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EAA/NAFCO no longer doing kit loans

tnelson

Well Known Member
Approaching the tail end of my build and have been planning a loan to finance the balance of my panel and engine. I’ve been in communication with NAFCO for some time and today they informed me that they are out of the kit financing business.

According to my contact: “ We had to end that program for now because the FAA changed their policy on kit registration. They now hold the position that if it isn’t a completed airplane, it shouldn’t be registered. In the past we were able to register the planes in kit form which allowed us to secure a lien against it, but if we can't register it then we can't enforce a lien and therefore the bank will no longer finance anything not completed and airworthy.”

Anyone else encounter this? Any other banks that still do kit loans? I’m really curious as to who at the FAA decided they needed a policy change and what problem they are trying to solve?
 
They now hold the position that if it isn’t a completed airplane, it shouldn’t be registered. In the past we were able to register the planes in kit form which allowed us to secure a lien against it, but if we can't register it then we can't enforce a lien and therefore the bank will no longer finance anything not completed and airworthy.”

?

This is odd. What is a completed airplane? I would think it's one that has its A/W certificate. But the FAA won't issue an A/W certificate unless it's first registered! Sort of a Catch 22.
 
This is definitely bad news for Vans and other kit/panel manufacturers. However, those selling their completed RVs might see another spike in prices. The FAA appears to not thinks their pronouncements thoroughly through lately before making policy changes. It needs to look at their review process for better client input.
 
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Home equity loans are the way to go if you need financing and qualify for one.
Lower interest rates, plus tax deductible interest paid on the loan are huge benefits going this route.
 
Home equity loans . . . plus tax deductible interest paid on the loan . . .

New tax rules. Gotta use the proceeds of the home equity loan for either the purchase or home improvement of your primary or secondary home, or in some instances to fund a business, if you want to deduct the interest.
 
Pretty sure NAFCO was the last bank in the kit loan business. I was talking them when I was about ready to start buying expensive stuff last year, and in the end the business with having to immediately register the build and start paying insurance on it turned me off. I wasn't in a position for a home equity loan so I ended up doing a personal loan through Lightstream instead. Other folks here have also used SoFi, similar setup to Lightstream.
 
Registration requirements

I was curious and just checked; there haven't been any changes to the FAA's regulations on aircraft registration. As near as I can tell, you can still register your partially assembled kit (or your paper airplane for that matter), but it's not recognized as airworthy until the certificate is issued; a Special Airworthiness Certificate in the case of E-AB. You will need a Bill of Sale from the kit manufacturer, which Van's won't issue until all of the kits have been purchased and you return a waiver to them with your BoS request form. But none of that is new.

Also, NAFCO's website still says they do loans for "experimentals and kits in process".

Probably worth another call.

Pretty sure NAFCO was the last bank in the kit loan business.

To be correct, they're not actually a bank, but a loan broker. You apply for a loan through them as the front end, but they work with several different lenders.
 
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As a former truck dealer, I hate loan brokers ;)

Here's a small town bank with significant aircraft lending experience. I have no idea if Mr. Crowe is interested in kit financing, but I would not hesitate to ask. Nice guy, did a deal on an aircraft I sold recently.

Richard C. Crowe, President

Buckholts State Bank
PO Box 278 / 100 N. 4th St.
Buckholts, Texas 76518

254-593-3661
 
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Another option is a loan from your 401k, if they allow it. I took one a while back, 4% interest, that is paid to me, into my 401k
 
We financed most of our construction with a loan from lightstream.com. They do a lot of RV/aircraft/personal type loans. I don't know a bunch about them, but they approved us quickly and we didn't have any issues.
 
Anyone else encounter this? Any other banks that still do kit loans? I’m really curious as to who at the FAA decided they needed a policy change and what problem they are trying to solve?

I have encountered this and been posting about it here for about a year now. This was evident to ELSA builders earlier on because we have had the registration issue embedded in the process. If interested in any more you can check my posit history. Conventional wisdom on the forums is to go through EAA referral to a lender, but it always goes to the same president of the same bank who can do nothing about it.

