Should you pay cash or finance equipment? A practical way to decide

You’ve got $60,000 in the business account and you need a $45,000 piece of equipment. You could pay cash today and have no repayments. Or you could finance it and keep the cash. Most owners have a gut feeling about this, usually “debt is bad, pay cash”. Sometimes that’s right. Often it isn’t. Here’s a straightforward way to decide.

What’s the real question?

It isn’t “cash or debt?”. It’s “what is this cash worth to my business, compared with what finance costs?”.

Cash in the bank does three jobs:

1. Insurance. It covers wages, rent and bills in a slow month or when a big customer pays late.
2. Opportunity. It lets you say yes to a bulk discount, a new contract or a good hire.
3. Avoiding worse debt. Businesses that run out of cash often end up borrowing in a hurry, on worse terms.

The Reserve Bank’s October 2026 Financial Stability Review notes smaller businesses continue to face cash-flow pressure. Spending your buffer on equipment and then being caught short is one of the most common ways that pressure turns into a crisis.

The three-question test

1. What’s left after you pay cash?

Work out how many months of fixed costs (wages, rent, existing repayments, insurance) your remaining cash would cover. If it drops below two or three months, paying cash puts the business at risk. Lean towards finance.

2. Does the purchase pay its own repayment?

Estimate what the equipment earns or saves each month: new work, subcontractor costs avoided, time saved, waste reduced. Compare it with the repayment if you financed it. If the benefit comfortably covers the repayment, finance costs you very little in cash-flow terms. Our purchase payback calculator does this comparison for you.

3. Is there a better use for the cash?

If that cash could fund stock with a strong margin, a marketing push that brings in customers, or a deposit that earns a supplier discount, the return on the cash may beat the cost of finance. If the cash would just sit there, paying for the equipment with it is reasonable.

Quick decision table

Situation	Leaning
Plenty of reserves left after paying, no better use for the cash	Pay cash
Reserves would drop below two or three months of costs	Finance
Purchase earns more each month than the repayment	Finance, keep the cash
Purchase earns little or nothing directly (e.g. a nicer office)	Pay cash if you can afford it, or wait
Seasonal business heading into a quiet period	Finance, protect the buffer
Small item well under your monthly turnover	Pay cash

What about the cost of finance?

Finance costs money, and that cost should be counted honestly. Ask for the total cost in dollars, including every fee, and compare it with the benefit of keeping your cash. A $6,000 total finance cost to keep $45,000 in reserve through a slow winter can be money well spent. The same $6,000 to keep cash you’ll never touch isn’t. Our guide to comparing business loan offers shows how to calculate the total cost.

Does tax change the answer?

Usually not much. If you own the asset, whether bought with cash, a loan or a chattel mortgage, you generally claim depreciation, or the instant asset write-off for eligible assets under $20,000 each if your business turns over less than $10 million. With a loan, interest on business borrowing is generally deductible too. Leasing is treated differently. The tax side is worth confirming with your accountant, but it rarely flips the cash-versus-finance decision on its own. Our guide on the instant asset write-off and finance covers the timing questions.

The middle path: part cash, part finance

You don’t have to choose one or the other. Paying a deposit from cash and financing the rest:

• Lowers the amount borrowed and the total finance cost.
• Keeps a solid buffer in the account.
• Shows a lender you’re sharing the risk, which can help approval.

An illustrative example

A Cairns refrigeration mechanic wants a $42,000 refrigerant recovery and diagnostics set-up that will let him take on commercial cool room work he currently passes to another business. He has $58,000 in the account. His fixed costs, including his apprentice’s wages, run to about $16,000 a month, and the wet season is always slower.

• Paying cash would leave $16,000: one month of costs going into the quiet season.
• The equipment is expected to add around $4,500 a month in work.
• Financing over three years gives a repayment comfortably below that.

He pays $10,000 as a deposit, finances the rest, and keeps nearly three months of costs in reserve for the wet. The equipment pays the repayment from the first month.

When is waiting the right answer?

Sometimes neither option is right yet. Consider waiting if:

• The purchase doesn’t earn or save anything measurable.
• The business is already carrying more debt than it’s comfortable with.
• A cheaper used option would do the job just as well; see asset finance explained for how used equipment is funded.
• You’re not sure the work will be there to use it.

What do lenders think of a deposit?

A deposit from your own cash tells a lender you’ve weighed the purchase and are sharing the risk. It can improve approval odds, reduce the total finance cost and sometimes open up a longer term. But a deposit that empties the account works against you, because lenders also look at the balance left behind. Aim for a deposit that still leaves a sensible buffer, and say so on the application.

A quick checklist before you decide

• How many months of fixed costs would remain if you paid cash?
• What does the purchase earn or save each month, in dollars?
• What’s the total cost of financing it, including fees?
• Is there a better use for the cash in the next six months?
• Would a cheaper or used option do the job?

If you can answer those five questions, the decision usually makes itself. Write the answers down, and revisit them a few months after the purchase to see whether the equipment is doing what you expected. That habit makes the next decision even easier.

Want to keep your cash and still buy the gear?

If the equipment pays its way, there’s no prize for draining the account to buy it. Asking us doesn’t touch your credit file; a credit check only comes up once you decide to go ahead. We won’t send your details around a list of lenders. A real person looks at the purchase and your cash position, and calls you to talk through what makes sense, including when paying cash is the better call.

Please be accurate on the form about the price and what you’re buying, so we can match you properly from the start. Talk to us about your equipment.