WORLD AIRCRAFT SALES MAGAZINE, MARCH 2004
FINANCE BROKERS: A Valuable Resource
by Dan Garzelloni
We have all bought a home at some point and have also refinanced it. When you went shopping for a mortgage, most likely you worked with a Mortgage Broker. When you secured insurance for your aircraft, there is a good chance you worked with an Independent Insurance Agent. When you leased equipment for your business, such as office furniture, computer equipment etc., there is a good chance that you worked with a Lease Broker.
All three of these businesses do not provide the funds that pay for the services they provide. They are independent of the actual underwriters. Aircraft Finance Brokers are no different. They all have one thing in common. They usually have a well rounded knowledge of their industry, and most importantly, relationships with several banks, lenders or underwriters.
There are a few different types of people that are in the business. Some come from an aviation background whether it is through their education, pursuit as a professional pilot, work experience in the Industry or simply a passion for aviation. Others may have been educated in finance, probably have worked for a direct lender, and have experience financing aircraft for their clients. Most Brokers that have chosen to specialize in aircraft finance will have a well-rounded knowledge in aviation, finance and what it takes to secure an aircraft loan or lease.
WHY USE AN AIRCRAFT FINANCE BROKER?
In today’s world, everyone is strapped for time. Whether it is time during business hours or personal time with the family. Instead of contacting ten different lenders to find out all the different loan programs, one phone call to a Broker can be the same as contacting several different direct lenders, thus saving time for the client. In the larger corporate jet market, the CFO is usually given the task of finding the best loan. This can be very time consuming. They do not have time to shop all the lenders in the business. This is why a Broker makes sense.
They will do the work for you while you attend to other important business. Also, every lender with whom you speak, will want to get a credit package from you. If you send out three to four packages to different lenders, there will be three to four credit bureaus being pulled from each of those lenders, whereas with a Broker, there will be one. This is very important when it comes to credit scores and the amount of time you spend putting these packages together which can be significant. Most lenders like to see three years personal tax returns on the guarantors as well as three years returns on the business. No matter how much revenue a business generates, if the owner has poor credit, it could significantly reduce the possibility of securing an aircraft loan.
Some of the larger clients that are purchasing aircraft in the five to fifty million dollar range, do not feel comfortable sending financials to a Broker for fear that the information could be floated around to several different lenders. There is a simple solution for this. Not all Brokers shop deals, some will send a package out to several lenders to see who will approve it in the fastest time or even approve it at all.
Make sure before you send out the information the Broker with whom you decide to work does not operate in this manner. In your initial conversation, the Broker should be able to explain all the different products available so the buyer can make a decision which loan they are most interested in.
Once you have decided on a Broker with whom you intend to work, submit a credit application so the Broker can pull credit and get a feel for how good the credit is going to be. Once you settle on a specific loan product, you can send the credit information directly to the lender. Some Brokers will request a full package so that they can do a full credit analysis prior to sending it to the chosen lender.
A good Broker should be able to discuss all the different finance options available. Every direct lender looks at an aircraft loan differently. Each lender will have a dollar range and types of aircraft that they can lend on. Since a lot of aircraft are used, some lenders will only loan on aircraft that are 10 years old, 20 years old, etc.
A good Broker will have all this information at his fingertips and should be able to provide three to five different quotes that will be representative of what is available on the market.
A quality Broker will know each one of his lenders well enough to know what to look for in a credit package. Sometimes the relationship that a Broker has with a credit analyst can be crucial in approving a loan.
Another reason you would choose a Broker is because of the relationships they have with aircraft sales companies. If you haven’t already located an aircraft, the Broker will be able to refer you to an organization that can consult you on all the matters that pertain to your specific requirements.
In addition, if you don’t have an insurance company that specializes in aircraft, the Broker will be able to help you in that area as well. A good Broker will be heavily involved from the time you first make contact with them until the loan closes. They will help manage the entire process.
If you choose to work with your own bank, you will find that they don’t necessarily know much about aircraft, thus not giving you the loan options you would find through a Broker. Also, your own bank most likely will take a lot longer to get through the processing of the loan than is really necessary. Again, time can be an issue not only because you need the aircraft by a certain date, but because you may lose the aircraft that you really want to another buyer.
Brokers don’t make money until the loan is closed. It’s in their best interest to expedite the process so everything goes smoothly and efficiently. The bottom line is that a quality Broker is a marketing expert you can trust to act in your best interest and provide you with the best loan products anywhere in the industry.
HOW DOES AN AIRCRAFT FINANCE BROKER GET PAID
One of the questions you should ask when speaking with a Broker is: How do you get paid? There are a few different ways that Brokers get paid.
One is that the lender who actually funds the loan will pay them when the loan closes. Many people believe that if this is the case, the lender is charging the client a higher rate to cover that cost. This is not always the case. The lenders simply consider Broker fees a marketing cost that they would otherwise have if the Broker was not doing business with them. Brokers at this level become the sales department for the lender and actually in all likelihood save them money.
Some lenders will charge an “origination fee” which is really the money that takes care of the lenders’ administrative costs and helps pay the Broker for their services. Some lenders will finance this fee in the loan and some will not. It depends on the lender.
There are some lenders that work with Brokers but do not pay them directly. Therefore, in order for the Broker to get paid, they will have a Broker fee agreement which would need to be signed by the client before they will go to work on their behalf. Usually the fee is not due until the loan is closed. If a Broker has an up front fee, you may want to speak with someone else. It is really not necessary to pay an upfront fee.
HOW DO I FIND A QUALITY BROKER?
The best way to reach a quality Broker is a referral from someone who has used a particular company or from the aircraft sales company with whom you are purchasing the aircraft. Most aircraft sales groups will have someone they work with on a regular basis that will provide you with a quality product and service.
THE BOTTOM LINE
The bottom line is Aircraft Finance Brokers are people who have specialized in an industry whose clients rely on expensive aircraft to transport themselves and their employees to important business meetings around the world.
Quality Brokers have a high level of experience, expertise and professionalism in aviation as well as equipment finance. They are not on salaries and typically do not get paid until the loan is closed, which means they will work hard to provide you with the best financial package. They will have excellent relationships with lending institutions, credit analysts as well as insurance agents and title companies. They are a great source of information and are able to help negotiate rates and structures of loans to meet your specific requirements.
They are marketing professionals that provide an excellent service for both lenders and aircraft buyers. Brokers can save you time and money.