Get FinancingWhat You Need To Know About The Financing Process When Buying Aircraft From Overseas
This post is courtesy of QPF Finance Group.
A lot of people believe that if they’re buying an aircraft from a seller outside of Australia, whether that be fixed-wing or rotary, that you can’t finance the purchase. This certainly isn’t the case.
“This misconception seems to have come about largely because not every lender has the ability to pay an overseas seller, and out of the ones that do, having you buy locally is generally their preference. There are a number of factors as to why many lenders prefer this however it predominantly boils down to fraud avoidance and minimising risk to both you as the customer as well as them as the lender.” Mike Watson, an equipment finance broker with QPF Finance that specialises in aviation and helicopter finance explains.
“However - just because this is their preference, does not mean that it has to be yours.”
As you’ve no doubt seen, a significant number of aircraft available to Australian buyers on Aviation Trader are listed by overseas sellers; be they based in New Zealand, The United States, Asia, Europe, or elsewhere. Oftentimes, particularly with certain aircraft, a great deal can be obtained with an overseas seller due to their market being larger than our own. Not to mention, the more specific your needs, the more likely it is you may need to look abroad to find the right solution.
Generally speaking, there are a number of steps you’ll need to be prepared for when you’re looking to finance an overseas purchase which Mike has helped outline for us:
1. Be very comfortable that the aircraft is the one you want (pending inspection etc.).
Whether it’s arranging a digital inspection, using a local agent, or going over yourself to check it out, it’s worth taking the time at the start to make sure you’re happy with the aircraft. As a significant part of the lender’s risk consideration and math is based on each particular aircraft including its cost and condition, changing at the last minute can cause considerable problems.
2. Get a formal valuation done; and get a good one the first time.
Just like when you’re buying a used aircraft locally, when you’re buying from an overseas seller, lenders will generally want to see a formal valuation as a part of their assessment.
“This is something that I often talk to my clients about arranging as early as possible. Your broker or banker should have a number of contacts that they can help arrange this through so that you can be sure the valuer will be someone who knows what they’re doing and, more importantly, someone who is known and trusted by the lender.” Mike says.
3. Get a good understanding of the other costs associated with importing.
While as buying an asset from an overseas seller can often represent a great saving, there are other costs that need to be considered. Things that need to be factored in can include GST & other import duties, freight costs, customs fees, quarantine costs, and transit insurance just to name a few.
“For any client that’s looking to buy from and overseas seller, I always recommend working with a qualified import agent to assist in this process & ensure they have all bases covered. Generally there are costs associated with importing that will need to be covered by you as an out-of-pocket expense but if you know and understand what these are you can make the right decision.”
4. Have your import funding solution ready to go.
Unlike paying a local seller where the lender pays the full balance of the invoice to the seller and then you collect the goods either at the same time or shortly thereafter, when you’re buying from overseas the delivery process can take much longer.
“Obviously the seller wants peace of mind before shipping goods however as the asset is the ultimate loan security, the lender wants it here before everything is finalised so they (and you) can be sure all is in good order,” Mike explains.
“To overcome this, a negotiation needs to take place wherein all parties give & take. Import funding through either a line of credit, trade-line, or other similar product is then used to ensure all parties are kept happy.“
Line of Credit products are products that are generally charged at a higher interest rate (compared to secured asset finance) and over a short term that are used to pay the seller in stages before the goods arrive in Australia. Generally, a financier will suggest something along the lines of:
- a 20% deposit (either from you or the finance facility) paid to the seller before they ship the asset.
- a 70% partial payment made to the seller once a shipping ‘Bill of Laiding’ is produced, confirming the asset has been shipped. And,
- the 10% balance paid to the seller either once the asset clears customs into Australia or once the asset has been reassembled and receives its Certificate of Airworthiness.
This process allows a situation whereby neither you nor the lender are at risk of significant money being transferred and then an international seller disappearing. The seller also doesn’t have to send their asset internationally without receiving anything in return.
While as this is the business norm in these international sales, for further peace of mind for more concerned sellers, escrow accounts and letters of bank guarantee can also be established to provide complete reassurance.
5. Have your approval in place for the asset facility ahead of time.
Once the asset arrives in Australia and the final payment has been made to the seller, the finance can be converted to a standard secured-finance facility such as a chattel mortgage or a lease.
“You’ll want this to happen as quickly as possible as the secured facility will be your longer term and lower rate finance with fixed monthly installments,” Mike says. “Having this approval in place well ahead of time, as well as ensuring all settlement conditions are met, is crucial to making sure the changeover is quick & painless.”
If you’ve considered purchasing an aircraft from overseas but find the finance side of things a daunting prospect, you’re not alone. Reach out to Mike Watson and the QPF Finance team for the support and experience you need to make your next aircraft purchase hassle free.