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?

Mike

Regardless of the "business" aspects, I don't think that loaning money to friends is a good idea - especially those whose friendships I really value.

Think about how your friend will feel if he defaults, and you are forced to "collect" what is now your airplane... Will the friendship survive?

What if he defaults and you just can't bring yourself to take away his airplane because of your friendship? Will the friendship survive?

Too many "down sides" if you value the friendship. OTOH, if you don't really like the guy...

I think the age old adage fits nicely here, "If you gotta ask...."

My 2 cents: I'm a smart guy, but I'm generally not going to be better than a bank at judging and underwriting loans. If someone can't get the loan they want from a bank, am I a big enough sucker to write them a loan that a bank won't?

I have done so. For very close friends to do things like consolidate and retire credit card debt and get back on their feet after a setback of some form or other. Been paid back both times, but for sums around 5% of what you're talking about.

In this case, you're potentially exposed to insurance and airworthiness risks as well as the general default risk. For what amounts to a tiny premium over a high-yield REIT, I'd pass for sure. A high-yield REIT doesn't suffer the same idiosyncratic risk as a single airplane owner...

If you do this, don't forget a very large life insurance policy where you are the loss payee.

How about a partnership with him paying all fixed expenses and a guaranteed buyback. You get on the title, you get use of the plane, he gets his capital.

Im real worried about the friendship aspect in this deal but also worried about the plane piling in with a denied insurance claim.

Another friend posed getting xx free hours in addition to the intererst.

Im intriqued by the eclipse but dont really want to own one and definitely dont want to lose my principle.

Mike

You answered your own question, then...

If he's a good enough friend where you want to just give him the money, then give him the money as a gift. If he promises to pay you back with interest, and you actually see money back, then it's a bonus and celebrate your good karmic standing.

Otherwise, um, no.

Best,
Rich

If a bank won't loan him money, why should you?

There are issues with many of the earlier models. Some are VFR only, are life limited to 10 years, fire extinguisher issues, and other problems. The new company will fix the problems but at a steep price. Know what your collateral is worth. I know a person with an early model, and it is very limited.

I could think of about 100 things that can go wrong. Here are just a few:
1. He has other friends loan him money and he provides a lien on the plane. priority issues.
2. He gets into financial problems and files a chapter 11 or 13 and crams down the amount owed and then pays it over a 5 year period.
3. He tries to drill granite with it (pilots have been trying for years to drill rock with aluminum) and there are competing claims as to who gets the proceeds of the claim.
I could go on and on.......

Can I be your friend Michael?? I'm a great guy, lots of fun and only need about 2/3 of that amount. Plus I'd be using it to buy a Bo and not an Eclipse!

On,y you know how good a friend he is. I've helped people who screwed me over for $3k, others gave me back every penny of what I gave them.
I suspect you have doubts else you would not be asking us here :(
You have insurance but if the insurance denies any potential claim or someone sues and holds up payment then you have lots of legal bills.

Remy

I'm invested in stuff much lower risk paying 10%.