Like others have mentioned, Lightstream is a competitive alternative. It worked for me.
 
Also, NAFCO's website still says they do loans for "experimentals and kits in process".

Probably worth another call.



To be correct, they're not actually a bank, but a loan broker. You apply for a loan through them as the front end, but they work with several different lenders.

Technical corrections aside, the practical result is that they aren't doing the loans. The broker explains that the underwriter will not fund unless the aircraft is flying. Unfortunately, it's not actually worth another call.

"Well, I can tell you if I can’t register the aircraft and file a lien with the FAA, my bank won’t fund period. Sorry to be so black and white, it doesn’t work like a home construction loan and really doesn’t sound like we will be able to help. Like I said there is no wiggle room in our “boilierplate” language. If it doesn’t fit, not going to work. We have been doing this for 20+ years with no flexibility on kits under construction, sorry again."
 
Kinda sounds like a business opportunity here. What sort of interest rates have the nice folks at NAFCO been writing?
 
"Well, I can tell you if I can’t register the aircraft and file a lien with the FAA, my bank won’t fund period. Sorry to be so black and white, it doesn’t work like a home construction loan and really doesn’t sound like we will be able to help. Like I said there is no wiggle room in our “boilierplate” language. If it doesn’t fit, not going to work. We have been doing this for 20+ years with no flexibility on kits under construction, sorry again."

Unless there's other language not included with the post above, it appears the denial is due to not being registered, which I'm pretty sure was the same case back 2005 when I did a construction loan with them for my RV-7. "Registered" and a "flying aircraft" aren't the same thing.

It's been a long time since I talked with the folks at NAFCO (Airloans.com), but it used to be that you needed to be invested 20% in the airplane "total value", which typically means you need to find a way to fund purchasing the kits themselves, but then can get a loan to finance the avionics, engine, prop, interior, etc... once you have the ability to register the kit.

And registering the kit doesn't require any assembly. You can literally have it all in crates in your garage and register the airplane (generally not recommended due to the potential of it remaining a crate of parts and never turning into an airplane). You just need a BoS for the kit to submit with your FAA registration forms.
 
Unless there's other language not included with the post above, it appears the denial is due to not being registered, which I'm pretty sure was the same case back 2005 when I did a construction loan with them for my RV-7. "Registered" and a "flying aircraft" aren't the same thing.

It's been a long time since I talked with the folks at NAFCO (Airloans.com), but it used to be that you needed to be invested 20% in the airplane "total value", which typically means you need to find a way to fund purchasing the kits themselves, but then can get a loan to finance the avionics, engine, prop, interior, etc... once you have the ability to register the kit.

And registering the kit doesn't require any assembly. You can literally have it all in crates in your garage and register the airplane (generally not recommended due to the potential of it remaining a crate of parts and never turning into an airplane). You just need a BoS for the kit to submit with your FAA registration forms.

All of this I discussed with him in detail. All of the reasoning. There were multiple emails and a phone call involved so you have a point about additional language. There was lots of it. Out of respect for what was a business discussion between two parties I'm not going to post it all.

Also like you mention, it's been a long time. Things have changed.

I'm not posting just to be argumentative, my intention is to support the experience a few of us have had that others seem to deny. It doesn't really add up to me either. It seems like something that EAA or kit manufacturers would care about helping to find solutions for. This is why I was posting about it a year ago, hoping there was an opportunity for community engagement. Maybe there still is. If you really think you have the solutions, then stay in the discussion. Call the bank. I'm fairly confident we're all ending up with the same person or two. I'll DM you the contact info. My needs are covered, but I'd like to see this resolved for the sake of new builders...or my next RV project. :)
 
All of this I discussed with him in detail. All of the reasoning. There were multiple emails and a phone call involved so you have a point about additional language. There was lots of it. Out of respect for what was a business discussion between two parties I'm not going to post it all.

Also like you mention, it's been a long time. Things have changed.

