Understanding loan vs. cash for your solar purchase
Why this comes down to two interest rates
It depends on your loan rate versus what you could otherwise earn on that cash. On a $240,000 system with a 10% down payment, a 7% loan over 7 years costs $57,842 in total interest, but if the freed-up $216,000 earns 8% elsewhere over those 7 years, it grows to about $370,186, beating the loan's total cost by roughly $96,344. Whenever your opportunity cost rate beats your loan rate, financing and investing the difference wins on paper. Check the small business solar loan calculator for more loan structuring options, and the Department of Energy's guide to going solar for the broader tradeoffs between ownership and financing.
The real cost of financing, in isolation
On a $216,000 loan at 7% over 7 years, total interest comes to about $57,842, on top of the $216,000 principal. That's the real cost of choosing to finance instead of paying cash, separate from any opportunity cost consideration. It's worth knowing this number on its own, since not every business has a reliable place to invest freed-up cash at a return higher than the loan rate. The SBA's own small business loan programs overview is worth checking if you haven't settled on a lender yet, since SBA-backed terms sometimes beat what a solar-specific lender quotes.
When cash is the safer bet
If the return you'd earn on your cash is lower than your loan's interest rate, paying cash outright is usually the cheaper path, since you'd be paying more in interest than you'd gain from keeping the cash invested. Try running your numbers with a conservative opportunity rate, like 3% to 4%, to see how that changes the result. Businesses without a reliable higher-return use for spare cash often do better paying cash outright, and can compare that path against a PPA if even a cash purchase feels like too much upfront commitment, or the loan term comparison tool in our financing section to see how a shorter or longer term shifts this same tradeoff. Before you budget, check what you can claim back. The federal tax credit calculator in our Rebates & Incentives section estimates the federal credit and state rebates for a system like this one.
Tax benefits don't change with your payment method
As long as you own the system either way, the ITC and depreciation are identical whether you paid cash or used a loan. This comparison is purely about the cost of capital, not about which option gets better tax treatment. Run the payback calculator for the full year-one picture once you've picked a path, or the financing with bonus depreciation tool if a loan is on the table, and the cash purchase vs. financed payback comparison runs this same question from a residential-scale angle. A battery can cut demand charges as well as store power. The battery charge time from solar calculator in our Battery & Storage section can help you size one for your peak load.