The cash position after settlement can be as important as the purchase price.
Finance education
Preserving Working Capital When Buying Equipment
Learn why a profitable business may finance equipment instead of using most of its operating cash.
Equipment is usually purchased to increase capacity, efficiency or reliability. The business still needs cash after the asset arrives—for installation, training, raw materials, wages, maintenance and the time required to convert new capacity into collected revenue.
Cash flowFunding structureInteractive toolAustralian business
Consider interest, fees, flexibility, security, term and final obligations.
Stress test the facility against a weaker trading period.
Tax, GST and lender suitability depend on the individual circumstances.
Overview
Start with the business outcome.
Equipment is usually purchased to increase capacity, efficiency or reliability. The business still needs cash after the asset arrives—for installation, training, raw materials, wages, maintenance and the time required to convert new capacity into collected revenue.
General information only: The material and tools do not constitute a quote, approval, tax advice or a recommendation to borrow. Credit is subject to lender assessment, eligibility, terms, fees and security. Speak with an accountant about tax and GST consequences.
Comparison
Potential advantages and trade-offs.
Why a business may consider finance
- Protect payroll, supplier and tax-payment capacity
- Leave room for installation and ramp-up costs
- Avoid becoming dependent on emergency finance after purchase
- Maintain flexibility if the expected revenue uplift takes longer
What the business gives up
- The business takes on a regular repayment
- Finance cost must be compared with the asset benefit
- The facility may include security and documentation requirements
- Preserving too much cash can be inefficient if the business has no productive use for it
Interactive tool
Model the decision.
Adjust the assumptions to see how the structure changes liquidity, repayment pressure or estimated cost. The output is educational and intentionally conservative.
Use conservative cost assumptions and separately allow for BAS, tax, owner drawings, capex and seasonal peaks.
Practical example
Put the structure into context.
Illustrative scenario
A packaging company paying cash for a new line may overlook the additional stock and labour needed to operate at higher capacity. Financing the asset can leave working capital available for the growth that the machine is meant to create.
Balanced decision
When cash or finance may fit.
A blended structure can also be considered—for example, contributing a deposit from surplus cash while financing the long-lived asset and retaining an operating buffer.
FAQs
Frequently asked questions.
Why does equipment create extra working-capital needs?
Higher capacity can require more materials, labour, storage and receivables before the cash returns.
What should be included in the project budget?
Asset price, installation, training, tooling, delivery, insurance and post-purchase working capital.
What is the main planning mistake?
Budgeting only for the asset invoice and not for the operating cycle that follows.
Further reading
Official Australian information.
These sources provide general government and regulatory information. They do not replace individual credit, legal or accounting advice.
Business.gov.au — Choose your fundingGovernment overview of debt, equity and common funding structures, including chattel mortgages.Business.gov.au — Apply for a business loanGeneral information on secured loans, asset-backed borrowing, invoice finance and trade finance.Business.gov.au — Leasing or buying vehicles and equipmentGeneral considerations when deciding how to acquire business assets.Australian Taxation Office — Claiming GST creditsOfficial guidance. Eligibility depends on the acquisition, business use, GST registration and tax rules.ASIC — Credit advertising guidanceGuidance on clear and non-misleading promotion of financial products and credit services.