How to Leverage Your Existing Assets (Real Estate, Investments) for Better Aircraft Loan Terms

When most people think about aircraft financing, they envision a straightforward transaction: the lender provides funds, the aircraft serves as collateral, and the borrower makes monthly payments. But sophisticated buyers know there's another path—one that can unlock significantly better rates, higher loan amounts, and more favorable terms.

Asset-based financing leverages your existing wealth—real estate equity, investment portfolios, business assets, or other valuable holdings—to secure better aircraft loan terms. By offering additional collateral or using alternative lending structures, you can often reduce your interest rate by 1-3%, increase your borrowing capacity, and gain flexibility that traditional aircraft-only financing doesn't provide.

This comprehensive guide explores the strategies wealthy individuals and businesses use to optimize their aircraft financing. Whether you have substantial real estate holdings, a robust investment portfolio, or other valuable assets, you'll learn how to leverage what you already own to acquire your aircraft on the most favorable terms possible.

The Lender's Secret: Why Asset-Based Financing Unlocks Superior Aircraft Loan Rates

To understand why asset-based financing yields better terms, you need to understand how lenders think about risk. Every loan decision comes down to one fundamental question: "How confident are we that we'll be repaid?"

The Risk-Return Equation

Lenders price loans based on perceived risk. Higher risk demands higher returns (interest rates), while lower risk allows for more competitive pricing. Several factors influence aircraft loan risk:

• Collateral quality: How easily can the lender recover their investment if you default?
• Borrower creditworthiness: What's your track record of repaying debts?
• Loan-to-value ratio: How much cushion exists between loan amount and collateral value?
• Income stability: Can you reliably make payments?
• Overall financial strength: What resources do you have beyond the aircraft?

Why Aircraft-Only Collateral Has Limitations

While aircraft are valuable assets, they present unique challenges as collateral:

• Mobility: Aircraft can literally fly away, making recovery complicated
• Depreciation: Values can decline, especially for certain types
• Specialized market: Selling repossessed aircraft requires expertise
• Condition dependency: Value heavily depends on maintenance and care
• Market volatility: Aircraft values fluctuate with economic conditions

These factors cause lenders to build risk premiums into aircraft-only loans, resulting in higher rates and more conservative loan-to-value ratios.

How Additional Assets Change the Equation

When you offer additional collateral or demonstrate substantial assets, you fundamentally change the lender's risk calculation:

The Wealth Effect

Beyond specific collateral, demonstrating overall financial strength influences lender behavior. A borrower with $10 million in liquid assets seeking a $1 million aircraft loan presents minimal risk—even without pledging those assets as collateral. Lenders know that wealthy borrowers:

• Have resources to weather financial setbacks
• Are unlikely to default over a relatively small obligation
• Have reputation incentives to maintain good credit
• Can be pursued for deficiency judgments if necessary

This "wealth effect" often translates to better terms even without formal asset pledges, though explicit collateral arrangements yield the most significant benefits.

From Property to Propeller: A Step-by-Step Guide to Using Real Estate as Collateral

Real estate is the most commonly used asset for enhancing aircraft financing. Its stability, established valuation methods, and familiar legal frameworks make it attractive to lenders.

Option 1: Home Equity Line of Credit (HELOC)

A HELOC allows you to borrow against your home equity at rates typically lower than aircraft loans:

How It Works

1. Establish a HELOC based on your home equity
2. Draw funds to purchase aircraft (or make down payment)
3. Repay HELOC over time

Advantages

• Lower rates: HELOCs typically run 1-3% below aircraft loan rates
• Tax deductibility: Interest may be deductible (consult tax advisor)
• Flexibility: Draw only what you need, when you need it
• No aircraft lien: Aircraft remains unencumbered
• Simpler process: No aircraft appraisal or aviation-specific requirements

Disadvantages

• Home at risk: Default could result in foreclosure
• Variable rates: Most HELOCs have adjustable rates
• Draw period limits: Typically 10 years to draw, then repayment begins
• Equity requirements: Need sufficient home equity

Best For

Buyers with substantial home equity who want the lowest possible rate and don't mind putting their home at (additional) risk.

