Financing for sole proprietor
Posted by Background_Tax556@reddit | flying | View on Reddit | 23 comments
Co-owner and I bought a plane. He is a sole proprietor 1099 guy who doesn’t have a paystub and shows almost no income on his 1040. Aopa denied him. We are both 750-820 credit scores. It’s only a $45k loan on a $55k airplane.
What other finance companies should we look at?
FWIW, the plane is a 1964 Cherokee 150 with airframe 1800TT and just overhauled engine. We are making avionics upgrades to G5/375/215 to make it IFR certified.
Wemest@reddit
Check around there are aircraft loan brokers.
Background_Tax556@reddit (OP)
Thank you I will ask around locally
NYPuppers@reddit
i'm going to sound like a massive jerk here but if you are buying a plane for 55k and splitting it two ways you should be paying cash. planes are expensive, debt is expensive, maintenance is expensive, insurance is expensive, etc. point is: not everybody should own an airplane. if you dont each have $30k in assets sitting around to light on fire, i would say that includes you. just my opinion and i will get roasted for it, but i feel pretty good about it after owning a plane for a few years and understanding how expensive annuals can get.
Background_Tax556@reddit (OP)
We both have the cash but want to keep it in investments. I don’t blame you a bit for feeling that way
frost08887@reddit
arbitrage is great for your investments. Just simplify your life and pay cash. $30k shouldn’t be very much money for you
Ornery_Ads@reddit
No one running a successful business would be unable to show a solid income stream. If that is your sole source of income, where does money for your mortgage come from? Car? Gas? Utilities? Food? Everyday life?
Banks are happy to write loans backed by... anything you offer. They will look at tax documents, bank account balances, W2, etc. If you can't show income anywhere, that's more a you problem than a bank problem.
If you're so solid, qualify for the loan yourself and just have a buddy agreement with your friend that he pays half.
Or get a personal loan.
Background_Tax556@reddit (OP)
I qualified myself. But the loan company said he would have to be removed from the registration and he couldn't fly the plane without me in it. Comically stupid rules. I asked AOPA rep about why it was different than a car loan, and she said "what if someone else flies it and they don't come back?" I said same thing can happen in a car. She said, "oh well those are the rules".
He provided his tax documents and 1099 and other stuff. AOPA was just a pain. We are going to write up a loan with his truck as secondary collateral and use my HELOC. The plane is not expensive enough to be worth all this hassle.
JonboatJohn@reddit
He needs to show the business financials. A million of revenues and a million in expenses equals zero income.
ltcterry@reddit
And "zero income" means zero ability to pay a loan. Cashflow and income are not the same thing.
Background_Tax556@reddit (OP)
AGI on a 1040 and cash flow are not the same thing
FyrPilot86@reddit
Walk away from the deal
Background_Tax556@reddit (OP)
Why do you say that?
blacknessofthevoid@reddit
The problem is not that he is a sole proprietor or he is 1099. The issue is that he has no income. If his business is doing great and “he is strategically re-investing in the business” then his business entity can buy an airplane. Which is not the case either or he would have an LLC or corp and not have a 1099/sole proprietor status. He also does not have any assets or he would not need the loan.
Sorry, in the end your friend is broke and can’t afford a plane at this point. If someone does finance it in the end, they will f you on interest to compensate for the risk.
Background_Tax556@reddit (OP)
I own 2 businesses myself. You sound like you've never owned one or worked as a 1099 employee? I think maybe once have I ever reported positive income on a 1040 for those businesses. That doesn't mean the businesses don't have cash flow or have assets. It means you use depreciation, cost-seg, and other write-offs to compensate for the revenue. Not all write-offs are a true cash-out expense.
I just also happen to be a W2 employee for my day job and have plenty of income there to qualify for the loan.
My co-owner has never had any issue getting a car loan or buying a house. It just seems odd that he can't buy a $55k airplane like this. Really strange...
Either way, it looks like we are just going to use my HELOC because we just realized it's the same interest as AOPA was going to get us and we don't have any of the headache of dealing with them. I'll have my lawyer draw up a written agreement between us citing his loan responsibilities and remedies if they aren't upheld. Not a big deal. I appreciate the other guy who mentioned HELOC...that should have been my first thought. We've got a $400k line so this leaves plenty to continue working real estate deals.
FlapsupGearup@reddit
There is some weird notion that you must be an LLC/Corp to be a legitimate business.
Also…”rawr you should use X as a business write off”, then…”rawr your business doesn’t show a profit, you suck at business”
Background_Tax556@reddit (OP)
Not sure I understand your post. You can be a business without limiting your liability for sure. No requirement to do that.
Frosty_Piece7098@reddit
I’ve tried for AOPA financing twice. First time I had the same problem as your buddy, a lot of 1099 work. The 2nd time, they denied me “for my scores” and refused to work with me. I had all scores around 780-800. 300K a year as a 767 captain.
Screw AOPA.
perispomene@reddit
The bank I work with is interested in doing aviation loans. DM me and I'll send you the contact info.
mooooooooney@reddit
I'd love to hear more first hand experiences how folks finance planes. I imagine with newer higher price aircraft there are more options. From what I've seen dorr, aopa (and I'm sure others these are just the ones I know 1st hand experience) financing is a joke. The paperwork and hassle you'll go through is like buying a house then they'll deny it anyway. I've pretty much made up my mind next time i need financing on a plane I'm not even gonna try to use the aircraft for collateral.
ltcterry@reddit
Neither income nor wealth are part of a credit score. Yet both of those determine the ability to repay some loan amount.
One of the drawbacks of “no income on his 1040“ is no income for Social Security purposes. One day this will also turn into a small number.
FridayMcNight@reddit
Pledged asset loan/line. HELOC. Teaser rate credit card.
equal2infinity@reddit
You can look at Dorr maybe. For that low of an amount it’s almost more of a nuisance to banks. Maybe try a local bank that you have a good relationship with. Interest rate might be higher and they may require more down payment.
rFlyingTower@reddit
This is a copy of the original post body for posterity:
Co-owner and I bought a plane. He is a sole proprietor 1099 guy who doesn’t have a paystub and shows almost no income on his 1040. Aopa denied him. We are both 750-820 credit scores. It’s only a $45k loan on a $55k airplane.
What other finance companies should we look at?
FWIW, the plane is a 1964 Cherokee 150 with airframe 1800TT and just overhauled engine. We are making avionics upgrades to G5/375/215 to make it IFR certified.
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