Exploring Alternative Financing Options for Experimental and Kit-Built Aircraft
Experimental Amateur-Built (E-AB) aircraft represent one of the most vibrant segments of general aviation, offering pilots the opportunity to fly unique, high-performance aircraft at a fraction of certified aircraft costs. However, financing these aircraft presents unique challenges that require creative solutions. Traditional aircraft lenders typically won't touch experimental aircraft, leaving builders and buyers to explore alternative paths to ownership.
The experimental aircraft category encompasses everything from simple tube-and-fabric designs to sophisticated composite speedsters rivaling certified aircraft performance. This diversity, while exciting for pilots, creates headaches for lenders who struggle to assess values, evaluate risk, and establish standardized lending criteria. The result is a financing landscape that requires more effort to navigate but offers opportunities for those willing to think creatively.
This comprehensive guide explores the full range of financing options available for experimental and kit-built aircraft. Whether you're looking to purchase a completed experimental, finance a kit build, or structure a partnership arrangement, you'll find practical strategies and insights to help you achieve your aviation goals.
Why Traditional Lenders Say 'No' to Kit-Built Aircraft (And How to Get to 'Yes')
Understanding why traditional lenders avoid experimental aircraft helps you address their concerns and find lenders willing to work with you. The challenges are real, but they're not insurmountable.
The Lender's Perspective
Valuation challenges: Certified aircraft have established market values based on extensive sales data. Experimental aircraft values vary wildly based on builder quality, design choices, equipment, and condition. Two "identical" kit aircraft can differ in value by 50% or more based on build quality alone.
Collateral concerns: If a borrower defaults, the lender must repossess and sell the aircraft. Experimental aircraft have a smaller buyer pool, longer selling times, and less predictable sale prices. This uncertainty makes lenders uncomfortable.
Insurance complications: Experimental aircraft insurance is more expensive and sometimes harder to obtain. Lenders worry about gaps in coverage or policies that don't adequately protect their collateral interest.
Regulatory uncertainty: The experimental category has different maintenance requirements and operational limitations. Lenders unfamiliar with these rules may perceive additional risk.
Overcoming Lender Objections
Documentation is everything: The more thoroughly you can document an experimental aircraft's construction, condition, and value, the more comfortable lenders become. Complete build logs, professional inspections, and detailed equipment lists help establish credibility.
Appraisals matter: A professional appraisal from someone experienced with experimental aircraft provides lenders with third-party validation of value. Organizations like AOPA can help connect you with qualified appraisers.
Insurance first: Securing insurance before approaching lenders demonstrates the aircraft is insurable and provides the coverage lenders require. Work with aviation insurance specialists who understand experimental aircraft.
Larger down payments: Offering a larger down payment (30-50%) reduces lender risk and may open doors that would otherwise be closed. The lower loan-to-value ratio provides a cushion against valuation uncertainty.
Shorter terms: Accepting a shorter loan term (7-10 years instead of 15-20) reduces the lender's exposure and may make approval more likely.
Finding the Right Lender
Credit unions: Some credit unions with aviation lending programs are more flexible than banks. They may evaluate applications individually rather than applying rigid criteria.
Specialty lenders: A few lenders specialize in non-standard aircraft financing. They understand experimental aircraft and have developed appropriate evaluation methods.
Local banks: Community banks sometimes make loans based on relationship and overall financial picture rather than strict collateral requirements. If you have a strong banking relationship, explore this option.
EAA resources: The Experimental Aircraft Association maintains resources for members seeking financing and can connect you with lenders experienced in the experimental market.
Unlocking Your Hangar: Top 5 Alternative Loans for Experimental Aircraft
When traditional aircraft financing isn't available, several alternative loan structures can help you acquire an experimental aircraft. Each has advantages and drawbacks to consider.
1. Personal Unsecured Loans
How it works: You borrow based on your creditworthiness without pledging the aircraft as collateral. The lender relies on your income, credit history, and overall financial profile.
Advantages:
- No aircraft appraisal or documentation required
- Faster approval process
- Aircraft isn't encumbered—easier to sell if needed
- Available from many banks, credit unions, and online lenders
Disadvantages:
- Higher interest rates (typically 8-15% or more)
- Lower maximum loan amounts (often $50,000-$100,000)
- Shorter terms (3-7 years typical)
- Requires excellent credit for best rates
Best for: Lower-cost experimental aircraft, buyers with excellent credit, or as supplemental financing for part of the purchase.
2. Home Equity Loans and HELOCs
How it works: You borrow against the equity in your home. A home equity loan provides a lump sum with fixed payments, while a HELOC (Home Equity Line of Credit) provides flexible access to funds.
