Project Finance & Completion

I am making my way through the fuse kit, wings and tail are done, and I'm contemplating the finish kit order in the next couple weeks. It's growing more evident to me that the progress I'm making along with lead times for the last few kits mean I need to get a little more serious about planning the completion of the RV-12.

I'm curious about any financing options for the final big ticket items. Primarily interested in anyone doing aircraft loans or kit loans. I'm familiar enough with equity loans and do have that option, but I want to explore alternatives.

There are some old threads here on VAF on the subject, and it seems that in the case of an EAB build there are ways to order, register, and then finance the end stages of a build. NAFCO is setup for this and has a checklist and process whereby it can be done. The first problem you run into there is the requirement for registration, which can't be done on an ELSA until it is complete. I also see the threads about Pryority Bank who has since left this particular market. I really don't see much else about the subject on VAF in recent years.

Just curious if anyone has current info on more flexible banks or credit unions, or other alternatives to home equity loans where the lender is familiar with the nature of building an ELSA.

EAA has setup just that kind of financing through NAFCO. Logon to EAA.ORG and look it up in Pilot Resources. You may need to join EAA which you should have done already. If not you should do so ASAP. They are a tremendous resource.

printbr said:

EAA has setup just that kind of financing through NAFCO. Logon to EAA.ORG and look it up in Pilot Resources. You may need to join EAA which you should have done already. If not you should do so ASAP. They are a tremendous resource.

Click to expand...

Yep, understand all of the above. I'm an EAA member, and filled out the application for NAFCO through the EAA link. That application put me in tough with a Pilot Bank president who insists that the only way is to have FAA registration, N Number, and engine serial.

I tried to explain the E-LSA and registration thing a couple different ways to no success. He said he's been doing their loans for 20 years and never deal with any exceptions to make financing an ELSA possible before completion, whereas they could do it with most other EABs.

To be clear, the initial problem is they require registration in order the lien the aircraft. For the typical EAB you can register any time. For an ELSA you can not register until you have purchased everything. The question here is about financing the final stages, where everything would not yet have been purchased.

Seems like something that would have some workarounds by now. There is one old thread here where someone describes this exact problem in 2013, with no indication as to how it worked out for that builder.

You may want to try calling EAA and explaining your problem to them. They may have other solutions or may be able to explain the LSA rules to the lender. I know they have been very instrumental in the LSA rule making from the get go.

You can reserve an N#.

Following this one. I’m in the same boat, looking ahead to finance the big ticket items. Let us know of any developments!

RFSchaller said:

You can reserve an N#.

Click to expand...

Did that a long time ago. They don't lien against an N number, they lien against registration.

N8DAV8R said:

Yep, understand all of the above. I'm an EAA member, and filled out the application for NAFCO through the EAA link. That application put me in tough with a Pilot Bank president who insists that the only way is to have FAA registration, N Number, and engine serial.

I tried to explain the E-LSA and registration thing a couple different ways to no success. He said he's been doing their loans for 20 years and never deal with any exceptions to make financing an ELSA possible before completion, whereas they could do it with most other EABs.

To be clear, the initial problem is they require registration in order the lien the aircraft. For the typical EAB you can register any time. For an ELSA you can not register until you have purchased everything. The question here is about financing the final stages, where everything would not yet have been purchased.

Seems like something that would have some workarounds by now. There is one old thread here where someone describes this exact problem in 2013, with no indication as to how it worked out for that builder.

Click to expand...

This has gotten even more complicated recently.... even for EAB builders.

The FAA used to process a registration application without listing an engine serial #.
They have recently started enforcing that requirement with no exceptions, so this has an impact on anyone that is looking for financing for any experimental aircraft, were they do not yet have possession of their engine.

Burndout11 said:

Following this one. I’m in the same boat, looking ahead to finance the big ticket items. Let us know of any developments!

Click to expand...

Sure, but aside from any advice popping up here I'm not too optimistic about finding something that is some form of aircraft loan.

I'm really surprised that this isn't something a lender or two have made a workaround for. They will do loans on an EAB in progress as long as there are 25 flying examples. Considering the flexibility and uncertainty in the finish stages of those, as compare to an ELSA structure where there is a specific plan, bill of materials, vendor, and some advantages to the registration category...the risk would be a bit less. The same regulatory process that delays the lien and breaks things seems to actually mitigate some of the build and collateral risk.

