How to Finance a Partnership Share in a Piston Aircraft
Aircraft partnerships offer a compelling path to ownership—sharing the costs of purchase, maintenance, insurance, and hangar fees while still enjoying the benefits of having your own airplane. But financing a partnership share presents unique challenges that differ significantly from financing sole ownership. Lenders view partnerships as more complex and potentially riskier, which affects both availability and terms of financing.
Whether you're joining an existing partnership, forming a new one, or helping a partner finance their buy-in, understanding how partnership financing works is essential. The structure of your partnership agreement, how title is held, and how you approach lenders all impact your ability to secure financing and protect your investment.
This guide covers everything you need to know about financing aircraft partnership shares: what lenders require, how to structure agreements that support financing, the application process, and strategies for protecting all partners' interests. With proper planning, partnership financing is achievable and can make aircraft ownership accessible to pilots who couldn't afford sole ownership.
Partnership Financing Fundamentals: What Lenders Need to See for Shared Ownership
Financing a partnership share is fundamentally different from financing a whole aircraft. Lenders face additional complexities and risks that affect how they evaluate and structure these loans.
Why Partnership Financing Is More Challenging
From a lender's perspective, partnership loans present several complications:
Collateral complexity: The lender's collateral is a fractional interest in an aircraft, not the whole aircraft. If you default, they can't simply repossess and sell the plane—they own a share that must be sold to the other partners or on the open market.
Multiple parties: Partnership dynamics can change. Partners may disagree, one may want out, or financial circumstances may change. These human factors add risk beyond the aircraft itself.
Maintenance uncertainty: Will all partners contribute fairly to maintenance? If one partner neglects their obligations, the aircraft (collateral) may deteriorate.
Title complications: Recording liens on fractional interests requires careful documentation. Title searches and lien perfection are more complex.
Lender Requirements for Partnership Financing
Lenders who offer partnership financing typically require:
| Requirement | Purpose |
|---|---|
| Formal partnership agreement | Documents rights, responsibilities, and procedures |
| All partners' financial information | Ensures all owners can support the aircraft |
| Clear title documentation | Establishes ownership percentages and lien positions |
| Insurance with lender as loss payee | Protects lender's collateral interest |
| Buy-sell provisions in agreement | Addresses what happens if partners change |
| Personal guarantees | Additional security beyond aircraft share |
Typical Partnership Financing Terms
When partnership financing is available, terms typically differ from sole-ownership loans:
| Factor | Sole Ownership | Partnership Share |
|---|---|---|
| Loan-to-value ratio | 80-90% | 60-75% |
| Interest rate premium | Base rate | +0.50-1.00% |
| Maximum term | 15-20 years | 10-15 years |
| Minimum loan amount | $20,000-$50,000 | $30,000-$75,000 |
| Documentation requirements | Standard | Enhanced |
Alternative Financing Options
If traditional aircraft lenders won't finance your partnership share, consider alternatives:
Personal unsecured loans: Banks and credit unions offer personal loans that can be used for any purpose, including aircraft purchases. Rates are higher (8-15%) and terms shorter (3-7 years), but approval doesn't depend on the aircraft or partnership structure.
Home equity loans/HELOCs: If you have home equity, these loans offer lower rates (often 6-9%) and longer terms. The aircraft isn't collateral—your home is—so partnership structure doesn't matter to the lender.
Margin loans: If you have investment accounts, you may be able to borrow against them at relatively low rates (currently 5-8% at many brokerages). Quick approval and flexible terms, but your investments are at risk if the market drops.
401(k) loans: You can borrow from your 401(k) for any purpose, typically up to $50,000 or 50% of your balance. You pay interest to yourself, but there are risks if you leave your job or can't repay.
Partner financing: Existing partners may be willing to finance a new partner's buy-in, either directly or by carrying a note. This keeps financing within the partnership but requires trust and proper documentation.