Option 2: Cash-Out Refinance

Refinancing your mortgage to extract equity provides a lump sum for aircraft purchase:

How It Works

1. Refinance existing mortgage for higher amount
2. Receive difference as cash
3. Use cash to purchase aircraft outright or as large down payment

Advantages

• Fixed rate available: Lock in rate for 15-30 years
• Potentially lower rate: Mortgage rates often below aircraft rates
• Single payment: Consolidates into one monthly obligation
• No aircraft lien: Own aircraft free and clear

Disadvantages

• Closing costs: Refinancing involves significant fees
• Extended mortgage: May restart 30-year clock
• Rate timing: Current mortgage rates may be unfavorable
• Qualification requirements: Must qualify for new mortgage

Option 3: Cross-Collateralization

Some lenders will accept real estate as additional collateral for an aircraft loan:

How It Works

1. Offer real estate as additional security for aircraft loan
2. Lender places lien on both aircraft and property
3. Receive better rate/terms due to enhanced security

Advantages

• Better aircraft loan terms: Rate reductions of 0.5-1.5%
• Higher LTV possible: May finance 90-100% of aircraft
• Single loan structure: One loan, one payment
• Keeps existing mortgage: No need to refinance

Disadvantages

• Multiple assets at risk: Default affects both properties
• Complex release: Selling either asset requires lender cooperation
• Limited lender options: Not all aircraft lenders offer this
• Subordination issues: May conflict with existing mortgage

Option 4: Investment Property Leverage

Income-producing real estate can support aircraft financing in several ways:

• Cash flow documentation: Rental income strengthens loan application
• Equity extraction: Similar to residential options above
• Portfolio lending: Some lenders consider total real estate holdings
• 1031 exchange creativity: In rare cases, aircraft may qualify (consult tax attorney)

Securities-Backed Lending: Turning Your Investment Portfolio into a Low-Interest Loan

For investors with substantial portfolios, securities-backed lending offers perhaps the most attractive financing option available. These loans use your investment holdings as collateral while allowing you to maintain your market positions.

Understanding Securities-Based Lines of Credit (SBLOCs)

An SBLOC is a line of credit secured by your investment portfolio:

How It Works

1. Pledge eligible securities (stocks, bonds, mutual funds) as collateral
2. Receive credit line typically 50-95% of portfolio value
3. Draw funds as needed for aircraft purchase
4. Pay interest only on drawn amounts
5. Repay principal on your schedule (within limits)

Typical Terms

Major Providers

Securities-backed lending is offered by most major brokerages and banks:

• Charles Schwab (Pledged Asset Line)
• Fidelity (Portfolio Line of Credit)
• Morgan Stanley
• Goldman Sachs
• Bank of America/Merrill Lynch
• UBS

Advantages of Securities-Backed Lending

• Lowest rates available: Often 1-3% below aircraft loan rates
• Maintain investments: Keep your portfolio working for you
• No sale = no taxes: Avoid capital gains from selling investments
• Flexible repayment: Interest-only payments, repay principal when convenient
• Quick access: Funds available in days, not weeks
• No aircraft lien: Aircraft remains unencumbered
• Renewable: Line remains available for future needs

The Risks You Must Understand

Other Risks

• Variable rates: Most SBLOCs have floating rates
• Concentration limits: Single stocks may have lower advance rates
• Restricted securities: Some holdings may not be eligible
• Demand feature: Lender can demand repayment (rare but possible)
• Opportunity cost: Pledged securities can't be sold without repaying loan

Calculating Your Borrowing Capacity

Example: $2 million diversified portfolio

• 60% equities ($1.2M) × 60% advance rate = $720,000
• 40% bonds ($800K) × 80% advance rate = $640,000
• Total borrowing capacity: $1,360,000

This could finance a substantial aircraft while maintaining your investment positions and potentially at a lower rate than traditional aircraft financing.

