Questions Aircraft Loan Underwriters Ask – Part 1
August 10, 2009 — AirFleet
As part of securing an aircraft loan, an underwriter will need to review the following: 1.) Credit Application, 2.) Credit, 3.) Cash Flows, 4.) Net Worth, and 5.) the Aircraft information itself. As a part of an educational series, we will address each of these components separately and review some of the questions the lender tries to answer through analysis of a client’s credit package. This should provide some insight into what a loan officer is trying to accomplish by requesting certain information.
Credit Application and the information contained therein:
- Who is the client? The credit application starts with a brief overview to give a lender an idea of who the client is, where they live, how long they’ve lived there, and often times a snapshot of their aviation experience. This provides basic info on how to reach the client, and gives the lender a general sense of who they are considering lending to.
- How is the aircraft being registered? The Application reflects the structure of the transaction requested. For example, if a husband and wife are co-borrowers for a loan, or if the aircraft is to be held in a single-purpose entity for tax or liability purposes, it will be outlined in the Application. The Application also identifies the owners of the company to give a lender a sense for who is authorized to sign on behalf of the company if a guarantee is involved.
- How does the applicant make their money? The Application identifies the customer’s occupation – their specific title along with the type of work they do. For example, an applicant may be the President of the company but a lender will want to know what type of work the company engages in. In addition, the lender is looking at how long the applicant has worked for this employer and/ or in this specific profession. This provides a sense of job and income stability. It’s not uncommon for a lender to request more information on the company at this point, to get a better sense of the profession, industry and evolving picture of the applicant.
- What type of financing is being requested? An overview of the financing request is included in the Application – what is the Applicant buying and how much are they looking to finance? This includes the specific figures (purchase price, down-payment, loan amount), as well as an overview of the type of aircraft (year, make, model), and the intended utilization of the airplane. In the case of a pre-approval, much of the aircraft-specific information is left empty, but a lender will often want a general sense of what the client’s buying within the outline of a given purchase price and loan amount.
- What is the client’s personal financial situation? A short personal financial statement gives a general overview of the client’s assets and liabilities. This is usually provided through a simple form with the application, or an applicant may attach their own personal financial statement. Finally, some basic questions that are often not answered elsewhere are included on a Credit Application. These questions may include citizenship, any significant derogatory credit issues (i.e. bankruptcy) that may not be included on a credit bureau report if too old, and any contingent liabilities, alimony or child support payments (often not included or accurately reflected on tax returns).