My question would be why does he need the money? Anyway, you need to make sure it is actually a $1.3m airplane. Depending on the configuration, it could be worth $600k and it could be worth $1.3m. The $1.3 is FMV for a average time excellent conditions all SB complied with fully upgraded iFMS aircraft.



+1

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

Heck, I don't know. I have never had an airplane loan, but 6% money isn't too bad. I'm making a solid 12-14% managing mine. Oh, but then there is that whole hull insurance thing you would have to carry .... The deal suddenly doesn't look as attractive!

I can help your friend out easily but first I would need an advance payment of $5000 deposited in my account in the Cayman Islands. I can then have the money transferred from my Nigerian account to the Cayman account and have a check in his hand in no time. PM me for the bank to send the 5K to. Happy to help.
Cheers, Elliot

This sized loan is not a the type you're thinking of. When dealing with "real money" you have to separate business from friendship. I've loaned friends "important" money. We had a signed contract and a secure position. I also knew he would do what it took to make it good, which banks can't really consider these days. His approach to borrowing wasn't because I was a friend but because he felt his character was on the line.

I made more interest on that loan than I otherwise would have, and he got a lower rate than he otherwise would have.

This loan, as described, I'm not sure I'd get into. I don't know enough about the risk, and the rate seems lower than I'd like... but mainly because I just don't know enough.

OTOH, don't write off the ability to do actual business with friends. You both have to be able to separate those relationships, and not everybody can do that, but it can work. You also don't want to take serious risk, friend or not, if it's your last $600k, which I don't know (and am not asking). There is far too little info to really make any specific comments.

As someone else pointed out, though, since the the question is being asked then it's not a sign that the deal is solid.

Dan

This sized loan is not a the type you're thinking of. When dealing with "real money" you have to separate business from friendship. I've loaned friends "important" money. We had a signed contract and a secure position. I also knew he would do what it took to make it good, which banks can't really consider these days. His approach to borrowing wasn't because I was a friend but because he felt his character was on the line.

I made more interest on that loan than I otherwise would have, and he got a lower rate than he otherwise would have.

This loan, as described, I'm not sure I'd get into. I don't know enough about the risk, and the rate seems lower than I'd like... but mainly because I just don't know enough.

OTOH, don't write off the ability to do actual business with friends. You both have to be able to separate those relationships, and not everybody can do that, but it can work. You also don't want to take serious risk, friend or not, if it's your last $600k, which I don't know (and am not asking). There is far too little info to really make any specific comments.

As someone else pointed out, though, since the the question is being asked then it's not a sign that the deal is solid.

Dan

Except your conclusion, I agree - the point is that just because it is a friend does not make this a bad deal. It can absolutely work.

The original question was:
>>>A friend has approached me to him loan 600k on a 1.3 million eclipse, 1 year balloon at 6%, what are the downsides on this?
In default, i get the plane.
What am i missing?

This is a one year loan. As long as the plane is checked out at $1.3M, and you know your friend's character, and he's in the game for $700K, I just don't know too many downsides.

Good case scenario, you make $36,000 of interest and help out a friend in need.
"Better" case scenario, your friend defaults, the plane sells for $1M, and you make $400K in about 1 year.
"Worst" case scenario, GA is banned by Obama and plane is worth zero and you lose $600K. Highly unlikely, but for discussion purpose, a possibility.

If you do it, consider the risk, and cost of recovery, of your friend and the plane dissapearing overseas at the end of the year. Maybe watch a couple episodes of Airplane Repo.

By the time you repo it and fix any airworthiness items and sell it through a broker, your "profit" may be greatly decreased from what simple math would have you expect. You would need a lot of cash on hand to be sure you could complete that process.

I am beginning to question if there is a different definition of the word 'friend' in different parts of the country...

Its a 1.7 with the bottles and liners done, 6 seats, engine program. Probably could be dumped for a million and maybe sell patiently for 1.2.

Those early eclipses are worth 500-600 i think.

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

This sized loan is not a the type you're thinking of. When dealing with "real money" you have to separate business from friendship. I've loaned friends "important" money. We had a signed contract and a secure position. I also knew he would do what it took to make it good, which banks can't really consider these days. His approach to borrowing wasn't because I was a friend but because he felt his character was on the line.

I made more interest on that loan than I otherwise would have, and he got a lower rate than he otherwise would have.

This loan, as described, I'm not sure I'd get into. I don't know enough about the risk, and the rate seems lower than I'd like... but mainly because I just don't know enough.

OTOH, don't write off the ability to do actual business with friends. You both have to be able to separate those relationships, and not everybody can do that, but it can work. You also don't want to take serious risk, friend or not, if it's your last $600k, which I don't know (and am not asking). There is far too little info to really make any specific comments.

As someone else pointed out, though, since the the question is being asked then it's not a sign that the deal is solid.

Dan

Adam,

I agree with your conclusion about doing the deal. But I don' think that your conclusion is correct. There are many times and circumstances in which a loan on a business asset makes a great deal of sense. If the aircraft in question is a tool of production and it can be demonstrated that it produces a yield in excess of its cost then it is a fair candidate for a loan. In a personal situation it may be also. Many people have structured their lives around debt and it works quite well when used responsibly. Debt on a used Eclipse might make just as much sense to someone's situation as debt on a car, home or other item in someone else's. Without knowing the specifics I find it hard to say. I guess I'm saying I think Dan Ramsey and his followers (not saying you are one BTW) are correct for many times, circumstances and people but like all simplistic solutions not for all times, circumstances and people.

Disregard the friend issue and look at the whole process like a business situation.
Would you be loaning the money in order to benefit yourself or the other party? No lending institution loans money solely for the borrower's sake.
Sounds like you're not going to make the loan but thought I'd chime in.

Buy a citation and lease it to him if he needs a plane.