The True Cost of Paying Cash for Equipment

You've got the money sitting there. The excavator costs $80,000. Why would you pay interest when you could just pay cash?

It's a fair question. And for a lot of business owners, paying cash feels like the responsible move. But when you look at the actual numbers, paying cash for equipment is often the more expensive decision. Not because the asset costs more, but because of what that cash could have done if you'd kept it.

The cash purchase isn't "free"

When you hand over $80,000 for a piece of equipment, the sticker price is all you pay. No interest, no fees, no monthly repayments. On paper, it looks cheaper than financing.

But that $80,000 didn't appear from nowhere. It was working capital, sitting in your business account, earning interest, covering slow weeks, and giving you the ability to say yes to the next opportunity. The moment it leaves your account, all of that disappears.

This is opportunity cost, and it's the part of the equation most business owners skip.

The maths: cash vs finance

Take an $80,000 excavator. You've got the cash. You could also finance it via a chattel mortgage at 7% over five years.

At first glance, financing costs $15,040 more. But the table leaves out what happens to the $80,000 you kept.

What that $80,000 can do

Even parked in a business savings account at 4%, $80,000 earns roughly $3,200 a year. Over five years, that's $16,000 in interest alone, which already covers the cost of financing.

But most business owners aren't parking cash. They're deploying it. That $80,000 could be a deposit on a second vehicle that generates revenue. It could cover three months of operating costs during a slow patch. It could fund a hire that lets you take on bigger contracts.

The interest cost of financing is fixed and knowable. The value of keeping $80,000 in your business is almost always higher.

The cash flow argument

Here's something that doesn't show up in a comparison table: predictability.

A $1,584 monthly repayment is a line item you can forecast. You can plan around it, absorb it into project quotes, and massage it into choppy months when revenue dips. It's a fixed cost in a business full of variable ones.

An $80,000 lump sum is the opposite. It creates a crater in your working capital, and it happens all at once. If a slow month hits two weeks after you've paid cash for a machine, you've got less buffer to ride it out. According to CommBank research, 80% of Australian small businesses have experienced cash flow disruption in the past 12 months, with 30% citing low cash reserves as a key driver.

Paying cash doesn't just cost you the money. It costs you the flexibility to handle what comes next.

The tax position is the same either way

A common misconception is that paying cash gives you a better tax outcome. For small businesses with turnover under $10 million, assets under $20,000 qualify for the instant asset write-off (now permanent from 1 July 2026). For assets above that threshold, like our $80,000 excavator, you depreciate at 15% in the first year and 30% each year after that under the simplified depreciation rules.

That depreciation schedule applies whether you pay cash or finance. The difference is that with a chattel mortgage, you also deduct the interest component of your repayments. And if you're GST-registered, you claim the full GST credit on the purchase price upfront either way.

Financing doesn't cost you any tax advantages. In most cases, it adds one.

When paying cash actually makes sense

There are situations where cash wins. If the equipment costs under $20,000, the instant asset write-off covers the full amount and the interest savings are minimal. If you're carrying excess cash that's genuinely surplus to your operating needs, deploying it into a productive asset is a reasonable move. And if your business has limited borrowing capacity and you need to preserve it for something larger, avoiding another finance commitment can be strategic.

But for most businesses buying equipment in the $50,000 to $200,000 range, financing preserves cash, maintains flexibility, and often costs less than the opportunity you'd miss by paying upfront.

What to do next

Before your next equipment purchase, run the numbers both ways. Not just the purchase price vs total finance cost, but the full picture: what would you do with the cash if you kept it? What's your cash buffer after the purchase? Can you absorb a slow month?

Talk to your accountant about how each structure affects your depreciation, GST, and taxable income for the current financial year. Then get quotes from a finance specialist who can compare rates across multiple lenders, not just your bank.

If you're weighing up your options on equipment finance, Emu Money's specialists compare structures across 50+ lenders to find what fits your cash flow and tax position. Compare equipment finance options.

Subject to lender approval, terms, and conditions apply.