Structuring the Deal: Legal and Financial Frameworks That Protect All Partners
The structure of your partnership significantly impacts financing options, liability protection, and operational flexibility. Getting the structure right from the start prevents problems later.
Ownership Structure Options
Tenants in Common:
Each partner owns a specific percentage of the aircraft (e.g., 25% each for four partners). Ownership percentages can be unequal. Each partner can sell or encumber their share independently (subject to agreement restrictions). This is the most common structure for financed partnerships because lenders can take a lien on a specific ownership percentage.
Joint Tenants with Right of Survivorship:
Partners own equal shares, and if one dies, their share automatically passes to surviving partners. Less common for aircraft because it limits flexibility and may not align with estate planning goals.
LLC Ownership:
Partners form an LLC that owns the aircraft. Partners own membership interests in the LLC, not direct aircraft ownership. Provides liability protection—personal assets are generally shielded from aircraft-related claims. May complicate financing because lenders must lend to the LLC or accept LLC interests as collateral.
Corporation Ownership:
Similar to LLC but with corporate structure. Partners own stock in the corporation. More complex and expensive to maintain but may offer tax advantages for some situations.
Key Partnership Agreement Provisions
A comprehensive partnership agreement is essential for both operational success and financing approval. According to AOPA's partnership guidance, agreements should address:
Ownership and Capital:
- Ownership percentages for each partner
- Initial capital contributions
- How additional capital calls are handled
- Whether ownership percentages can change
Operating Costs:
- How fixed costs (insurance, hangar, annual) are shared
- How variable costs (fuel, hourly maintenance) are allocated
- Payment schedules and procedures
- Consequences for non-payment
Scheduling and Use:
- Scheduling system and priority rules
- Minimum/maximum usage allocations
- Extended trip policies
- Guest and family use policies
Maintenance and Standards:
- Maintenance decision authority
- Required maintenance standards
- Approved maintenance facilities
- Upgrade and modification decisions
Buy-Sell Provisions (Critical for Financing):
- Right of first refusal for remaining partners
- Valuation method for buyouts
- Payment terms for buyouts
- What triggers mandatory buyout (death, disability, default)
- Timeline for completing buyouts
Dispute Resolution:
- Mediation/arbitration requirements
- Voting procedures for decisions
- Deadlock resolution mechanisms
Financing Provisions:
- Whether partners can encumber their shares
- Lender notification requirements
- What happens if a partner defaults on their loan
- Insurance requirements to protect lender interests
Title and Lien Considerations
How title is held affects financing options:
FAA Registration: The aircraft must be registered with the FAA Aircraft Registry. For partnerships, registration can list all partners as co-owners with their respective percentages, or list an LLC/corporation as owner.
Lien Recording: Aircraft liens are recorded with the FAA, not local jurisdictions. For partnership shares, the lien must clearly identify the fractional interest being encumbered. This requires precise documentation.
Title Search: Before financing, lenders conduct title searches to verify ownership and existing liens. Partnership structures require more thorough searches to ensure all interests are properly documented.
The Financing Application: Documenting Partnership Agreements for Loan Approval
Applying for partnership share financing requires more documentation than sole-ownership loans. Thorough preparation improves approval chances and speeds the process.
Required Documentation
Expect to provide:
Partnership Documents:
- Complete partnership agreement (signed by all partners)
- LLC operating agreement or corporate bylaws (if applicable)
- Certificate of formation/incorporation (if applicable)
- Partnership meeting minutes showing approval of the transaction
Aircraft Documents:
- Current FAA registration
- Bill of sale or purchase agreement
- Title search results
- Current appraisal or valuation
- Maintenance records summary
Financial Documents (for all partners):
- Personal financial statements
- Tax returns (2-3 years)
- Proof of income
- Bank statements
- Credit authorization
Insurance Documents:
- Current insurance policy or binder
- Evidence of adequate coverage
- Lender named as loss payee
The Application Process
Step 1: Pre-qualification
Contact potential lenders to discuss your situation before formal application. Not all lenders offer partnership financing, and those that do have varying requirements. Pre-qualification helps identify suitable lenders and potential issues.
