Between zero-capex PPA and full capital purchase sits a third route: asset finance. An operating lease or hire purchase agreement spreads the capex across 5–7 years of fixed monthly payments — often timed so that monthly payments fall below monthly electricity savings by year 3, leaving the operator cashflow positive while building toward asset ownership.
Lease vs hire purchase
| Feature | Operating lease | Hire purchase |
|---|---|---|
| Capex | Zero | Deposit typically 10–20% |
| Term | 5–7 years typical | 5–7 years typical |
| Monthly payment | Lower (lease only) | Slightly higher (includes capital) |
| Asset on balance sheet | Off-balance-sheet (IFRS 16 caveats) | On balance sheet day one |
| Tax treatment | Payments deductible as operating expense | AIA on full capex year 1; payments split capital/interest |
| Ownership at end | Optional purchase at fair market value | Automatic transfer to operator |
| Best for | Operators wanting flexibility, lower commitment | Operators wanting ownership + tax shield |
Worked example: 50 kWp HP over 6 years
50 kWp system on a 50-bed care home. Capex £40,000. Hire purchase with 15% deposit, 6 year term at 6.5% interest.
- Deposit: £6,000
- Monthly payment: £548
- Annual payment: £6,576
- Annual electricity saving: £8,250 (year 1, rising with energy inflation)
- Net cashflow year 1: +£1,674 (after payment)
- Net cashflow year 6: +£3,800 (after payment, with energy inflation)
- Total payments over 6 years: £45,456
- Total savings over 6 years: £55,500
- AIA tax shield year 1: £10,000 (25% on £40,000 capex)
- Net operator position after 6 years: own the asset outright, cumulative net surplus £20,000+
Tax treatment
Hire purchase treats the asset as owned from day one. The full capex qualifies for Annual Investment Allowance in the year of acquisition (£10,000 tax shield at 25% corporation tax on a £40,000 system). The payments are split between capital (no further tax relief) and interest (deductible as finance cost).
Operating lease treats the asset as the lessor's. Payments are deductible as operating expense in the period incurred. No AIA, but predictable tax treatment year on year.
When asset finance is the right route
- Operator who wants ownership but not the immediate cash outlay
- Tax-paying operator with stable corporation tax position (to benefit from AIA shield on HP)
- Operator with predictable cashflow and 5+ year horizon
- Group operator rolling out across multiple sites — asset finance scales well
When asset finance isn't the right route
- Operator with capital available and tax appetite — direct capital purchase usually beats HP on lifetime economics
- Charity operator without tax appetite — PPA usually wins
- Operator with limited or unpredictable cashflow — PPA shifts risk to provider
How we structure asset finance
We don't lend ourselves. We work with specialist solar asset finance providers (Close Brothers Asset Finance, Aldermore, Investec, and several specialist solar funds) and structure the right product for your situation. Typical pre-approval is 5–10 working days from financial documentation. Approval rates for established care home operators are high — typically 80%+ for operators with 3+ years of CQC-registered operation and clean financials.
What you need to provide
- 3 years of statutory accounts (or management accounts plus prior year)
- CQC registration confirmation
- Director details and personal guarantor information (typical for SME care home operators)
- Bank statements (6 months typically)
- Latest electricity bill and consumption data (for the saving model)
Combining asset finance with other routes
Asset finance can stack with most other routes. Common combinations:
- HP + AIA — most common. Own the asset, claim full AIA, finance the cash outflow.
- HP + SHDF (where eligible) — RP applies for SHDF on 50% of capex; HP funds the remaining 50%. Effective net capex 0 after AIA on the HP portion.
- HP + LA commissioning premium — HP payments offset by the additional bed-rate revenue from the LA sustainability uplift.
For a side-by-side comparison of all funding routes, see grants and funding for care home solar.
Worked example: 80 kWp lease vs HP vs PPA over 7 years
Comparing the three balance-sheet-light routes side-by-side for an 80 kWp install on a 70-bed nursing home, capex £64,000, year-1 annual saving £12,800:
| Year | Operating lease (£8,800/yr) | Hire purchase (£10,900/yr) | PPA (no payment, pay per kWh) |
|---|---|---|---|
| 1 | Net +£4,000 | Net +£1,900 | Net +£6,200 (PPA-on-self-consumed saving) |
| 3 | Net +£4,200 (mod inflation) | Net +£2,100 | Net +£6,400 |
| 5 | Net +£4,400 | Net +£2,400 | Net +£6,600 |
| 7 | Lease ends. Asset purchase option ~£8,000 | HP ends. Own asset outright. | PPA continues. Buyout option at year 7+. |
| Cumulative (yr 1-7) | +£28,500 + asset | +£14,800 + own asset day one | +£44,800, no asset |
| Years 8–25 position | Own asset, full saving capture | Own asset from yr 1, full saving capture from yr 8 | Continue PPA OR buy out at fair market value |
The 7-year cashflow position favours PPA. The 25-year position favours HP (with AIA tax shield). The choice comes down to capital appetite, tax position, and whether you want the asset on your balance sheet.
Asset finance for charity care operators
Charity-run care homes (hospices, charity-owned residential care) without tax-paying corporate position can't benefit from AIA on HP. For charity operators, the comparison is typically operating lease vs PPA — both give cashflow benefit without requiring capital outlay. We model both routes in the proposal; Charity Commission restricted-fund tracking applies to lease payments if the underlying fund is restricted.
Common asset finance pitfalls
- Personal guarantees for SME operators. Most asset finance for family-owned care home operators requires personal guarantor commitment from directors. Negotiate the guarantee cap (often unlimited as standard; can usually be capped at the outstanding balance).
- Early termination penalty. Standard contracts include penalty for early settlement, typically 60–80% of remaining payments. If you may sell the home within the finance term, negotiate an "asset sale" exit clause.
- Asset insurance requirement. The finance provider will require evidence of ongoing insurance on the asset throughout the term. Confirm your building insurer is willing to add the solar PV to the policy at acceptable premium.
- Variable interest rates. Some asset finance products use variable rates linked to Bank of England base rate. Confirm what happens if rates change; many providers offer fixed-rate products as alternative.
- Title document handling. Under HP, you're the beneficial owner from day one but legal title typically transfers at end of term. Confirm whether this creates any complications for tax planning or asset disposal.