Club Spotlight: DIY: Self-Financing Can Be a Useful Tool for Clubs Looking to Acquire or Upgrade Aircraft

The New England Flying Club (NEFC) has grown over the past few years and decided it should add a third plane to its fleet. In 2020, they purchased a 1979 Piper Archer to replace a Beech Sundowner and got a loan from a bank. This time, the bank turned them down, so they decided to self-finance the acquisition by getting loans from their members.

They are not the only club doing this. The Plane Fun Flying Club based at Pearson Field (KVUO) in Vancouver, Washington is also planning on raising some capital from members to add a second plane, and the TSS Flying Club in Gaithersburg, Maryland has successfully used this method over many decades, including the purchase of a turbo Cessna 182RG last year.

More and more, we are finding clubs asking about self-financing aircraft acquisition or upgrades through loans made by members rather than a financial institution. It’s certainly an option and often it can be a good one—it helps the club, it helps the members, and it reinforces the fact that members are owners.

New England Flying Club

NEFC has been around for more than 50 years. Originally it was the Raytheon Employees Flying Club and the company provided funding for each member. At some point in the past 15 or 20 years they stopped doing that and the club was opened up to anyone, not just Raytheon employees. That’s when the club changed its name to the New England Flying Club.

For many years, the club operated a four-seat, fixed gear Beech Sundowner and a two-seat, T-Tail Beech Skipper that it bought new in 1981. The membership had dwindled to 20 or 25 members and the planes weren’t flying much. The club decided to sell the Sundowner and they replaced it with a Piper Archer in 2020. That proved to be a popular decision. Today the club, based at Lawrence Municipal Airport (KLWM) in Massachusetts about 30 miles north of Boston, has grown to 38 members.

With the additional members, the club discussed selling the Skipper, which is nearing TBO, and replacing it, or adding a third plane. Even though the Skipper doesn’t fly as much as the Archer, it is beloved because of its long history in the club, so they decided to add a plane. When they went to the bank to discuss a loan, they were turned down.

“The reason we got rejected was because shortly after buying the Archer we re-incorporated,” NEFC President Paul Lascari said. “When we re-incorporated, that reset the clock as far as the bank is concerned regarding how long the club has been around.” Even though he explained it was the same club that had been around for decades, the bank was not swayed.

The club decided to try self-financing. When they got the bank loan for the Archer, the interest rate was 6.99 percent. Rates are closer to 10 percent now, and they thought they could do better.

“We came up with this 5 percent loan for the club members to invest in, which is half the price,” Paul said. “It is a nice win-win situation for the people in the club and the club itself, getting a lower price on a loan.”

NEFC is looking to add something like the Archer they already have, and the club expects to spend between $130,000 and $150,000. They are still determining how much money they need to raise from members, but they think it will be in the $100,000 range.

Paul has made presentations to the club’s board and before the membership, and everyone has been positive about the idea. He’s reached out to some members and has pledges of about $30,000. The next step will be sending an email to the entire membership to see who else may be interested in loaning the club money.

His biggest concerns are getting pledges from members and determining whether board members may loan the club funds. Paul wants to make sure that any members that are loaning the club money do not receive special benefits.  Conflict of interest is also a concern.

The Plane Fun Flying Club

The Plane Fun Flying Club was founded in 2021 with 10 members and a turbo Cessna 182. They are planning on adding a second plane and have increased the membership limit to 22. Two members from the wait list have joined, bringing current membership to 12. There are three more people on the waiting list and the club is actively seeking new members.

The club is looking to add a safe, IFR, 4-seat, cross country plane without the cost or complexities of retractable gear, club member Dennis Nuttbrock said. “The Diamond DA-40s (see September 2023 Aircraft Spotlight) exceed our budget and we can probably get a SR20 G2 within our budget.”

The club’s budget is $275,000 and they are looking to raise $84,000 from members. They chose to self-finance because none of the members wanted to co-sign such a large loan. So far three members are committed to loaning the club funds, and they are working on drafting loan documents. The balance of the funds will come from new member equity buy-ins, which are $15,000 per share.

One of the things NEFC has done is to reach out to the TSS Flying Club Treasurer, Charlie Mayer, for guidance on how to set up a self-financing loan structure.

Decades of Self-Finance Experience

TSS Flying Club was founded in 1957, and to the best of Charlie’s knowledge the club has never obtained a bank loan. He does know that since he joined the club 22 years ago in 2002, the club has never taken financing from a bank.

“We are our best possible funders,” Charlie said. “If you look at any industry that needs to raise capital, who is going to be your best source of capital? Probably somebody who really understands the business, somebody who really has a passion for it, and somebody who knows what to look for to give themselves confidence that the investment is sound. Members of our flying club check all those boxes.”

