Ok, thanks beechtalk. I am not doing it. Too much risk and not enough reward. Cant afford to lose a friend.

Mike

Well...
Since you're not gonna loan him the money there's this new Dodge Charger SRT with a functional shaker hood I've been over.

Maybe I am contrarian.
What is wrong with this being a business deal?
Your friend has 600 or 700K of skin in the game, right?

Banks are quirky in what they approve these days.
A banker friend just told me last week that they are huge in the character of the borrower.

If he is a friend, you know he is a high character guy, you know why he is coming to you for the loan, I think this can be a good deal for both of you.

If I were your friend and I defaulted on you, I would feel worse than you.
Why would it affect our friendship if you repo the plane?
I would be grateful that you helped me out and we remain friends.

I don't see too many downsides!!!

This is kind of the model of PNC asset based financing.

Downside is if he defaults you get an Eclipse..

If the FMV is $1.3 million now, can the plane be worth less than $600K in 12 months?
Let's say it loses 20%, it's sold for $1million.
Would you turn down that return for 12 months?

Again, I am assuming the friend is a high character guy and knows airplanes, etc.

The airplane could be wrecked; both engines could suffer FOD; the Eclipse jet fleet could be grounded (by blanket AD or by parts availability like the fire bottles deal they had a while back); the economy could completely tank; private flying of turbojets could be banned (Jet-A rationing or an over-reaction to a perceived security issue of some sort); the airplane could be seized by the government (drugs, tax lien, evidence in a criminal case, other)

Or it could be only worth $1MM today and dip in value by 50% in an economic collapse (or if they again get restricted by AD to FL270 or whatever it was).

Believing that a depreciating asset could only decrease in value by a maximum of 20% in a year is one of those picking up nickels in front of a steamroller deals: 97% you're right and make 6% interest and 3% you're catastrophically wrong and broke.

You're not just giving a loan, you're also giving him a put option on the airplane at the same time.

Hum, I'd like to hear more about that.

Yes, Obama may resign as President after the State of the Union speech tomorrow night too...

Actually, the Eclipse can depreciate 50% and there is still a small profit for the lender, while helping out a friend.

Are you suggesting a bank should never finance any airplane? Or finance any equipment that depreciates in value?

Or does your the world is falling philosophy only apply to Eclipses?

It mostly extends to not playing banker in a situation where OP has said that he can't afford (or at least doesn't want) to lose the money and actual full-time bankers presumably won't make the loan.

The list of black swan events, many plausible, some less plausible than others was illustrative. I'm sure that Michael can put you in touch with his friend if you'd like to go in on this business arrangement. I wouldn't.

Loaning friends money is asking for one less friend...

Hum, I'd like to hear more about that.

I guess it depends...if your friend defaults, you sell the plane for say $1m within the next 12 months, the reward is pretty good to me!

I don't understand the idea that you may lose a friend...

What possible outcomes of this business transaction that will make you lose this friend, and vice versa?

Let's say the sky does fall and Eclipses are banned by FAA next month and the plane is worth zero - would you really un-friend your friend? Will he un-friend you?

Assuming you guys are "friends" and mutually agree to this transaction, I just don't see one scenario where I will lose a friend.

But that's just me!

It mostly extends to not playing banker in a situation where OP has said that he can't afford (or at least doesn't want) to lose the money and actual full-time bankers presumably won't make the loan.

Daniel,

I have, unfortunately, seen friendships damaged or lost a number of times over borrowed money not paid back. The same thing also happens in families regrettably.

I do not doubt that they happen all the times.

But a collateralized loan is what we have here, with a significant upside for the lender in case of a default.