Step 2: Gather Documentation
Collect all required documents before applying. Incomplete applications delay processing and may result in denial. Ensure partnership agreement addresses all lender concerns.
Step 3: Submit Application
Complete the lender's application with accurate information. Disclose the partnership structure and provide all requested documentation. Be prepared to explain the partnership arrangement.
Step 4: Underwriting Review
The lender reviews all documentation, verifies information, and evaluates risk. This typically takes 1-3 weeks for partnership loans. Be responsive to requests for additional information.
Step 5: Approval and Closing
If approved, review loan terms carefully before accepting. Closing involves signing loan documents, recording liens with the FAA, and disbursing funds. Ensure all partners understand their obligations.
Common Application Challenges
Incomplete partnership agreements: Agreements missing key provisions (especially buy-sell terms) may result in denial. Have an aviation attorney review your agreement before applying.
Partner qualification issues: If one partner has credit problems, it can affect the entire application. Address individual credit issues before applying, or consider restructuring the partnership.
Valuation disputes: Lenders may value the aircraft differently than partners expect. Be prepared for lower-than-expected loan amounts based on lender's appraisal.
Title complications: Existing liens, unclear ownership history, or documentation gaps can delay or prevent financing. Conduct thorough title searches early in the process.
Exit Strategy Planning: Protecting Your Investment When Partners Change
Partnerships change over time. Partners may want to sell, may face financial difficulties, or may pass away. Planning for these eventualities protects everyone's investment and ensures smooth transitions.
Voluntary Departures
When a partner wants to sell their share:
Right of first refusal: Remaining partners should have the first opportunity to purchase the departing partner's share at fair market value. This prevents unwanted new partners and maintains partnership stability.
Valuation method: Agree in advance how shares will be valued. Options include: independent appraisal, agreed formula (e.g., VREF value × ownership percentage), or mutual agreement. Having a predetermined method prevents disputes.
Payment terms: Specify whether buyouts must be cash or can be financed over time. Installment payments make buyouts more affordable but create ongoing obligations.
Timeline: Set reasonable deadlines for exercising purchase rights and completing transactions. Typical timelines: 30-60 days to decide, 60-90 days to close.
Involuntary Departures
Death of a partner: The agreement should specify what happens to a deceased partner's share. Options include: mandatory purchase by remaining partners, option to purchase, or allowing heirs to become partners (rarely desirable). Life insurance can fund buyouts.
Disability: If a partner becomes unable to fly or participate, the agreement should address whether and how their share is purchased.
Default: If a partner fails to pay their share of costs, the agreement should specify consequences: cure periods, interest on late payments, and ultimately forced sale of their share.
Bankruptcy: A partner's bankruptcy can complicate partnership ownership. The agreement should address how bankruptcy affects the partnership and the bankrupt partner's share.
Protecting Financed Shares
When partnership shares are financed, additional considerations apply:
Lender notification: Most loan agreements require notifying the lender of ownership changes. Failure to notify can trigger default provisions.
Loan assumption: If a new partner buys a financed share, they may need to assume the existing loan or obtain new financing. Lender approval is typically required.
Payoff requirements: Some loans require full payoff upon ownership change. Understand your loan terms before planning transitions.
Cross-default provisions: If partners have separate loans, one partner's default shouldn't affect others' loans—but verify this in your loan documents.
Insurance Considerations for Transitions
Partnership changes affect insurance:
- Notify your insurer of any ownership changes
- New partners must be added to the policy and meet pilot requirements
- Departing partners should be removed to avoid coverage issues
- Coverage amounts may need adjustment based on new ownership structure
- Lender loss payee provisions must be maintained
Partnership Financing Checklist
- ✓ Draft comprehensive partnership agreement with attorney review
- ✓ Include buy-sell provisions acceptable to lenders
- ✓ Determine optimal ownership structure (direct, LLC, etc.)