I took out an initial loan to purchase many wings and finish kit. I recently refinanced it because I had a balloon payment at the five-year mark. Slow build kit for sure. I dealt with Pilot Bank and they were great. With respect to getting an N number, piece of cake, if I recall two forms and 10 bucks.

I have not ordered my engine/avionics kit yet, which I imagine will involve a second refinance. The bank did not ask if it was going to be an E-LSA or an AB-LSA.

dsm8 said:

I took out an initial loan to purchase many wings and finish kit. I recently refinanced it because I had a balloon payment at the five-year mark. Slow build kit for sure. I dealt with Pilot Bank and they were great. With respect to getting an N number, piece of cake, if I recall two forms and 10 bucks.

I have not ordered my engine/avionics kit yet, which I imagine will involve a second refinance. The bank did not ask if it was going to be an E-LSA or an AB-LSA.

Click to expand...

Do you mind sharing the name or contact information for whoever you worked with at Pilot Bank? Either here or via direct message? What you are describing is exactly what I expected to talk with them about, but I ended up working with the bank President who says something like that has never been done in the 20 years he's been there. None of it adds up to me.

For what it is worth, I took out an "aircraft" loan out on a paramotor setup from lightstream. It was only 10k but im sure you could do quite a bit larger. I do have perfect credit, but I talked to nobody, provided almost zero information about the "aircraft" and the money was in my account same day. Rates for engine/avionics type of money are probably going to be around 5.5 percent for 7 years with perfect credit. Not sure if there is better out there but it's an option. I also have cars ive used them for, same experience. I have no connection to them but it just blows my mind how easy it is to get money from them and i can't recommend enough.

Yeah, I'm confident I can find some form of financing a company like Lightstream. Credit and equity aren't really a problem, but I do prefer to avoid crossing securities or taking unsecured debt...or however you want to phrase that. I'll get financing one way or another.

At this point it's a curiosity as much as anything else. I read here on the forum that people get loans as described, or at least they did at one time. NAFCO and Pilot Bank along with supposed resources from EAA are the ubiquitous buzzwords but they seem to be a myth. An example like Don's above is encouraging, but it's difficult to reconcile when I speak with a president from the bank who says they have never done anything like this.

Mostly trying to sort out the hearsay and understand market reality vs rumor. Seems like there is a lot of discussion of actual aircraft financing resources to finish ELSA/RV-12 builds but people actually doing it find the money elsewhere.

Were you able to make any headway?

Burndout11 said:

Were you able to make any headway?

Click to expand...

Unfortunately, not at all.

My finish kit is scheduled for crating in mid-march so I have a little bit of wiggle room in the schedule. Not much, because I'd like to order engine and avionics very soon. Ideally I would like to have them in my possession before I'm half way through the finish kit. Having the materials for a project staring me in the face is a big part of keeping me motivated...or maybe a better way to put it is that not having them presents barriers that are excuses not to keep working. I'm currently dealing with a few non-RV projects at least for most of January and will revisit the financing thing again next month.

It's your turn to do legwork!

Does the engine company run a loan program? Will they assign to you an engine serial number after the deposit?

That’s what I was wondering. If it’s possible for Van’s or Rotax to give you a serial number up front upon deposit in order to complete the FAA paperwork which would enable the financing to go through. Other than that, it doesn’t sound like there are any other options out there... which is both disappointing and discouraging. I would imagine it would also slow down kit sales a little bit.

Burndout11 said:

That’s what I was wondering. If it’s possible for Van’s or Rotax to give you a serial number up front upon deposit in order to complete the FAA paperwork which would enable the financing to go through. Other than that, it doesn’t sound like there are any other options out there... which is both disappointing and discouraging. I would imagine it would also slow down kit sales a little bit.

Click to expand...

Even if they could do something like that for the engine serial, it would only be incremental progress and not a solution.

NAFCO/Pilot Bank president says that they need engine serial AND registration. My understanding was that registration is really the more important of the two since that is what they would lien. The way that ELSA registration works is different from EAB. You can register your in-progress EAB, but not your in progress ELSA.

