Green Loans
Borrow against the project, retain ownership, smooth the cash impact — green loans typically charge 6–9% APR for solar specifically.
7–15 years; commonly 10 years
Specialist green-loan rates in 2026 sit between 6.0% and 9.0% APR depending on covenant, security, and term. Arrangement fees typically 0.5%–1.5%.
Typically 10% to 17% pre-tax IRR. Lower than capital because the lender takes a slice, but the IRR on the equity invested (deposit + early debt service) can be higher than capital purchase because of the leverage effect.
How it works
A green loan for commercial solar is, mechanically, an asset-backed term loan with a lower rate than unsecured business borrowing because the lender takes a charge over the system. The 'green' label reflects that the loan is restricted in use (it must fund the solar project) and often carries reporting requirements around the project's emissions impact. Economically, the borrower retains every tax benefit they would have under capital purchase — the 50% FYA, AIA, ongoing writing-down allowances — and adds the further benefit that loan interest is deductible against trading profits. The trade-off is finance cost: at 7% over 10 years on £200,000, total interest is £62,000. That £62,000 is the price of preserving working capital. Whether that's worth paying depends on what alternative use you have for the £200k of working capital — if it earns more than 7% deployed in your core business, the green loan is the better economic choice. For most trading businesses returning 15%+ on operating capital, that is the case. The harder constraint is covenant: lenders require sound accounts, typically 2–3 years' filed financials, and may require directors' guarantees or debentures. We help structure the lender package and manage the rate-shopping process.
Worked example: 250kWp on a £200,000 commercial system
£0–£20k deposit (some lenders 0%, others 10% deposit)
Year-one debt service ~£24k–£28k on a £200k 10-year loan at 7%. Year-one electricity saving ~£42k. FYA tax saving ~£25k. Net year-one cash position: positive £39k–£43k.
+£900k to +£1.3m cumulative free cash flow (lower than capital purchase by the loan finance cost of £60k–£90k over the term).
Typically 10% to 17% pre-tax IRR. Lower than capital because the lender takes a slice, but the IRR on the equity invested (deposit + early debt service) can be higher than capital purchase because of the leverage effect.
Cash-flow-positive in year one is the key attraction. The trade-off is £60k–£90k of finance cost over the loan term.
Best fit
- ● Profitable companies wanting to preserve working capital
- ● Established trading businesses with strong covenant
- ● SMEs without the capex headroom for outright purchase
- ● Property owners with stable rental income to service debt
Not suitable for
- ○ Pre-revenue or loss-making companies (lenders require financial covenant)
- ○ Very short tenancies on leased premises
- ○ Sub-£75k systems where loan arrangement costs are disproportionate
Pros
- Cash-flow-positive from year one in most cases
- Borrower retains all capital allowances and tax reliefs
- Loan interest is tax deductible (further softening after-tax cost)
- Working capital preserved for core business investment
- Borrower retains ownership and full control of the asset
- Asset can be refinanced, sold, or used as security later
Cons
- Adds ~6–9% finance cost to the project lifecycle
- Requires financial covenant — accounts, projections, security
- Arrangement and legal costs (£3k–£8k typical for SME-scale loans)
- Personal guarantee may be required for smaller borrowers
- Restrictive covenants may limit other borrowing during the term
Lender comparison
Six lender categories serve the UK commercial solar green-loan market with different rates, terms, and best-fit profiles.
UK green loan lender comparison →Mechanics
Ownership model
Buyer takes legal title to the system from day one. The lender takes a charge over the asset (and sometimes a debenture) but does not own the system. On loan repayment, the charge is released.
Balance sheet treatment
Asset on balance sheet at cost; corresponding debt as a long-term liability. Net effect: increased gross assets and gross liabilities. Net assets unchanged.
Tax treatment
Borrower retains all the tax benefits of capital purchase: 50% First Year Allowance, AIA where available, full writing-down allowances thereafter. Loan interest is also tax deductible against trading profits. This dual benefit (capital allowances + interest deductibility) makes green loans attractive on an after-tax basis.
Who offers it
Specialist green-finance lenders (Lombard Green, Triodos Bank, Charity Bank, regional building societies, asset-finance arms of major banks). Some manufacturer-backed finance schemes. We are independent of any lender and source competing quotes.
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.
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.
Finance Lease
Functionally similar to a loan — you pay over time, the asset hits your balance sheet, and you keep the tax benefits, but with leasing-company structure.
Frequently asked questions
What's a typical UK green loan rate for commercial solar?
Does the borrower keep tax allowances under a green loan?
How does green loan compare to asset finance for commercial solar?
Can green loans cover battery storage alongside solar?
Are there green loan options for charities and not-for-profits?
Model Green Loan 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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