I'm not posting just to be argumentative, my intention is to support the experience a few of us have had that others seem to deny. It doesn't really add up to me either. It seems like something that EAA or kit manufacturers would care about helping to find solutions for. This is why I was posting about it a year ago, hoping there was an opportunity for community engagement. Maybe there still is. If you really think you have the solutions, then stay in the discussion. Call the bank. I'm fairly confident we're all ending up with the same person or two. I'll DM you the contact info. My needs are covered, but I'd like to see this resolved for the sake of new builders...or my next RV project. :)

The OP stated NAFCO declined a loan, blaming the FAA for changing their registration policy - and that is my point: the FAA hasn't changed this process.

I just registered my RV-10 using the exact same process I used in 2016 when I registered my last airplane and very recently received my registration card, Form 8050-3. I was not asked about the status of my kit or anything about the airworthiness of the aircraft at all: it's not addressed at all on the form 8050-1, or the application instructions.

While NAFCO may be changing their rules, just keep in mind that they are not a bank, but a broker for banks; it really depends on the specific bank. Financing rules change, but there are almost always options available - I'm aware of a person that got a "recreational vehicle" loan through their credit union after explaining his project.

Aside from all that, the aircraft registration process still does not require the aircraft kit be fully assembled, or flying.
 
I believe the problem does lie in an FAA rule change. My understanding (and I could be wrong) is that the FAA now requires the major airframe components, including the engine to purchased (with serial numbers) before they will process a registration.

So you run into a catch 22, where you may need the loan for the engine, but can't register the plane to get a loan without already having purchased an engine.
 
Think of this from another point of view

I’m a former banker, and I would be very hesitant to loan money for an incomplete aircraft. Most here are looking at it from the perspective of “I want to build a plane, why won’t they give me money to buy parts and get started?”. Since there is a no guarantee of a kit being completed, a banker is very likely to wind up with a pile of incomplete parts that are useless and valueless to all but a very small group of folks. Wouldn’t matter what the FAA says, for most bankers, if you can’t get in it and legally fly an insured and registered plane, I wouldn’t touch it. Just another perspective.
 
New tax rules. Gotta use the proceeds of the home equity loan for either the purchase or home improvement of your primary or secondary home, or in some instances to fund a business, if you want to deduct the interest.

Things sure have changed. I remember back in the .com bubble, a couple fellow workers of mine did refi's and invested that money in the stock market,,,doing very well.
How about just doing a total refinance of the home and get the money there if that's still allowed? We did a total refinance many years ago when interest rates dropped and the lady from the bank who handled it was pretty insistent on selling us a larger loan to the original loan balance so we could have cash to do whatever we wanted with.
 
I believe the problem does lie in an FAA rule change. My understanding (and I could be wrong) is that the FAA now requires the major airframe components, including the engine to purchased (with serial numbers) before they will process a registration.

That is incorrect. Please see my post just previous to yours. You do need to provide an airframe and engine serial number, but has been that way for many, many years and is not new.

The serial numbers for your airframe and engine come from the manufacturer. As an experimental builder, you are that manufacturer and can aside the numbers. Any number you choose.
 
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That is incorrect. Please see my post just previous to yours. You do need to provide an airframe and engine serial number, but has been that way for many, many years and is not new.

The serial numbers for your airframe and engine come from the manufacturer. As an experimental builder, you are that manufacturer and can aside the numbers. Any number you choose.

Oh, I'm not doubting that you can make up any serial number you want on the FAA paperwork. I would imagine you could have a chunk of iron on the garage floor that you 'intend' to turn into your own engine make it SN 1 for your experimental aircraft.

When the bank asks in bold letters for the serial number of the engine, I don't think their intent is for you to make one up. That would have been a really easy answer for the NAFCO guy to give in any of the multiple exchanges on the subject. Inserting an imaginary number for the engine you don't have yet seems to me like fraud. I suppose we all have our own tolerance for that kind of thing.
 
The OP stated NAFCO declined a loan, blaming the FAA for changing their registration policy - and that is my point: the FAA hasn't changed this process.