Agree on the kit sales impact. This seems like something that has an administrative solution if the right people just got to talking. The risks to a lender for an RV-12 are arguably lower than many other experimental in progress, but the others have an easier path to financing. It's backwards.

N8DAV8R said:

Even if they could do something like that for the engine serial, it would only be incremental progress and not a solution.

NAFCO/Pilot Bank president says that they need engine serial AND registration. My understanding was that registration is really the more important of the two since that is what they would lien. The way that ELSA registration works is different from EAB. You can register your in-progress EAB, but not your in progress ELSA.

Agree on the kit sales impact. This seems like something that has an administrative solution if the right people just got to talking. The risks to a lender for an RV-12 are arguably lower than many other experimental in progress, but the others have an easier path to financing. It's backwards.

Click to expand...

This comes down to the loan needing to be collagenized with an objectively valued liquid asset. The bank’s unwillingness to take a box of parts as collateral is in part a result of their risk appetite considering their loan portfolio and it may also be regulatory. My experience working in the industry is banks hate risk and run for the hills at the first whiff. Banks are very willing to use assets that are easy to liquidate and objectively value as collateral (finished, flying planes, cars, houses, etc), but I really can’t see them explaining to their shareholders or board that they backed a low-interest loan with a much of parts and couldn’t get their money back when the borrower defaulted.

Low risk = low rate. If a low rate is your objective, you are better off leveraging an asset like a house or car to finance your project and then refinance when it's flying. You may even be able to find a 12-18 month intro rate credit card with a 2-3% processing fee. I get the offers all the time. But then the clock is ticking to get the project in the air and refinanced.

Northernliving said:

This comes down to the loan needing to be collagenized with an objectively valued liquid asset. The bank’s unwillingness to take a box of parts as collateral is in part a result of their risk appetite considering their loan portfolio and it may also be regulatory. My experience working in the industry is banks hate risk and run for the hills at the first whiff. Banks are very willing to use assets that are easy to liquidate and objectively value as collateral (finished, flying planes, cars, houses, etc), but I really can’t see them explaining to their shareholders or board that they backed a low-interest loan with a much of parts and couldn’t get their money back when the borrower defaulted.

Low risk = low rate. If a low rate is your objective, you are better off leveraging an asset like a house or car to finance your project and then refinance when it's flying. You may even be able to find a 12-18 month intro rate credit card with a 2-3% processing fee. I get the offers all the time. But then the clock is ticking to get the project in the air and refinanced.

Click to expand...

(I have edited this post. Yesterday was a rough day and I originally replied while I had a terrible attitude about unrelated things)

Brain - Among the things you mention, the regulatory issue would be the most likely cause for what I'm trying to explore in this thread.

Pilot Bank (via NAFCO and EAA) has at least some history of making competitive loans on a 'box of parts'. EAA promotes this idea, along with kit manufacturers and NAFCO themselves. Reading threads here and on other forums indicates that they do it at competitive rates. TBH, this surprised me as much as it may surprise you because I do understand what your saying with regard to collateral, but it's been done. I have corresponded with the bank president and actually started the process before running into the issue regarding registration. It looks like you have a history with other RVs, maybe not so much with something that would register ELSA which follows a different process. For the purpose of the question here, there is precedent for a box of parts as collateral but the missing piece in the ELSA process is documentation. A registration form. For a typical EAB you can register a box of parts but for an ELSA build you can not. That's really the thing to focus on.

My risk comments are subjective but are also reasonable and intuitive. In a 12is build, the box of parts is 100% comprehensive, every single design and equipment decision is made with an engineered and documented installation. Any builder could pick things up where someone else left off and continue to build the exact same airplane. There is also zero question about things like a 51% and which builder did how much. The way my brain works it's hard to think of any in-process airplane kit as suitable for collateral, but if we put a 12is ELSA build and a typical EAB build on a scale it seems clear that the ELSA parts would be more marketable. Unfortunately there is the documentation problem.

I do have other options to finance including the home equity and cash options. For the purpose of this question assume that decisions are based on unique facts and people may have their reasons for wanting to do things different than someone else. The question here isn't about how to find the cheapest money, it's exploring this process/regulatory problem that seems to apply only to an ELSA build.