Speaking of which, what documents will lenders want? Each company differs, but most want two to three years of tax returns, a personal financial statement, including a balance sheet and cash flow and proof of income. If you keep track of your personal finances through a package like Quicken, it can generate a balance sheet/cash flow report from the information youve entered. A balance sheet lists the value of your assets against your liabilities. Owning more than you owe is good and gives you a positive net worth.

Your personal credit will be examined, but is interpreted differently. Some lenders and brokers will look at only one report, some will look at two for a more complete picture and many will pull all three reports and assess your creditworthiness by using the midscore of the three. Lets say your Experian report shows a score of 720 (a good score on a scale of 300-850), Equifax is 680 and TransUnion is a near-pristine 820. Your midscore is 720, which will not only give you a great chance of approval, but will also get you better rates and terms than someone with a dinged-up 595.

Thats why its so important to have your credit reports and scores before you apply. An erroneous late payment with a past due amount, which tells the world you didnt pay that bill on time and youre behind on your payment, can tank your score 100 points overnight. That wont take you out of the running for an aircraft loan, but you’ll need to gather a lot more paperwork to show the lender that youre not really a deadbeat. Another score-killer is having credit card balances close to your limit. A $4000 balance on a $5000-limit card gives you 80 percent utilization-very high. A $1500 balance on a $20,000-limit card is less than 10 percent and will boost your score, something to keep in mind in the month or two before you apply.

Another factor is your debt-to-income ratio, or DTI. The DTI ratio varies among lenders, but anything in the 30 to 45 percent range is workable. You can figure your DTI by dividing your regular monthly payments (not including utilities and groceries, for instance)-including your anticipated aircraft loan payment-into your monthly income. Lenders vary, however, in what constitutes monthly income-it could be gross income or net after taxes.

As in the mortgage industry, there are two main sources of financing: from the lenders themselves, or through brokers. First Pryority Bank, a major player in the field, is a direct lender, loaning its own money. Its underwriting standards are thorough, requiring a minimum mid-score of 660. A buyer with a lower score may receive closer examination of his finances and he may need to provide collateral and an additional down payment.

The major factors are income stability, ability to repay the loan and the borrowers net worth. Tax returns for the self-employed are required and proof of income, usually a W-2 form, will fill the bill for regular employees. Interest rates vary and are usually a quarter percent above the New York prime rate; at press time, a 15-year loan will carry a 7.5 percent interest rate.

The majority of aircraft loans go through brokers: companies that specialize in arranging loans for the customer by taking the application to the direct lender and driving the process to closing. As direct lenders, bank loans are fine as long as you fit into the banks boxes. Many people don’t-the self-employed, retired or someone with imperfect credit-and its to their benefit to work with a broker.

Brent Wouters, executive vice president and CFO of Cirrus Finance in Duluth, Minnesota, says that as Cirruss in-house broker, they work to find the right lender for their customers. He told us most applicants may not be aware of the details that would qualify them for a particular lender. Cirrus Finance often uses Bank of America/MBNA or Sovereign Bank to fund their loans.

Good brokers will assess your entire financial picture and select several lenders that are a good match for your circumstances. They can save you money by working through the wholesale market, where a non-aviation-oriented retail bank may charge a higher interest rate simply because they don’t do that many aircraft loans, don’t understand the market, or just don’t charge retail customers the same preferred rates.

Wouters says that Cirrus Finances loans have been stable through the credit crunch, because the aviation lender market is consistently liquid. At press time, their rates have gone down to 6.48 percent on a 20-year fixed loan with 10 percent down, which he calls “very competitive. Our rate is not what customers could get on their own.”

Brokers can also guide you through the process of balancing rates, down payments, loan terms and other variables to bring you a loan package you can live with. Yes, they charge a fee for these services, but a good broker will earn that money by using their experience to keep you on track and get the loan closed efficiently. The process generally takes anywhere from an hour to a week, depending on the deals complexity.