This is worth coming back to and important enough not to overlook. I agree that this is true. I don't think that the FAA changed anything and the issue is with the bank(s).

While NAFCO may be changing their rules, just keep in mind that they are not a bank, but a broker for banks; it really depends on the specific bank. Financing rules change, but there are almost always options available - I'm aware of a person that got a "recreational vehicle" loan through their credit union after explaining his project.

To some degree I think this idea of brokers and banks is overstated. Technically true that NAFCO is referring things out. Has anyone applied or started a referral process with NAFCO for an experimental and ended up anywhere other than Pilot Bank? The impression I get is that NAFCO is referring builders to a pool of 1 single bank. The underwriters associated with that bank have tightened their lending requirements. This is why I felt like the builder community might be able to find it's way to other solutions. Between kit manufacturers and the EAA, they may be able to find or convince a bank to reconsider.

The idea of alternatives like Lightstream and RV loans are pretty well understood. They are good options for a lot of people and that's how I funded the last of my build. Some people don't want to cross collateralize or borrow against their home to fund an airplane so I think it would be good if the option was still there.
 
Oh, I'm not doubting that you can make up any serial number you want on the FAA paperwork. I would imagine you could have a chunk of iron on the garage floor that you 'intend' to turn into your own engine make it SN 1 for your experimental aircraft.

When the bank asks in bold letters for the serial number of the engine, I don't think their intent is for you to make one up. That would have been a really easy answer for the NAFCO guy to give in any of the multiple exchanges on the subject. Inserting an imaginary number for the engine you don't have yet seems to me like fraud. I suppose we all have our own tolerance for that kind of thing.

Actually, that's the entire idea behind the experimental - amateur build program - doing it yourself.. So your imagination isn't far off from reality.

Regardless of what your level of tolerance, or the banks intent is, you are entirely and LEGALLY able to make up your own serial number - even if you bought the engine brand new from Lycoming. You're the manufacturer, not the person you bought the parts from. There's nothing fraudulent about it. You can legally have a crate of parts to assemble, which includes the engine that you've defined. It is not recommended to buy all of the parts and register it, but it is possible and legal. And at some point - you'll need to register your aircraft before it's fully assembled. Unless you want to sit around for several months waiting on a registration after you've determined you finished building before having the AWC performed. Typically, it's recommended to register at least 6 months before you expect to perform your final inspection. But you can do it at any time during the build process.

Back to the engine, this is experimental - you don't have to have a purchased, running, new, tested engine that someone else provided a serial number for. I built the engine for my RV-10 and assigned my own serial number. Perfectly legal and not remotely fraudulent. And guess what? I assigned a serial number and had it engraved on a plate to install on the oil pan LONG before I assembled the engine. It wasn't exactly a chunk of iron on the floor, but it was several boxes of aluminum and steel parts.

Here again, there is no requirement to have a fully assembled, and it better not be "flying", aircraft prior to registration.
 
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I was planning to use an EAA loan for avionics/engine....I guess the game-plan now is to use an alternative loan (Home Equity, 401k, etc) for the kit and then refi once the plane is airworthy. Probably a net savings to the builder thru lower rates, but not as turnkey.
 
We're talking about getting loans. The bank's intent matters.

The rest of your straw man argument is 100% correct, but not relevant. Everyone knows you can register whatever you want for EAB (setting aside the E-LSA complications for now). Say it 1,000 times if you want. I thought when you joined you were trying to contribute to solving a problem. Instead it appears you're looking for your brownie button for correcting the OP on registration. You earned it!

For the purpose of financing an airplane project, the bank's intent matters.

Regardless of what your level of tolerance, or the banks intent is,
 
We're talking about getting loans. The bank's intent matters.

The rest of your straw man argument is 100% correct, but not relevant. Everyone knows you can register whatever you want for EAB (setting aside the E-LSA complications for now). Say it 1,000 times if you want. I thought when you joined you were trying to contribute to solving a problem. Instead it appears you're looking for your brownie button for correcting the OP on registration. You earned it!

