Our experience securing financing for our clients reveals far too frequently that they wait until they’re much further along in the process than they should be before getting their financial paperwork in order. So when clients have a make and model in mind and want to know their financing options, we tell them to get their financial documents together ASAP. Without a thorough understanding of a client's financial picture, AOPA Finance is limited in the number of options it can offer. Depending on that picture, the more transparent the financials, the better the buying experience all around.
Collecting Financial Documents
Once the client provides a Personal Financial Statement, PDFs of tax returns, CPA-prepared statements for any businesses owned an estimate of credit scores, and a schedule of all debts, we can get a very good sense of the possible loan structures, including the optimal down payment and monthly payment.
The lender needs to be able to verify income sources and liquidity, so they need to have the full tax returns rather than just summaries as well as a copy of bank/investment statements. Credit scores also matter in that they are a numerical expression of the creditworthiness of an individual, based on credit report information. It's helpful to be able to provide a rough estimate of your score to estimate which financing options are available. Many financial institutions (Credit Card Companies and Banks) provide this to their customers. A word of caution, however, is that these scores can differ depending on which credit bureau was used.
Credit Report Review
Lenders will obtain an official credit report sourced directly from the various credit reporting companies. And unfortunately, sometimes these credit reporting companies make mistakes. There are plenty of instances where these companies accidentally blended two similarly named individuals into one report. The result, the credit scores of both involved were affected.
Also, in this era of identity theft, it's critical to know if you're a victim of it. You especially need to know if there are damaging, false data associated with your report. How quickly that information can be rectified can have an impact on your ability to secure aircraft financing. By periodically reviewing your credit report, you can prevent getting blindsided in the middle of your purchase and potentially losing out on that aircraft because of the delay in clearing things up.
You can go to http://www.annualcreditreport.com/ for a free annual copy.
A sometimes overlooked but absolutely necessary component of financial paperwork is your DTI. We recently had a gentleman who had originally been approved for a loan through AOPA Finance. He then decided to increase the loan amount. That increase knocked him out of contention with the chosen lender because his DTI became unacceptably high. He complained that he had a great credit score—and therefore that should mean something. For this particular lender, our client’s credit score didn't have the same value as his DTI.
What are your total debt obligations vs. your total income obligations annually? What that ratio looks like will determine what level of risk lenders will want to assume with you. The story above illustrates a key difference in how a lender views a potential borrower. DTI is much more an assessment of risk to a lender in certain circumstances than a credit score. Each lender has a different DTI requirement, too. AOPA Finance's relationships with a variety of lenders allow us to find one who is comfortable with your situation.
Let's say you’re in the business of buying and selling companies. The nature of the business is such that you may have positive cash flow about every two years. On paper, the business may appear to be in dismal shape in even-numbered years while in odd-numbered years it looks highly profitable. Not every lender is going to be comfortable with that kind of cash flow. In that case, maybe an asset-based lender is a better option.
Other examples include real estate concerns or companies that operate multiple franchises. These types of businesses might operate highly leveraged yet simultaneously enjoy a predictable, substantial, monthly income stream. Their DTI may look lousy on paper, but in reality, the cash flow proves more than adequate liquidity. In these instances, asset-based or collateral-based Lenders are typically the best option for these types of businesses, because they don’t look at DTI.
Virtually every credit-based lender has a policy for max DTI, and while exceptions are infrequent there are mitigants. Credit Scores have some importance; however, most lenders would instead want to either see a much stronger than typical liquidity (cash and non-retirement investments) or a higher down payment in order to make an exception. At the end of the day, proper planning prevents poor performance. Having your financial paperwork lined up and waiting is a key factor in getting the right loan package for you.
Have questions for Adam? He is happy to answer them. Submit your questions here. Great rates. Great terms. Helpful and responsive reps. There are three good reasons to turn to AOPA Aviation Finance when buying an airplane. If you need a dependable financing source with people on your side, call 800.62.PLANE (75263) or click here to request a quote.