Finance Equipment or Pay Cash

A question business owners often ask, is it better to finance equipment or pay cash?

While it may appear on the surface that paying cash rather than using finance is the better option if you have the funds available, there are advantages and disadvantages to consider.

Benefits of paying cash rather than Financing Equipment

The benefits of paying cash rather than financing equipment include:

The price has been determined; there is no further payment to be made
You may be able to access the equipment you need faster
You will own the equipment and can do with it as you like
It will be less expensive as you won’t be paying any interest

Disadvantages of Paying Cash

While there are benefits to paying cash rather than financing equipment, there are some drawbacks to consider:

It may put a strain on your cash flow
In the event of unexpected events or opportunities, you may have less flexibility than if you had used finance
Should you find yourself short of cash in the future, refinancing the equipment can be expensive. (Rates are likely to be higher than if you had financed the equipment outright, and you may need to pay to have the equipment valued)
Paying cash may lead to a less considered purchasing decision
Depending on the type of equipment, you may be at risk of redundancy

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Benefits of Financing Equipment

The main benefits of Financing Equipment include:

Preserves financial flow for unanticipated events or capitalise on opportunities
The cashflow impact is spread over time
Repayments can be structured to your cash flow – (Allow for seasonality, installation and commissioning, and the time it takes for the benefits to be realised)
Interest rates at historically low levels and are fixed
Interest is usually tax-deductible to the extent the asset is used for business purposes
Allows you to build creditability with an alternate Lender

The Drawbacks of Financing Equipment

The drawbacks should you decide to Finance Equipment include:

It will cost more overall compared to paying cash
An additional commitment the business will need to fund
Because the interest rates are fixed, if you want to pay out the contract early, you will face break costs
If the finance is not properly structured, it can potentially strain your cash flow

Tips to Avoid Equipment Finance Pain

If you decide to Finance Equipment, I’ve provided some tips below to help you navigate the process:

Before approaching suppliers, get your financing in order; this will give you a better negotiation position
Consider finance in the context of all your existing financial commitments
Understand the total cost of the finance rather than just the headline interest rate
Make sure you’re comparing “apples to apples” when it comes to supplier finance
Ensure that the finance is stand-alone and not cross-collateralised with any other security you may have provided to the Lender
Take advantage of the opportunity to establish a new relationship with a different Lender
Use an Equipment Finance Specialist rather than a Generalist Lender

Summary

If you are considering Financing Equipment and would like to learn more, don’t hesitate to get in touch.

As an Equipment Finance Broker, I can help you navigate the procedure and provide you access to our panel of Lenders, which includes all of the major Banks.

Our market access means Lenders compete for your business and this invariably delivers highly competitive rates, structures, terms, and conditions.

0433 210 353

Sharon Piening

Sharon Piening

Highly experienced Equipment and Motor Vehicle Finance Specialist. I love working with my clients and helping them navigate the complex world of equipment and motor vehicle finance.

Sharon Piening is a credit representative (474698) of BLSSA Pty Ltd ACN 117 651 760 (Australian Credit Licence 391237)