Ultimate Guide to Helicopter Financing + Loans from $10 Million
September 24, 2019
There are so many reasons to own or lease your own helicopter. One of the biggest questions to answer when acquiring a helicopter is “How does helicopter financing work?”. In fact, you should understand financing for both helicopter purchasing and helicopter leasing. Therefore, this article will drill down on helicopter financing, including the role of sale leasebacks. Specifically, we’ll define the typical terms and down payments for purchases. Next we’ll discuss helicopter insurance and other costs. Then we’ll review how helicopter sale leasebacks work, and help you decide whether you should use helicopter financing. Finally, we’ll describe how we can help with luxury helicopter financing and answer some very pertinent, frequently asked questions.
How Does Helicopter Financing Work?
In this section, we answer the question of “How does helicopter financing work?”. Obtaining luxury helicopter financing requires several steps. Importantly, some lenders will make helicopter loans for only Part 91 (private) or Part 135 (commercial) utilization, while others will do both. Additionally, lenders may set age limits on the business helicopters they’ll finance, such as 20 or 25 years.
The Application Process
Typically, you’ll begin the process by filling out an application form. Naturally, expect to enter the customary information identifying the borrower’s name and address. Also, you’ll need to provide the year, make, and model of the helicopter you wish to purchase. Of course, you must include the estimated loan amount. Next, you’ll have to specify how you will use the helicopter. If you will be using the helicopter for private use, you apply under FAA Part 91. However, if you purchase business helicopters or corporate helicopters for commercial use, apply under Part 135.
Applicants must supply a significant amount of financial information with their application forms, including:
- Personal Financial Statements
- W-2s for the last two years
- Last two years of personal IRS tax returns (1040), including all schedules and K-1s
- Copy of an identification card with a photograph
Furthermore, if you are self-employed, you will also need the last two years of your signed business tax returns. Also include your current year interim statements.
Corporations will need to supply their financial statements and the last two years of tax returns.
Once you have submitted all requested documents, the lender will begin its underwriting process.
Before it can approve your loan application, the lender must initiate its underwriting process. Normally, the lender will follow up with one or more questions and ask for any missing documentation. If the lender feels it can approve the loan, it will send you an Approval Letter. Obviously, the letter spells out the rates and terms of the offer. Ultimately, the process may take from two to seven business days for less-costly helicopters, and a bit longer for higher-end, more expensive, luxury helicopters.
Typical Terms & Down Payments
Conventionally, the down payment on an aircraft purchase ranges from 10% to 25%, although individual deals might require more or less depending on credit. Typically, expect a loan term of up to 10 or 15 years and an interest rate between 4% and 6.5%. Naturally, the helicopter will act as collateral on the loan.
The Post-Approval Process
You’ll receive a pre-closing checklist containing the purchase agreement and the bill of sale. If registering the helicopter in a business, LLC, or corporation, you’ll also have to submit the appropriate organizational documents. Routinely, a title company performs a title search on the helicopter to ensure it is clear of any encumbrances.
Following a successful title search, you’re ready to close. At closing, you’ll execute the loan documents, remit the down payment and closing costs, and provide proof of insurance. Finally, the escrow agent will collect your funds and the loan proceeds, and complete the sale transaction. Then, you’ll receive the keys to the helicopter!
Video: Onboard a $10 million Hermes Helicopter | First Class
Helicopter Insurance & Other Costs
Typically, you’ll insure your helicopter for up to 111% of the loan value. If you also insure the equity portion, then you will have a replacement-value policy. There are a few major helicopter insurers, represented by brokers and agents. If you fly for fun, you’ll need personal helicopter insurance (Part 91). However, you’ll need business insurance if you use the helicopter commercially (Part 135). Generally, helicopter insurance includes a variety of coverages, including:
- Public Liability Coverage: This covers your legal responsibility should you cause personal injury or property damage when taking off, flying, or landing.
- Hull Insurance: This is property damage insurance covering the helicopter flying or on the ground. Specifically, it should protect your craft from weather damage, vandalism, theft, and accidents.
- Passenger Liability Coverage: You need this if you carry passengers. Conveniently, you can combine it with public liability coverage and a large overall coverage limit.
In addition, you will face other, additional closing costs. These include taxes, the down payment, origination fees, legal fees, broker’s fees, escrow service, title search, and other costs.
Most helicopter acquisitions arise via sale leasebacks (SLBs). An SLB is a contract between a buyer/lessor and a seller/lessee. In this context, a seller/lessee either owns or buys a helicopter. The seller/lessee sells the helicopter to the buyer/lessor and then immediately leases it back. Note that this differs from a simple leasing arrangement, which involves no initial sale.
Seller/lessees benefit from SLBs because they offer 100% financing. Indeed, the transaction frees up capital (equity) tied up in the helicopter. Thus, the seller/lessee can then use the capital for other purposes. In effect, it is a way to acquire financing of a helicopter without a down payment. Due to recent accounting changes, seller/lessees must carry leases of one year or longer on their balance sheets. Specifically, the balance sheet carries a right-of-use asset and a corresponding lease liability for the helicopter.
If you’d like to learn more about sale leasebacks in aircraft finance, check out our article, Everything You Need to Know About Sale Leasebacks.
Is Helicopter Financing Right for Me?
Unless you wish to buy a helicopter for all cash, financing is definitely right for you. While some buyers finance their purchase with helicopter loans, most use sale leasebacks or straight leasing. Clearly, leasing is the preferred method of helicopter acquisition. However, lessors need the capital to purchase business helicopters or corporate helicopters. Therefore, they may use internal funds, or they may finance their purchases.
The attraction of a lease is that the lessee can expense lease payments in the current tax year. Contrast this to ownership, in which you expense the helicopter purchase over several years via depreciation. Nonetheless, some customers simply prefer to own their private or corporate helicopters rather than lease them.
How Assets America® Can Help
Assets America® is a commercial financing brokerage with an extensive network of private lenders and banks. We are proud to offer helicopter loans and sale/leaseback financing for helicopters, starting at a minimum transaction size of $10 million and beyond. Our service is impeccable, and our rates are highly competitive. Best of all, we can get you funded much faster than conventional sources. If you are in the market for one helicopter or an entire fleet, contact us for a free consultation.
Helicopter Loans FAQs
What are helicopter financing rates?
The average rate for helicopter loans is 4% to 6.5%, with terms between 5 and 15 years. The interest costs of lease financing are roughly the same or a little higher.
How does the age of the helicopter affect helicopter loans?
Obviously, older helicopters cost less than new ones. But the real determinant is hours of utilization. Just like buying a used car with low mileage, low-utilization helicopters cost more than high-utilization ones.
What’s the difference between piston and turbine helicopters?
Small helicopters use reciprocating piston engines because they are less expensive to operate. Larger helicopters use turbine engines because they pack substantially more power. The relative reliability of one over the other is debatable.
What is a sale leaseback?
For helicopters, a sale leaseback involves the owner of a helicopter (the seller/lessee) selling it to a buyer/lessor. The seller/lessee then leases the helicopter back from the buyer/lessor. For many, this is the preferred method of helicopter acquisition.
Helicopters are a great asset for individuals and companies that regularly need them. Financing a helicopter purchase or sale leaseback can be a hassle or a breeze. It depends on the financing source. We at Assets America® can arrange helicopter financing starting at $10 million, with no upper limit. We’d love to hear from you if you are thinking about acquiring a helicopter or any other aircraft.
If you’d like to read about helicopter financing news, you can check out this article on the intersection of helicopter financing and commercial drones.