Funding an asset purchase: Cash vs financing

When planning a major project, acquiring essential equipment like cranes, excavators, or earthmoving machinery is a significant investment. These assets are critical to project success, but they come with a hefty price tag. The question many businesses face is: “Should we pay cash or finance the purchase?”

At Quadrent, we help businesses make smart financial decisions through tailored vendor finance solutions, including matching the finance term to the length of your project. Here’s why financing your equipment often makes more sense than paying upfront.

1. Opportunity cost of using cash

Paying cash may seem simple, but it comes with a hidden cost: opportunity. Every dollar spent upfront on equipment is a dollar you cannot invest elsewhere.

For example, imagine you have $500,000 in cash. You could:

• Pay cash for a new excavator, or
• Finance the excavator and invest the $500,000 in a project or market investment returning 12% annually

Calculation:

• Cash purchase: $500,000 spent now → $0 earning elsewhere
• Investing $500,000 at 12% per year → $60,000 earnings in the first year

By financing, you not only keep your cash working for you, but you also gain potential investment income. Over five years, that $500,000 could grow to roughly $864,000 (compounded annually at 12%), demonstrating the real cost of paying upfront.

The tax benefits of leasing instead of paying cash can be substantial for significant asset acquisitions like cranes or earthmoving equipment.

2. Keep cash to leverage debt

Cash is powerful, but it’s often smarter when used to leverage debt, rather than spent outright. By financing equipment, you can:

• Maintain liquidity for unexpected expenses
• Take on low-cost debt now
• Invest cash in higher-return opportunities

For example, using equipment finance at 7% interest to fund a $500,000 excavator keeps your $500,000 cash available. If your business can earn 12% elsewhere, you effectively earn a 5% net benefit on your cash by borrowing at a lower rate than your return. This is smart leverage in action.

3. Equipment finance vs. working capital: Cheaper debt

Many businesses assume all loans cost the same, but equipment finance is often the cheapest form of debt compared to a standard working capital facility.

• Equipment finance rates: 7% per annum
• Working capital loan rates: 10-12% per annum

Example: Financing a $500,000 piece of machinery over 5 years:

• Equipment finance at 7% → Total interest ≈ $101,000
• Working capital at 11% → Total interest ≈ $155,000

By choosing equipment finance, you save over $50,000 in interest alone, making it a much more cost-effective option than drawing on general business loans.

4. Security: Equipment vs. business property

Another important difference is what the loan is secured against:

• Equipment finance: Secured against the asset itself. If you default, only the equipment is at risk
• Working capital loans: Often secured against broader business assets or even personal property of the owners

This distinction matters. Equipment finance isolates risk to the machine you’re buying, protecting other assets and reducing personal exposure.

5. Tax advantages

Paying cash offers no tax relief, but financing provides clear benefits:

• Interest payments on equipment finance are tax-deductible
• Reduces taxable profit, lowering your tax bill immediately

Example: Financing $500,000 at 7% interest → $35,000 interest first year. If your corporate tax rate is 30%, you save $10,500 in tax in year one alone. Paying cash yields no such benefit.

6. Protect your cash for a rainy day

Unexpected costs are a reality in construction and infrastructure projects. Paying cash upfront leaves your business exposed. Financing allows you to:

• Keep cash reserves for emergencies
• Maintain flexibility to seize new opportunities

Liquidity can mean the difference between a project thriving or stalling.

7. Build a strong commercial credit profile

Financing your equipment does more than solve today’s funding need - it builds your creditworthiness for future projects.

Lenders look favourably on businesses with a solid repayment history. Establishing this track record makes it easier to secure larger loans for bigger projects down the road.

The bottom line

For large assets like cranes and earthmoving machinery, financing offers multiple advantages over paying cash upfront:

• Reduces opportunity cost of using cash
• Maximises leverage through low-cost debt
• Saves money compared to working capital loans
• Limits risk through secured lending against the asset
• Provides tax benefits
• Protects liquidity for unexpected costs
• Builds a strong credit profile

At Quadrent, we specialise in vendor finance solutions that make these benefits a reality. If you’re planning a major project, financing your equipment strategically can give your business the flexibility, savings, and growth potential you need.

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