For the purpose of financing an airplane project, the bank's intent matters.

Actually it is relevant and on point with the OP, so not everyone knows this.

And you insinuated that what I advised was fraudulent, so simply dismissing my input as not relevant is inappropriate.

I did contribute thoughts on how to get a loan, and even gave an example of one obtained through a credit union.

I also recommend contacting the EAA directly about the NAFCO loan program; if NAFCO is no longer providing loans for the construction of experimental aircraft, that is something the organization as a whole should be interested in assisting with.
 
That is incorrect. Please see my post just previous to yours. You do need to provide an airframe and engine serial number, but has been that way for many, many years and is not new.

The serial numbers for your airframe and engine come from the manufacturer. As an experimental builder, you are that manufacturer and can aside the numbers. Any number you choose.

Based on comments from Van's Scott McDaniels in Dec of 2020, there has been a change at the FAA regarding this policy. See below for his comments. The policy may not have changed, but the strictness of the enforcement appears to have changed for sure.

This has gotten even more complicated recently.... even for EAB builders.

The FAA used to process a registration application without listing an engine serial #.
They have recently started enforcing that requirement with no exceptions, so this has an impact on anyone that is looking for financing for any experimental aircraft, were they do not yet have possession of their engine.
 
Based on comments from Van's Scott McDaniels in Dec of 2020, there has been a change at the FAA regarding this policy. See below for his comments. The policy may not have changed, but the strictness of the enforcement appears to have changed for sure.

And if you're building a glider...?
 
FWIW, I found this online at the FAA website:

Amateur-Built and Non-Type Certificated Aircraft. [14 CFR 47.33(c) and paragraph 2.2.5.g(1)] The applicant for registration of an amateur-built or other non-type certificated aircraft is required to submit an affidavit of ownership and to furnish a description of the aircraft for coding purposes. The description shall include the name of the manufacturer/builder, model, serial number, class of the aircraft, number of seats, and whether the aircraft is for land or water operation. It must also describe the engine manufacturer, model, and number of engines. Most often, applicants will submit the Affidavit of Ownership for Amateur-Built and Other Non-Type Certificates Aircraft(-88).
Blocks 1 and 2 on the form are used for amateur-built aircraft. If block 1 or block 2 is marked, an engine serial number is not required. An affidavit that does not show the engine serial number may be accepted if the complete make and model of the engine to be installed is shown.
However, if block 3 or block 4 is marked, an engine serial number must be shown as these are complete non-type certificated aircraft. If the description is furnished when the applicant asks for the assignment of a registration number, the complete description is NOT required again in his affidavit of ownership. The regulation merely requires the applicant to submit an affidavit stating: 1) the registration number, 2) the aircraft was built from parts, and 3) the applicant is the owner. Currently, if any part of the required description is not shown, the affidavit must be returned for completion before a registration number can be assigned. All items must be filled out even if it just shows N/A, None, etc. None of the blanks should be empty. The “Class” cannot be shown as aircraft since they are all essentially aircraft. It should be one of the items shown on the -88 (i.e. airplane, rotorcraft, etc.) or one of the newer classes of aircraft-- hybrid lift including vertical take-off and landing (VTOL) and gyroplane.
...
In response to a request by the National Transportation Safety Board, effective October 1, 1998, the builder of an aircraft built from a kit must also submit a bill of sale from the manufacturer of the kit. The serial number on the kit bill of sale can be different than the serial number listed on the -88 and the application. Signatures on the kit bill of sale do not need to be signed in ink or be a printed duplicate of an electronic document that displays an acceptable legible digital signature. Photocopies are acceptable since a kit
bill of sale is not recordable
(emphasis added)

https://www.faa.gov/licenses_certif...ft Registration and Recordation Processes.pdf
 
As I am coming to the point of needing an engine and avionics within a year I do like the idea of using a home equity loan to get the ball rolling then if needed and the rate is better, convert that to a EAA loan once the engine number is known.
 
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