Equipment finance vs paying cash: what the cheaper option really costs you

Picture a joinery business with $140k sitting in the bank and a quote for an $85k CNC router on the desk. Writing one cheque would be the end of it: no fees, no interest, no paperwork. It would also cut the cash reserve by more than half, one month before the quarterly BAS and two months before the slowest stretch of the year. That tension sits behind almost every version of this decision, and it is why the cheaper option on paper isn’t always the cheaper option in practice.

How do the two options compare?

	Paying cash	Equipment finance
Dollar cost	Just the purchase price	Purchase price plus interest and fees
Effect on reserves	Drops by the full amount on day one	Drops by any deposit, then by each repayment
Ownership	Yours immediately	Yours from settlement under a chattel mortgage; the financier’s under a lease
Security given	None	Usually the equipment itself, registered on the PPSR
Speed	As fast as the supplier can invoice	Often a few days for common assets
Paperwork	An invoice	An application, ID, and bank statements or financials
Tax treatment	Deduct or depreciate the asset	Same for a chattel mortgage, plus the interest; lease payments for a lease
Flexibility later	Sell whenever you like	Pay out the finance first, or sell subject to it

The table makes cash look tidy, and for a lot of purchases it is. The interesting part is what happens to the business in the months after.

Why can spending cash cost more than it saves?

The money in your business account is the most flexible funding you will ever have. It pays wages on a bad week, covers the BAS, and lets you say yes to a big order without asking anyone. Once it has gone into a machine, getting it back means borrowing, and the type of borrowing you need at that point is usually harder to get.

Lenders view equipment as relatively safe to fund. It has a resale value, it can be registered as security, and a financier can recover it if things go wrong. Reserve Bank figures bear this out. In its October 2025 Bulletin on small firms, the RBA put loans with no security at all under one twentieth of SME credit in recent years, and found that roughly half of the smaller SME loan book is backed by things like vans, trucks and machinery instead of a house. Put simply, financiers prefer something they can pick up and resell.

Working capital is the opposite. A loan to cover wages or a tax bill has nothing to sit behind, so it is typically shorter, smaller and more expensive in dollar terms. An owner who spends reserves on a machine and later borrows unsecured to cover a cash flow gap has swapped cheap, easy money for dear, difficult money. If you think there’s any real chance of that sequence, mapping your cash runway before you pay is worth ten minutes.

Does the tax treatment favour one side?

Less than most owners assume. Tax is rarely a reason to pay cash.

• Instant asset write-off. The ATO confirms the $20,000 write-off became a permanent fixture on 1 July 2026 for any small business whose aggregated turnover sits below $10 million, and each asset is tested on its own. Under a chattel mortgage, the business owns the asset from settlement, so an eligible item can be written off exactly as if it had been paid for in cash. Items at or above $20,000 go into the small business pool either way.
• GST credits. A GST-registered business buying under a chattel mortgage usually claims the GST in the price on its next BAS, the same as a cash buyer.
• Interest. The interest and fees on business equipment finance are generally deductible, which takes some of the sting out of the extra dollars.
• Cars. For cars first used in 2026–27, the ATO car limit of $69,883 caps the depreciation base whichever way you pay, and the most GST you can claim back on one is $6,353. A ute or van built to haul a tonne or more falls outside the car limit altogether.

Leases work differently: the financier owns the equipment, and you generally deduct the lease payments instead of claiming depreciation. Our page on leasing versus buying equipment covers that split. Your accountant should confirm how it lands for your structure.

When does paying cash win?

• The item is small or cheap to replace. A $4k laptop fleet or a set of power tools rarely justifies an application.
• Reserves stay comfortable afterwards. A useful test: after paying, could you still cover two to three months of fixed costs, including wages and the next BAS?
• The asset is hard to finance. Very specialised, custom-built or second-hand items from a private seller can attract poor finance terms, which narrows the gap in favour of cash.
• Short useful life. Technology that will be obsolete in two years is awkward to finance over four.
• You want no new commitments. Some owners simply sleep better without another debit each month, and that’s a legitimate reason.

When does equipment finance win?

• The machine pays for itself. If the router, truck or oven generates income from the first week, its repayments can be covered from the extra revenue it creates.
• Paying cash would leave the business thin. Especially ahead of a known pressure point like June’s end of financial year squeeze or your industry’s quiet months.
• You’re growing. Cash spent on equipment can’t also fund the stock, wages and debtors that growth demands.
• You want the purchase matched to its life. Spreading a ten-year asset across five years of repayments is a reasonable way to pay for it.
• Your home stays out of the deal. Because the asset is the security, equipment finance often doesn’t need a house behind it.

Weighing up a specific quote? Tell us about the purchase here. It’s a one-minute form, and nobody pulls your credit report just because you asked.

What does the difference look like in dollars?

Back to the joinery with $140k in the bank and an $85k router to buy. These figures are illustrative only.

• Option A: pay cash. Cost: $85k. Reserves fall to $55k. Monthly fixed costs are about $38k, so the business has under six weeks of cover heading into a quiet patch.
• Option B: finance it all over five years. Suppose the financier’s quote shows total repayments of about $104k. The extra $19k, spread over five years, is the price of keeping $85k of buffer.
• Option C: $25k deposit, finance $60k. The quoted total for the financed portion falls accordingly, and reserves sit at $115k.

The question isn’t “is $19k a lot?” It is “what would happen if we needed $40k in a hurry with only $55k in the bank?” If the honest answer involves an expensive short-term loan, the finance cost starts to look like cheap insurance. Run your own quotes through the equipment finance calculator and compare the totals on the loan cost comparison calculator.

A balloon payment lowers the monthly figure but adds a lump sum at the end, so only use one if you have a plan for it.

Five questions before you decide

1. How many weeks of fixed costs will the business hold after this purchase?
2. Will the equipment produce income straight away, and roughly how much?
3. What is the full dollar cost of the finance quote, including every fee?
4. Is anything big due in the next six months: tax, a lease renewal, a large order?
5. If you needed cash urgently after paying, where would it come from, and at what cost?

Ready to put a number on it?

Whether to keep the cash or spend it is a judgement call, and it’s one we help owners make most days. Send us the price, what the machine is, and a rough idea of the bank balance. Filling it in is about a sixty-second job and leaves your credit history untouched. We don’t forward your enquiry to a long list of financiers, so expect one call rather than a dozen: someone from our team reads what you sent and rings to work through it with you. Honest numbers on the form mean the first structure we suggest is far more likely to be the right one.

Check your equipment finance options →