Every time the club needed to raise cash, they had to turn people away because the members are so keen to put their money into the club. TSS has 73 members and operates a fleet of six airplanes. The latest addition, a turbo C-182 RG was purchased last year, using capital raised from members.

In early 2023 the club decided it wanted to add another aircraft and the Board authorized a total debt load of $350,00, although they ultimately didn’t need to raise that much. “I put out a couple of emails and within the week had deposits for $150,000 or $200,000,” Charlie said. By May, the club had all the money in the bank, and they bought the plane that month. By September, the club began paying members back. So far, the club has repaid $55,000 and Charlie plans to repay another $30,000 over the next three months.

There are 22 members holding notes, ranging from $5,000 to $20,0000. The total debt load is $275,000 and the monthly interest payment collectively is $1,375. The club pays everyone 6 percent APR. “There is interest that is calculated yearly and paid monthly,” Charlie said. “We never pay interest in cash, it’s only club credit.”

For somebody that has a $5,000 loan, they get a $25 credit a month on their bill. Somebody who has a $20,000 loan gets a $100 credit and there is everything in between.

Create a Checklist

If a club is thinking about self-financing, Charlie recommends using a checklist to begin the process and to keep track of loans, repayments, and to track absolutely everything.

“The first question a club needs to ask before they do anything is how much money do you need to do what you’re trying to do,” Charlie said. “Are you trying to build a fleet from scratch or are you buying one airplane, or are you doing an upgrade? Step one is how much money do you need? Step two is how much money can you possibly get from your members?”

TSS has used Google surveys to start a discussion about the club’s fleet and to assess the strategic direction for the club. They have used self-financing for aircraft acquisition and avionics upgrades. A little less than 10 years ago “we did a very deliberate, very well considered avionics upgrade program that was focused mostly on the 182s, that required its own debt raise,” Charlie said. “We spent so much money on Garmin equipment that we had to raise $100,000. That’s when we upgraded to the Garmin 750s and all kinds of other stuff.”

Once the board authorizes a debt load, the treasurer reaches out to the members to see who may be interested in providing funds, and how much. When a member responds, Charlie creates an invoice that he sends to the member, which they pay automatically through an ACH bank transfer. TSS does not accept checks or credit cards from their members for anything. Everything is done through direct bank transactions. This saves the club credit card fees, which add up quickly at 3% per transaction, and helps streamline the billing process.

When the member clicks the “pay” button on the loan invoice, Charlie is notified and he immediately generates the promissory note, which is less than one page and has the terms of the loan. It is a pdf document that is sent to the member and the board, so everyone is aware of what is going on, and Charlie adds it to the balance sheet, which he calls “the source of truth for where we track all of this.”

To ensure everything is properly documented and transparent, Charlie created an audit checklist and asked one of the club’s former treasurers to audit his work. Items on the audit checklist include:

1. Check the invoice for the loan amount sent from the treasurer, to the member
2. Match that with the payment that actually came in
3. Make sure the payment is recorded as a deposit
4. Make sure the deposit is transferred to where it needs to go
5. Make sure a journal entry was completed
6. Check that the interest was entered correctly (QuickBooks is programmed with the correct information for the interest, so this should always be correct)
7. Check that the interest is credited every month to the member
8. Be in communication with the member

While this all sounds very time consuming, Charlie said, “I rarely do more than five to ten minutes a day. When I generate the monthly bills, that takes ten minutes if that, and we have it all in checklists—it’s all programmed. The checklists are good and tell you what to do.” He also pointed out that when he served as treasurer a few years ago, the club made a concerted effort to automate all of its financial processes, and that is a big reason why everything is efficient and easy.

For any club, the key is having pristine financial records. “If you’re the treasurer who is doing this, you need to have complete facility with how the books work,” Charlie said. “For a club that is just getting started, it is really important to have a plan—what you need, what your capacity is, and make sure you have rock solid policies written down. The loan document itself is really important.”

Self-financing is a foundational element for TSS, and it is a tool that can benefit other clubs as well. “The fact that we can do it ourselves and we’re good at it; The fact that we can do it without banks; The fact that it gives all the members who want to be involved at the next level an opportunity to do so extends the idea that we are owners of our aircraft,” Charlie said. “We say that all the time—you’re not just a customer, you’re a member. You’re not just a member, you’re an owner. When you literally own $10,000 or $20,000 of an airplane, that is really special.”

For more information about self-financing, contact AOPA’s Flying Club staff at [email protected] or TSS treasurer Charlie Mayers at [email protected]

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