Advantages:
- Lower interest rates than unsecured loans (often 6-9%)
- Higher borrowing limits based on home equity
- Interest may be tax-deductible (consult a tax advisor)
- Longer repayment terms available
Disadvantages:
- Your home is at risk if you default
- Requires sufficient home equity
- Closing costs and fees apply
- May affect your ability to refinance your mortgage
Best for: Homeowners with significant equity who want lower rates and are comfortable using their home as collateral.
3. Securities-Based Lending
How it works: You borrow against your investment portfolio (stocks, bonds, mutual funds) without selling the investments. The portfolio serves as collateral.
Advantages:
- Competitive interest rates
- Investments continue to grow (potentially)
- No credit check in some cases
- Quick access to funds
Disadvantages:
- Risk of margin call if portfolio value drops
- May need to liquidate investments if you can't meet margin requirements
- Not all investments qualify as collateral
- Requires substantial investment portfolio
Best for: Investors with substantial portfolios who don't want to liquidate holdings to purchase an aircraft.
4. 401(k) Loans
How it works: You borrow from your own 401(k) retirement account, typically up to 50% of the vested balance or $50,000, whichever is less.
Advantages:
- You're borrowing from yourself—interest paid goes back to your account
- No credit check required
- Lower interest rates than many alternatives
- Easy approval process
Disadvantages:
- Reduces retirement savings growth
- Must repay within 5 years (or immediately if you leave your job)
- Unpaid balance becomes taxable distribution with penalties
- Limited to $50,000 maximum
Best for: Those with substantial 401(k) balances who need partial financing and have stable employment.
5. Peer-to-Peer and Online Lending
How it works: Online platforms connect borrowers with individual or institutional investors willing to fund loans. Rates and terms vary based on your credit profile.
Advantages:
- Streamlined online application process
- May approve borrowers traditional banks reject
- Competitive rates for well-qualified borrowers
- Fixed rates and terms
Disadvantages:
- Higher rates for less-qualified borrowers
- Origination fees reduce net proceeds
- Maximum loan amounts may be limited
- Less flexibility than traditional lenders
Best for: Borrowers comfortable with online processes who want to compare multiple offers quickly.
Beyond Loans: Creative Equity and Partnership Structures to Fund Your Build
Sometimes the best financing doesn't involve traditional loans at all. Partnership structures and creative arrangements can make experimental aircraft ownership accessible when conventional financing isn't available.
Equity Partnerships
Structure: Two or more individuals share ownership of the aircraft, dividing purchase costs, ongoing expenses, and usage rights according to their ownership percentages.
Benefits:
- Reduces individual financial burden
- Shares ongoing costs (insurance, maintenance, hangar)
- Partners may bring complementary skills (building, maintenance, flying)
- Social aspect of shared ownership
Challenges:
- Scheduling conflicts for aircraft use
- Disagreements over maintenance, modifications, or selling
- Partner financial difficulties can affect everyone
- Need clear legal agreements
Key agreement elements: Ownership percentages, capital contribution requirements, expense sharing formulas, scheduling procedures, maintenance standards, modification approval process, buyout procedures, and dispute resolution mechanisms.
Builder Partnerships
Structure: One partner provides capital while another provides building labor and expertise. Upon completion, ownership is divided according to the agreement.
Benefits:
- Enables ownership for those without building skills or time
- Provides compensation for skilled builders
- Can result in higher-quality build than solo effort
Challenges:
- Valuing labor contribution fairly
- Managing build timeline and quality expectations
- FAA "51% rule" compliance (builder must do majority of work)
- What happens if the partnership dissolves mid-build?
Flying Clubs
Structure: A group of pilots forms a club that owns one or more aircraft. Members pay initiation fees, monthly dues, and hourly rates for aircraft use.
Benefits:
- Lower individual investment than sole ownership
- Access to aircraft without full ownership responsibilities
- Shared maintenance and administrative burden
- Community of fellow pilots
Challenges:
- Less control over aircraft selection and modifications
- Scheduling limitations
- Club politics and management issues
- May not be available for experimental aircraft in your area
Leaseback Arrangements
Structure: You purchase the aircraft and lease it back to a flight school or rental operation. Rental income offsets ownership costs.
Benefits:
- Rental income reduces net ownership cost
- Aircraft stays active and maintained
- May provide tax advantages
Challenges:
- Most flight schools won't use experimental aircraft for training
- Higher wear and tear from rental use
- Scheduling your own use around rentals
- Insurance and liability complications
Note: Leaseback is rarely practical for experimental aircraft due to insurance and liability concerns, but may work in specific situations with the right operator.
Your Pre-Flight Plan: The Ultimate Checklist for Securing Aircraft Financing
Whether you're pursuing traditional financing, alternative loans, or partnership structures, thorough preparation improves your chances of success. Use this comprehensive checklist to organize your approach.
