Finance Structure

Asset Finance

Catch-all category for hire purchase, equipment finance, and similar structures aimed at SME-scale solar projects below £250k.

Term

3–7 years; commonly 5 years

Cost / rate

7%–11% APR depending on covenant. Faster, simpler underwriting than green loans, often at slightly higher rates. Arrangement fees £500–£2,500.

Worked IRR

11%–17% pre-tax IRR.

How it works

Asset finance is the umbrella term for the cluster of equipment-finance products that SMEs use to fund tangible assets. For commercial solar in the £75k–£250k range, asset finance is often the practical choice: the underwriting is faster than a green loan, the structure is familiar to most finance teams, and the hire purchase variant captures the same tax benefits as outright purchase. The economic story is comparable to a green loan, with a slightly higher rate offset by lower transaction costs and faster execution. For larger schemes, asset finance becomes uneconomic compared to specialist green debt — the leasing companies' fixed margins start to bite. The single most common pitfall in SME asset finance is term mismatch: a 5-year HP on a 25-year asset means heavy cash impact in years 1–5 followed by 20 years of pure savings. That's economically fine but operationally tight if the business hits a downturn during the HP term. We recommend matching term to cash flow tolerance, not asset life.

Worked example: 250kWp on a £200,000 commercial system

Upfront

5%–10% deposit typical (~£10k–£20k on £200k system)

Year-one cash position

Year-one HP payments ~£40k (5-year term). Electricity saving ~£42k. FYA tax saving ~£25k. Net year-one cash position: positive £27k.

25-year cumulative

+£900k to +£1.2m cumulative free cash flow.

IRR

11%–17% pre-tax IRR.

Comparable to green loan economics on shorter terms.

Best fit

  • ● SMEs with smaller commercial systems (50kWp–200kWp)
  • ● Businesses with existing equipment-finance relationships
  • ● Companies wanting fast underwriting (often 2–4 weeks vs 6–10 for green loans)
  • ● Owner-managed businesses where directors' guarantees are available

Not suitable for

  • ○ Larger commercial schemes >£500k (better terms via specialist green-loan markets)
  • ○ Public sector (PSDS or capital is the standard route)

Pros

  • Fast underwriting — typically 2–4 weeks
  • Standard SME credit assessment, no specialist green-loan due diligence
  • Captures FYA and capital allowances under HP
  • Familiar structure for finance directors with equipment finance experience
  • Flexible deposit options
  • Smaller systems can be financed economically

Cons

  • Typically shorter terms than green loans (3–7 years vs 7–15)
  • Slightly higher effective rates than secured green loans
  • Personal guarantees often required
  • Total finance cost concentrated in fewer years means higher annual cash impact
  • Less competitive for systems above £250k

Lender shortlist

Five categories of UK asset finance lender serving commercial solar via hire purchase and finance lease structures.

UK asset finance lender shortlist →

Mechanics

Ownership model

Hire purchase: lender owns the asset during the term; ownership transfers on final payment. Equipment finance lease: lender owns throughout. Most SME asset finance for solar uses hire purchase with title transfer on final payment.

Balance sheet treatment

Hire purchase: capitalised on balance sheet from day one with corresponding HP creditor. Equipment lease: depends on lease classification.

Tax treatment

Under hire purchase, the lessee/buyer is treated for tax as having bought the asset on day one — they claim the FYA, AIA, and writing-down allowances. The interest portion of HP rentals is deductible. This is a key advantage over operating lease.

Who offers it

SME-focused asset finance providers (Aldermore, Close Brothers, Hitachi Capital, Shawbrook), bank asset-finance arms, and broker networks. We work with several broker partners to source competing quotes for SME deals.

Other structures

Compare with other finance routes

Capital Purchase

Pay cash, own the asset, claim the full tax relief — the simplest structure and almost always the most economic over 25 years.

Green Loans

Borrow against the project, retain ownership, smooth the cash impact — green loans typically charge 6–9% APR for solar specifically.

Operating Lease

The leasing company owns the system; you pay a fixed annual rent. Off-balance-sheet, fully expensable, but you don't get the FYA.
Compare with other structures

Direct comparisons

Asset Finance vs Green Loan

HP/finance lease vs term loan — speed, decision, rate.

Frequently asked questions

What's the difference between hire purchase and finance lease for solar?
Hire purchase: regular monthly payments, legal title transfers progressively (technically at end of term but tax law treats as transferring during term), borrower captures FYA capital allowances. Finance lease: regular monthly payments, legal title remains with lessor through term, lessee captures FYA capital allowances. Functionally similar; HP slightly cleaner on legal title; finance lease slightly cleaner on lessor recovery in default scenarios. We typically recommend HP for solar where credit position supports it.
How fast can asset finance approve commercial solar?
Mainstream bank asset finance: typically 5-10 working days for standard credit decisions. Specialist asset finance brokers: typically 24-72 hours for indicative decisions, 7-10 working days for full credit committee. Substantially faster than green loans (4-8 weeks for clearing banks). Speed advantage matters for FYA-deadline-driven projects or opportunistic timing.
Is asset finance more expensive than green loan?
Slightly — typically 0.5-1 percentage point higher rate. Mainstream bank asset finance 7-9% APR vs green loan 6.5-8% APR. Specialist asset finance brokers 7.5-10% APR. The premium reflects asset-finance speed and underwriting flexibility. For projects where speed matters or where green loan minimum facility size doesn't fit, asset finance is the right answer despite the marginal rate premium.
Can asset finance fund ground-mount agricultural solar?
Yes — specialist agricultural asset finance lenders support ground-mount solar deployments. Mainstream commercial asset finance often caps at 500 kW or 1 MW; specialist agricultural lenders extend to 1 MW+ for ground-mount projects. Some lenders require planning consent before commitment; others provide conditional commitment subject to planning approval.
Are there sector-specialist asset finance providers?
Yes — UK has well-established sector specialists for healthcare, agriculture, manufacturing, hospitality, and some other verticals. Sector specialists typically offer deeper credit understanding (e.g. seasonal cash flow patterns in agriculture, NHS contractual revenue patterns in healthcare) and sometimes longer terms (7-10 years) on larger sector-specific assets. Worth comparing specialist vs generalist asset finance for specific sectors.

Model Asset alongside the alternatives

We build a side-by-side after-tax comparison across all six structures using your actual numbers — not lender brochure assumptions.

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