If you’re looking to get an ETC (Equipment Trust Certificate), then you will usually need to be a business with a very good credit record. Generally, these financial securities are issued mostly to finance large pieces of equipment or capital, such as aircraft or trains. Outright purchasing large vehicles may not qualify you for tax deductibles, but renting or leasing usually does, so many businesses as well as private entrepreneurs choose to take out an ETC whenever they are thinking of buying large vehicles.
In many ways, an ETC is a lot like a mortgage. You will only be qualified for one if you have an excellent credit record and they are subject to the same sort of rates variations based on your credit history.
Benefit from reduced rates when taking out an ETC
If you’re considering an ETC, then make sure that you have a good credit rating first before you apply by checking your 3 bureau credit scores. In the most ideal of situations, your goal should be to improve your credit rating as much as possible before you invest in large capital such as aircraft. You can improve your credit rating in a variety of ways, but the easiest is to simply make smaller purchases and pay them off promptly.
If you are running a business, then you can rent equipment or lease it instead of buying it outright. The monthly invoices you will need to pay all come with a due date and provided you pay off the required amount every month before it is due, you will greatly improve your credit rating in a short amount of time.
A typical path for a private investor might be to first make smaller purchases such as appliances for the house and then when the credit rating is improved, go for larger items such as motorbikes, computers or speedboats. Following this, you might find that after a few years your credit report has improved to the point where you will be able to finance an ETC for a helicopter, a private jet or small plane.
Airlines and ETCs
Airlines commonly take out ETCs instead of buying their own planes. There is a very good reason for this, apart from cutting down costs. For instance, if the airline does not succeed and goes through a bankruptcy or an insolvency, then the aircraft is not considered the property of the airline. This can be a huge advantage for a newer airline start up that is intending to compete with other more well established airlines in the industry.
In essence then, an ETC is a secure way for an airline or any other private investor to buy aircraft over time instead of having to pay all at once.
The entity leasing the aircraft will also earn a share of the profits for the duration of the ETC and this situation remains until it matures, handing over all the benefits to the entity who will appropriate the aircraft. Train companies also sometimes take out an ETC to buy new capital.