- ✓ Ensure all partners can qualify individually
- ✓ Conduct thorough title search
- ✓ Obtain current aircraft appraisal
- ✓ Gather financial documentation for all partners
- ✓ Research lenders offering partnership financing
- ✓ Consider alternative financing if traditional options unavailable
- ✓ Plan for partner transitions and exits
- ✓ Secure appropriate insurance coverage
- ✓ Document everything for future reference
For more information on partnership structures, see our guide on aircraft co-ownership vs. sole ownership and use our loan calculator to estimate financing costs for your partnership share.
Frequently Asked Questions
Can I get a loan to buy a partnership share in an aircraft?
Yes, but it's more challenging than financing sole ownership. Some aviation lenders offer partnership share financing, though terms are typically less favorable than whole-aircraft loans. Requirements usually include: a formal partnership agreement, clear title documentation showing ownership percentages, all partners meeting lender requirements, and often personal guarantees. Loan-to-value ratios are typically lower (60-75% vs. 80-90% for sole ownership), and interest rates may be 0.5-1% higher. Alternative financing options include personal loans, home equity loans, or margin loans against investment accounts.
What should a partnership agreement include for financing purposes?
Lenders want partnership agreements that clearly address: ownership percentages and how they're documented on the title, buy-sell provisions (what happens if a partner wants out), right of first refusal for remaining partners, dispute resolution procedures, maintenance responsibilities and cost sharing, insurance requirements and who's responsible, default provisions (what if a partner stops paying), lender notification requirements, and restrictions on selling or encumbering shares. A well-drafted agreement protects all partners and satisfies lender requirements. Have an aviation attorney review the agreement before finalizing.
How is aircraft title handled in a partnership?
Partnership aircraft title can be structured several ways: tenants in common (each partner owns a specific percentage, can sell independently), joint tenants with right of survivorship (ownership passes to surviving partners), LLC ownership (partners own LLC shares, LLC owns aircraft), or corporation ownership. For financing, lenders prefer clear percentage ownership documented on the FAA registration. LLC structures may complicate financing but offer liability protection. The title structure affects how liens are recorded, what happens if a partner defaults, and how the aircraft transfers if a partner dies or leaves.
What happens to my loan if a partner wants to sell their share?
This depends on your partnership agreement and loan terms. Typically: if you have individual loans on your shares, each partner's loan is independent—one partner selling doesn't directly affect others' loans. If there's a single loan on the whole aircraft with multiple guarantors, the selling partner may need to be released from the loan (requiring lender approval and possibly refinancing). Most agreements include right of first refusal, giving remaining partners the option to buy the departing partner's share. Your loan may have provisions about ownership changes—review these carefully and notify your lender of any changes.
Should each partner get their own loan or should we get one loan together?
Both approaches have pros and cons. Individual loans: each partner is responsible only for their share, one partner's default doesn't directly affect others, easier to handle if a partner leaves, but may have higher rates and more administrative complexity. Joint loan: potentially better terms due to larger loan amount, simpler administration, but all partners are liable for the full amount, one partner's default affects everyone, and changes in partnership require lender involvement. For most partnerships, individual financing (or individual portions of the purchase) provides better protection and flexibility.
How do lenders evaluate partnership loan applications?
Lenders evaluate partnership loans more carefully than sole-ownership loans. They typically review: each partner's individual creditworthiness (all partners usually must qualify), the partnership agreement's provisions, how maintenance and operating costs are shared, insurance arrangements, dispute resolution mechanisms, and exit provisions. Lenders want assurance that the partnership is stable and that their collateral (the aircraft) will be properly maintained regardless of partnership dynamics. Strong agreements and qualified partners improve approval chances and terms.
Disclaimer: This article provides general information about financing aircraft partnership shares and should not be considered legal or financial advice. Partnership structures, financing options, and requirements vary significantly based on individual circumstances. Always consult with qualified aviation attorneys and financial professionals before entering into partnership agreements or financing arrangements. Loan terms and availability depend on lender policies and market conditions.