Financial Preparation
Credit optimization:
- Check your credit reports from all three bureaus
- Dispute any errors and resolve outstanding issues
- Pay down credit card balances to reduce utilization
- Avoid new credit applications before seeking aircraft financing
Documentation assembly:
- Gather two years of tax returns
- Compile recent pay stubs or income documentation
- Prepare bank and investment account statements
- Create a personal financial statement
Down payment preparation:
- Accumulate funds in accessible accounts
- Document the source of funds
- Plan for 25-50% down payment for experimental aircraft
Aircraft Documentation
For completed experimental aircraft:
- Obtain complete build logs and documentation
- Verify FAA registration and airworthiness certificate
- Compile condition inspection records
- Create detailed equipment list with values
- Document flight time and maintenance history
- Obtain professional appraisal
For kit purchases:
- Research kit manufacturer reputation and support
- Understand total build cost including engine, avionics, paint
- Create realistic build timeline and budget
- Identify financing needs for each build phase
Insurance Preparation
Before approaching lenders:
- Contact aviation insurance specialists
- Obtain quotes for the specific aircraft
- Verify coverage meets typical lender requirements
- Understand any pilot qualification requirements
Lender Research
Identify potential lenders:
- Contact credit unions with aviation programs
- Research specialty experimental aircraft lenders
- Explore local bank relationships
- Investigate EAA member resources
- Compare alternative loan options (home equity, personal loans)
Experimental Aircraft Financing Checklist
- ✓ Review and optimize credit profile
- ✓ Accumulate down payment funds (25-50%)
- ✓ Gather financial documentation
- ✓ Obtain aircraft build logs and documentation
- ✓ Secure professional appraisal
- ✓ Get insurance quotes meeting lender requirements
- ✓ Research specialized lenders
- ✓ Explore alternative financing options
- ✓ Consider partnership structures
- ✓ Prepare for higher rates and shorter terms
- ✓ Document your aviation experience
- ✓ Create realistic ownership budget
For more information on aircraft financing options, see our experimental aircraft beginner guide and explore our aircraft loan calculator to estimate payments under different scenarios.
Frequently Asked Questions
Why won't traditional aircraft lenders finance experimental aircraft?
Traditional aircraft lenders avoid experimental aircraft for several reasons: unpredictable resale values make collateral assessment difficult, limited comparable sales data complicates appraisals, higher perceived risk due to non-certified construction, insurance challenges and higher premiums, and smaller market of potential buyers if repossession becomes necessary. The lack of type certification means each aircraft is essentially unique, making standardized lending criteria impossible to apply.
Can I get a loan to build a kit aircraft?
Financing a kit aircraft build is challenging but possible. Options include personal unsecured loans (higher rates but no collateral required), home equity loans or HELOCs (lower rates, uses your home as collateral), builder financing programs from some kit manufacturers, and phased purchasing where you buy components as you can afford them. Most builders use a combination of savings and incremental financing, purchasing major components (engine, avionics) separately as the build progresses.
What is the typical down payment for experimental aircraft financing?
When financing is available for completed experimental aircraft, expect down payments of 25-40%—significantly higher than the 15-20% typical for certified aircraft. Some lenders require 50% down for first-time experimental aircraft buyers or unusual designs. The higher down payment compensates for the lender's increased risk and the difficulty of establishing accurate collateral values.
Are there lenders that specialize in experimental aircraft?
A few lenders have developed expertise in experimental aircraft financing, including some credit unions with aviation programs, specialty aviation lenders who evaluate aircraft individually, and EAA (Experimental Aircraft Association) affiliated programs. These lenders typically require detailed documentation of the aircraft's construction, condition, and equipment. Rates are generally 1-3% higher than comparable certified aircraft loans, and terms may be shorter.
How does partnership financing work for experimental aircraft?
Partnership structures can make experimental aircraft ownership more accessible. Common approaches include equity partnerships where multiple owners share purchase costs and ongoing expenses, leaseback arrangements where one partner provides capital while another provides building/maintenance expertise, and flying clubs that pool resources to acquire and maintain aircraft. Partnerships require clear legal agreements covering ownership percentages, usage rights, expense sharing, maintenance responsibilities, and exit procedures.
What documentation do I need to finance a completed experimental aircraft?
Lenders financing experimental aircraft typically require: FAA registration and airworthiness certificate, complete build logs and documentation, condition inspection records, detailed equipment list with values, flight time and maintenance history, builder's affidavit (for original builder), insurance quote showing the aircraft is insurable, and professional appraisal from someone experienced with experimental aircraft. The more complete your documentation, the better your financing options.
Disclaimer: This article provides general information about financing options for experimental aircraft and should not be considered financial or legal advice. Financing availability, terms, and requirements vary by lender and individual circumstances. Using home equity or retirement funds involves significant risks. Consult with financial advisors, attorneys, and aviation professionals before making financing decisions. Partnership agreements should be reviewed by qualified legal counsel.