Tax Considerations

Securities-backed borrowing can be tax-efficient:

• No capital gains: Borrowing isn't a taxable event
• Interest deductibility: May be deductible if used for investment purposes (consult tax advisor)
• Step-up basis preservation: For estate planning, maintaining positions preserves step-up

However, using borrowed funds for personal purposes (like aircraft) may limit interest deductibility. Always consult a tax professional.

Pro-Level Strategy: Structuring Your Deal & Avoiding Common Pitfalls

Successfully leveraging assets for aircraft financing requires careful planning and execution. Here's how sophisticated buyers structure their deals.

Strategy 1: The Hybrid Approach

Combine multiple funding sources to optimize your overall cost:

Example: $800,000 Aircraft Purchase

• $200,000 (25%): Cash down payment
• $300,000 (37.5%): SBLOC at SOFR + 2% (~7%)
• $300,000 (37.5%): Aircraft loan at 8.5%

Blended rate: Approximately 7.5% vs. 8.5% for aircraft-only financing

Annual savings: ~$8,000 in interest

Strategy 2: The Bridge and Refinance

Use quick-access asset-based financing to close fast, then refinance:

1. Draw on SBLOC or HELOC to purchase aircraft quickly
2. Close in days rather than weeks
3. Negotiate from position of strength (cash buyer)
4. After closing, arrange traditional aircraft financing
5. Repay bridge financing with aircraft loan proceeds

This approach can help you win competitive bidding situations while still ending up with optimal long-term financing.

Strategy 3: The Wealth Demonstration

Even without pledging assets, demonstrating wealth improves terms:

• Provide complete financial statements showing all assets
• Include investment account statements (even if not pledged)
• Document real estate holdings and equity positions
• Show business ownership and valuations
• Demonstrate multiple income sources

Lenders seeing a complete picture of substantial wealth often offer better terms even without additional collateral.

Common Pitfalls to Avoid

1. Over-Leveraging

Don't pledge so many assets that a market downturn creates cascading problems. Maintain reserves and avoid maximum leverage positions.

2. Ignoring Liquidity Needs

Pledged assets aren't readily available. Ensure you maintain adequate liquid reserves for emergencies and opportunities.

3. Forgetting About Existing Obligations

Cross-collateralization can conflict with existing mortgages or loan covenants. Review all existing agreements before pledging assets.

4. Underestimating Complexity

Asset-based structures involve multiple parties, documents, and ongoing obligations. Budget time and professional fees accordingly.

5. Chasing Rate at All Costs

The lowest rate isn't always the best deal. Consider flexibility, risk, and total cost of the structure.

Working with Professionals

Asset-based aircraft financing benefits from professional guidance:

• Aviation finance specialist: Understands aircraft-specific considerations
• Wealth advisor: Can coordinate with existing financial planning
• Tax professional: Ensures tax-efficient structure
• Attorney: Reviews complex documentation

The cost of professional advice is typically recovered many times over through better terms and avoided mistakes.

Decision Framework

Use this framework to determine your optimal approach:

Consider HELOC/Cash-Out Refinance If:

• You have substantial home equity (40%+)
• Current mortgage rates are favorable
• You're comfortable with home as collateral
• You want fixed-rate, long-term financing

Consider Securities-Backed Lending If:

• You have a substantial investment portfolio ($500K+)
• You want to maintain investment positions
• You have low-cost-basis holdings (avoiding capital gains)
• You can tolerate margin call risk
• You want maximum flexibility

Consider Traditional Aircraft Financing If:

• You prefer to keep assets separate
• You don't have substantial other assets
• You want simplicity over optimization
• The rate differential is minimal

Related Resources

• Complete Aircraft Financing Guide
• Comparing Aircraft Loan Offers: APR vs. Total Cost
• Aircraft Loan Pre-Approval Process
• Section 179 and Bonus Depreciation for Aircraft