The type of financing is not very common and more akin to a home construction loan. As a result, not many banks will make this kind of loan. The good news is, those banks that make them can convert the loan to more familiar, permanent aircraft financing, once the aircraft has been certified airworthy.
The loan disbursement for a kit-build is different from a conventional aircraft loan. In a conventional loan, the entire loan amount is advanced at closing. With a kit-build loan structure, the lender advances the money based upon the major components--the airframe, the engine, the avionics, etc. Another difference is the loan’s term. It’s significantly shorter, think 36-60 months instead of 10-20 years. While the down payment is similar at a minimum of 20%, the interest rate will be at least 2.5 – 3% higher.
Kit-build loans have a shorter duration as incentive for the pilot to get the airplane built, certified airworthy, and out flying. They’re offered at a higher interest rate because it is a riskier loan for a lender to make.
Also, the finance companies that make kit-build loans will not make them for every type of kit available. There are two immutable criteria amongst all kit-build lenders. First, the kit's manufacturer must have at least 25 of its aircraft registered in the United States. Second, there needs to be a handful of comparable aircraft recently sold or for sale for the lender to get an accurate valuation of the product. It doesn't matter how technologically advanced or how safe the aircraft’s design is. Financing a kit-build from an obscure-yet-established aircraft kit maker is just as difficult as it is for a new manufacturer with zero units built and out flying.
Give AAF a call. We can help you determine which kit-builds meet the criteria. AAF has worked with many clients to finance kit-builds. We have plenty of research on hand to guide you toward the best loan structure possible for your situation. It’s important to remember that each kit-build loan is unique, partly due to the nature of that industry. Regardless of whether the plane ever gets completed, the amortization schedule still applies for the full length of its short term. You don’t get to skip some months because you were too busy with life to get into the garage or get down to the hangar...And the possibility of a lender having to take possession of an unfinished aircraft only adds to the risk associated with this type of loan.
Of note, a person does not have to have previous kit building experience to qualify for kit-build financing. In fact, in most other aspects of it, qualifying for a kit-build loan is identical to qualifying for conventional aircraft financing.
There is one other point upon which all lenders seem to agree. A person must be a rated pilot before applying for a kit-build loan.
Kit-build lenders also won’t finance a partially-built kit plane. They will only finance one that is ordered direct from the manufacturer. That’s because they require a kit bill of sale directly from the manufacturer as proof of a clear title on the aircraft.
Once the aircraft is finished and signed off as airworthy by the FAA, the pilot-owner can now work with the same lender who financed the kit-build to convert the existing loan to a permanent, conventional loan. Converting the loan is a good way to get cash out of the plane for avionics upgrades or other improvements.
AAF has also advised pilots who subsequently chose to pay cash for their kit-build. Later, after they had completed their projects and gotten the aircraft signed off as airworthy, they then sought conventional, reimbursement type financing—again for things like avionics upgrades and other modifications. Therefore, that is an option to consider.
Once certified airworthy, the kit-built aircraft becomes the same as a conventional, certified aircraft from a lender’s perspective. The builder can apply for a traditional refinancing package, or the airplane can be put up for sale where a potential buyer can then seek conventional aircraft financing to purchase it.
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