Why a partner paying cash should be on a plane loan – aviation finance
Lenders need a formal agreement with all parties involved in the ownership of the asset, the aircraft, that the lender has a priority interest in the aircraft in the event of loan default.
Generally speaking, there are two methods to achieve this goal. The most effective way is to have all parties to the transaction attached to the loan, to the lien. The second way is to write an addendum, commonly called a subordination agreement. The subordination agreement does not bind the participant who pays in cash to any of the debts or other obligations ceded in the loan. It is a stipulation of the first position rights by the lender and an acknowledgment by the cash party of this stipulation.
One of these options is more user-friendly than the other. One is more traditional than the other. Our belief is that in an age when lending has become as commonplace as it has become, lenders should focus on customer service rather than tradition.
Lenders could argue that the additional fees generated by creating a subordination agreement are not customer friendly. For example, for loans between $ 20,000 and $ 50,000, this additional cost could approach 4%. In the minds of many lenders, this additional financial burden on the borrower is more of a nuisance than a convenience.
In more high-end transactions, a PC-12, TBM, or Cirrus, for example, where the loan amount is well over half a million, lenders tend to be more willing to go. adapt. This is because the additional cost as a percentage of the total loan is much lower and therefore has minimal impact on them.
We live in a world where people are more willing to pay for convenience. It would be up to banks to offer the option of entering into subordination agreements for lower value loans if borrowers believe it is in their best interest. This relieves the treasury partner of loan default liability and credit exposure. And the bank can rightly charge for the convenience.
Very good advice. Excellent rates. Helpful and responsive representatives you can trust. Three good reasons to turn to AOPA aeronautical financing when you buy or refinance an aircraft. If you need a reliable source of funding with people who are by your side, just call 800.62.PLANE (800.627.5263), or click here to request a quote.