How do you find a good broker? Sweep the Web, but ask other pilots. How long have they been in business? How many aircraft loans do they do a year? The answers will vary, but if youre the first one this year and its almost springtime, look elsewhere. Generally, the larger players (NAFCO, AirFleet Capital and Dorr Aviation) are visible at AirVenture and AOPA Expo and are available to answer detailed questions.

The major aircraft manufacturers offer financing arms, some are administered by experienced brokers, and a few are truly in-house. In our view, any of these approaches is fine. Cirrus Aircraft has its own financing department, as does Cessna, a Textron unit. Jason Shaffer, a Finance Manager with Cessna Finance, notes that their job is to make the purchase make sense for both parties. “Subject to credit approval” can mean a number of things.

Shaffer continues: “If a customer has a few dings in their credit history or a bankruptcy, we look at it on a case-by-case basis, consider all of the factors involved and try to come up with a structure acceptable to the customer.” He adds that a bankruptcy would typically have to be discharged for a customer to be considered for approval by Cessna Finance.

Other lenders may not be as sanguine regarding a bankruptcy, choosing not to lend to anyone with a past bankruptcy. And don’t try to conceal it once youre past the 10-year limit-every bankruptcy can be found through public record databases.

While underwriting standards are changeable, each lender or broker has its own range of issues its willing to live with. Direct lenders keep a close watch on their funds and often use a more stringent eligibility process, requiring a cleaner credit profile, more stable income and cash flow, as we’ll as a low debt-to-income ratio. Wouters says that Cirrus Finances criteria require a credit mid-score of 650 or better, with DTI not to exceed 45 percent, including the loan payment, off your gross income.

In general, a higher down payment will reduce the monthly obligation and may be used to mitigate a weaker financial profile. Cirrus Finance also offers a no-documentation loan, but the rate will be percent higher for the privilege. Wouters adds, “The credit market for no-doc loans except for aviation has evaporated. That tells you how strong and liquid the market is.” Most of their loans-98 percent-need a 10 percent down payment. With few exceptions, their maximum loan amount is $250,000.

Jim Blessing, Vice President of AirFleet Capital, says as aircraft brokers, they have some direct links to aircraft manufacturers, operating Piper Financial Services and Mooney Capital. They also have a close relationship with Diamond Aircraft and provide brokerage services directly to individuals for certified, light sport and experimental aircraft. He stresses that the manufacturers expertise is making airplanes, not having a savvy financial department. “In the past they operated their own financing, which led to some real challenges in the 1980s and early 1990s, when some of the manufacturers made credit decisions based on sales needs. We have a better working relationship when finance is separate from sales. There is no influence on the credit decision by potential sales, which is safer for everybody.”

While many owners buy their airplanes as individuals, others incorporate or form an LLC as an umbrella over a group of partners for the purchase. Yet other owners are self-employed. These circumstances will affect which tax returns are needed for the application process. Another consideration for those whose business buys the airplane is the term of the loan. Wouters says that a business that will use the airplane will often finance it for a shorter term while an individual might finance for 20 years. Either the lender or the borrower may want a more aggressive depreciation schedule, so they can write the expense off more quickly.

One distinction of aircraft loans is that the fees are relatively low compared with the three-ring circus of a mortgage closing. Aircraft loans usually require under $1500 in fees, unless there’s something unique about the transaction. A $50,000 to $100,000 loan may carry $400 in fees, including all the title work.

Blessing recommends being organized from the outset. “Take the time to get everything together at once: the credit application, including the personal financial statement, tax returns. You don’t need to have an aircraft picked out, although its nice. We can work within the parameters of a $150,000 purchase with 10 percent down.”

Even if youre not sure your financial profile will make the grade, he suggests completing the package anyway. “You may be right on the border with credit, but if there are some mitigating circumstances, like a strong net worth or cash flow, then that might offset any other concerns.”