For some reason, the system won't allow me to post my response to Barry's question under his thread, so here goes a new thread…
Hello, my partners and I co-own a Grumman Tiger. It's due for an engine overhaul so we want to consider doing some needed upgrades to take advantage of the time it's in the shop. We are considering grasping the nettle and going for a panel upgrade that would digitise our instrumentation and possibly even remove the need for a vacuum system. It is both exciting and daunting. I have noticed that financing services for panel upgrades are offered via AOPA but I would appreciate an overview of the pros and cons. We have several possible means of funding a panel upgrade but are not opposed to financing it if there are advantages to doing so. If we do this properly it will probably cost us around $60k so it's an important decision. I do not know what the interest rates are, the terms of such loans and whether the airplane is used as security for the loan. Before I find out more by actually filling in the application form on the AOPA web site, I'd greatly appreciate advice, counsel and regarding this method of financing and opinions for and against. Many thanks.
Yes, the airplane is going to be collateral for the loan. Keep in mind that this loan will be subordinate to any loan you already have on the plane, so it may carry a higher interest rate, especially if the total value of the loans approaches or exceeds the wholesale value of the plane after the modifications. Remember that improvements like this typically add only half their cost to the value of the plane, so you'll need $60K in cap space remaining after $30K is added to the aircraft's current wholesale value.
IOW, if your Tiger is currently worth $90K wholesale, and you currently have a $70K loan from the aircraft purchase, the total encumbrance will be $130K after the modification, but the wholesale value would be only $120K – insurers and lenders don't like that. If you default, the second lender couldn't recover their loss. OTOH, if you total the plane, and the insurer pays only the $120K they'll cover, the lender could be out $10K or more if you don't have the cash to cover the difference, which is why they might decline to write the loan for more than the $50K remaining between the existing loan and the wholesale value of the modified airplane.
Also, since this is a partnership deal, your partners will have to agree to assume the risk involved. How that works will depend on the ownership structure you and your partners have, i.e., joint ownership, partnership, LLC, S-corp, C-corp, etc. You'll all have to get with an attorney who knows aviation and the business laws of your state to figure that out.