Comparison · Green loan vs Capital purchase

Green loan vs capital purchase — UK commercial solar 2026

Both green loan and capital purchase keep the solar asset on your balance sheet and let you capture the FYA tax allowance. The difference is just timing — pay capex upfront (capital purchase) or spread it over 7-10 years with interest (green loan). The right answer depends on what your capital is worth elsewhere.

Headline answer

Capital purchase wins on lifetime cost — by the cost of the loan interest, typically £45-65k extra over 7-10 years on a £200k system. Green loan wins where capital deployed in solar would otherwise earn higher returns elsewhere, or where working capital preservation has strategic value beyond the interest cost.

Side-by-side

CriterionGreen loanCapital purchase
Upfront capex£200k£0 (financed)
Monthly paymentNone£3,019 over 84 months (7-year term, 7% APR)
Total payments£200k£253,596 over 7 years
Interest cost£0£53,596 over 7 years
FYA captureYear 1 — £25k tax savingYear 1 — £25k tax saving (lessee captures)
Tax-deductibility of interestN/AYes — interest is tax-deductible operating expense
Net interest cost (after tax)£0~£40k over 7 years (after 25% corp tax saving on interest)
25-year cumulative cash benefit£1.05m£999k
Lifetime cost premium vs capitalBaseline£45-65k more
Best forCompanies with available capital not earning >7% elsewhereCompanies preserving capital for higher-return investments

Which one for which situation

  1. What return would the £200k generate if invested elsewhere in your business?

    If your capital can earn more than the green loan rate (after-tax) elsewhere — typically 8%+ in your operating business — green loan wins because the spread compounds in your favour. If alternative capital deployment earns less than 5% (e.g. cash savings, money market), capital purchase wins because solar offers higher effective return than the alternative.

  2. Is working capital preservation strategically valuable beyond the interest cost?

    For growing businesses heading into strategic investment cycles (acquisition, expansion, equipment refresh), preserving £200k of working capital may be worth the £40-60k interest premium. For mature businesses with stable capital position, the interest cost is dead weight.

  3. Does your bank covenant package penalise additional debt?

    Some loan covenants restrict total debt-to-EBITDA ratios. Adding £200k of green loan debt may breach restrictive covenants on tightly-leveraged businesses. Capital purchase avoids the covenant issue. Check your facility documentation before assuming green loan is straightforward.

  4. Is the project FYA-capturable in the relevant period?

    Both structures capture FYA the same way (the borrower / buyer holds title and claims the allowance). Don't use this as a deciding factor — both are equivalent on FYA. Use cost of capital and working capital priorities instead.

Green loan vs Capital purchase FAQs

Is green loan interest tax-deductible?
Yes. Interest on green loans for commercial solar is tax-deductible as an operating expense (assuming the loan is for a qualifying business purpose). At 25% main rate, the after-tax interest cost is approximately 75% of the gross interest. On a £200k green loan with £53,596 of gross interest over 7 years, after-tax interest is approximately £40,200.
Can I prepay the green loan early?
Most UK green loans for commercial solar allow partial or full early repayment, often without penalty or with modest break fees (typically 1-3% of outstanding balance). This is more flexible than asset finance hire purchase and substantially more flexible than operating lease early termination. Worth confirming in the specific loan agreement.
Is the FYA tax saving the same on green loan as capital purchase?
Yes — exactly the same. Both structures position the borrower / buyer as legal owner of the solar asset and tax owner of the capital allowances. £25k FYA tax saving on a £200k system at 25% main rate, regardless of whether you funded it with cash or green loan.
What's the typical green loan rate for commercial solar in 2026?
Mainstream UK clearing banks: 6.5-8.5% APR for established trading customers. Specialist green debt funds (Triodos, Charity Bank): 5.5-7.5% APR. Challenger banks: 7-9% APR. Combined-authority green funds (MEEF, GMCA, etc.): 6-8% APR for eligible borrowers. Get quotes across at least two categories before signing.
Can I combine green loan with another structure?
Yes — blended structures are common. Examples: 30% cash + 70% green loan (saves interest on a portion); 50% cash + 50% finance lease; 100% green loan + lease-back if covenant-constrained. We model blended structures as part of advisory engagements where the client's constraint pattern fits hybrid solutions.

Capital purchase (full page)

Pay cash, full ownership, lowest lifetime cost. Mechanics and worked example.

Green loans (full page)

Borrow against the project, retain ownership, capture tax allowances.

Green loan lender comparison

Six UK lender categories with rate, term, decision-speed mapping.

Need this comparison run on your specific numbers?

We model both structures side-by-side using your postcode, half-hourly demand profile, accounting position, and balance sheet preferences. Five working days from enquiry to indicative comparison.

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