Off-balance-sheet finance
Solar finance glossary · South Africa
Quick definition
Off-balance-sheet finance is any arrangement in which a business obtains the use of an asset, such as a solar system, without recognising the asset and the related obligation on its own balance sheet, because another party owns the asset and the customer's commitment is treated as a service contract rather than a debt.
In solar, the structure most often described as off-balance-sheet is the Power Purchase Agreement: the customer buys electricity, not equipment, so there is no loan and no asset to depreciate. Rentals and operating leases were historically treated this way too, but under IFRS 16 most leases are now recognised on the balance sheet as a right-of-use asset and a lease liability. Whether a PPA falls inside the lease standard depends on its terms.
For South African businesses the practical relevance is borrowing capacity and covenants: a contract that is not classified as debt does not consume facility headroom or affect gearing ratios in the same way. The counterpart is that the Section 12B allowance sits with the asset owner, not the customer.
ArkFlow is a software platform that facilitates presenting on- and off-balance-sheet structures side by side.
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ArkFlow is a software platform that facilitates solar finance origination. It is not a bank, lender, credit provider, tax adviser or financial adviser. This definition is general information, not a credit offer or advice. Funders make their own credit decisions and tax treatment should be confirmed with a registered practitioner.