrower, are deemed credit worthy. A steady cash flow in the form of stable job will also help to get approved during this process.
When applying with a new production aircraft and widely accepted avionics for a loan, a detailed description of aircraft, equipment and engine would suffice with most insurers to be eligible. But be prepared to have recent photos available too.
It is usually possible to have more than one person on the loan as co-borrower. Some have limitations to list no more than two people but exceptions can generally be made. Do make sure to mention this during the initial application.
For the purpose of improving your aircraft some insurance underwriters will refinance your existing loan. Make sure that you re-insure the aircraft as the value has changed, gone up probably. Especially when switching to a glass cockpit or installing a new or overhauled engine or when changing to a constant speed propeller.
Not all companies will lend the full aircraft value as loan, sometimes only 80 to 90%. Also be prepared to spend some cash to buy your aircraft, that might even be a reasonable down payment.
When leasing an aircraft the financial broker buys the aircraft and rents it to you for the term of the lease contract. This has the advantage of less capital outlay upfront, the monthly payments can be tax deductible and it makes flying more affordable.
When running a business, the income tax basis of an aircraft is adjusted for depreciation allowed. Thus, a taxpayer who chooses not to depreciate his business aircraft may find that he must nonetheless recognize gain on sale if he only merely recovers a portion of his original cost.
You might need the services of a tax lawyer or aircraft tax specialist to fully enjoy the benefit of using the aircraft as a business tool. More than complete logbooks, maintenance records and an up to date administration are normally required to prove the aircraft is used for the business.
Written by EAI.
Experimental Aircraft Info
