Buying your first big piece of equipment: pay cash, borrow or lease?

There’s a moment in most small businesses when a bigger piece of equipment stops being a “nice to have” and becomes the thing holding you back. A second oven. A proper van. A dental chair. A CNC machine. An industrial coffee roaster.

It’s exciting, and it’s also the first time many owners face a real decision about how to pay for something big. This guide walks you through it calmly, without jargon.

Step 1: Do you actually need it now?

Start with the purpose. Try to finish this sentence:

“This equipment will let the business , which is worth about $ a month.”

Examples:

• “…bake a second batch every morning, which lets us supply two more cafés.”
• “…take on commercial jobs we currently turn away.”
• “…stop paying for hire equipment every week.”

If you can fill in both blanks with confidence, you have a clear case. If you can’t, pause. Our guide to good debt vs bad debt has a four-question test that helps.

Step 2: What does it really cost?

Get quotes, then add the extras first-timers forget:

• delivery and installation
• electrical, plumbing or building work
• training and set-up time
• accessories, tooling or software
• servicing and maintenance
• downtime while it’s installed

The five-step method in how much to borrow turns this into a sensible number.

Step 3: Pay cash, borrow or lease?

Here’s the honest comparison. business.gov.au sets out similar pros and cons for leasing and buying.

	Pay cash	Borrow (and own it)	Lease
Upfront cost	Full price now	Little or none; spread over the term	Generally lower upfront
Ownership	You own it	You own it	You don’t own it
Borrowing cost	None	Interest and fees	Built into lease payments
Cash buffer	Reduced, possibly a lot	Kept	Kept
Flexibility to upgrade	Sell and buy again	Sell and buy again	Often easier to upgrade
Commitment	None after purchase	Repayments until paid off	Payments for the full lease term
Suits	Plenty of spare cash, simple purchases	Long-life equipment you’ll keep	Gear that dates quickly or you upgrade often

The biggest first-timer trap: emptying the buffer

Many first-time buyers pay cash because they “don’t like debt”, then find themselves short a month later when a big supplier bill or BAS lands. A loan with comfortable repayments and a healthy buffer is often safer than no loan and no buffer. Your cash flow forecast will show you what would be left.

Weighing it up right now? Ask a real person to talk through cash vs borrowing for your situation. There’s no credit check to enquire.

Step 4: What about the tax side?

This is a question for your accountant, but here’s the background so the conversation makes sense.

The ATO says the $20,000 instant asset write-off is permanent from 1 July 2026. For eligible small businesses (aggregated annual turnover under $10 million), it lets you immediately deduct the cost of eligible assets costing less than $20,000 each. Key points from the ATO:

• the $20,000 limit applies per asset, so several eligible assets can each qualify
• the asset must be first used, or installed ready for use, in the income year you claim it
• assets costing more are generally depreciated over time under the small business rules

Two beginner rules:

1. A deduction isn’t a discount. It reduces tax on profit; it doesn’t make the equipment free.
2. Buy because the business needs it, then let your accountant work out the best tax treatment.

Timing around 30 June matters, too. Our first EOFY checklist covers that.

Step 5: Test the repayments

If you’re borrowing, apply the slowest-month test from can you afford the repayments:

1. Find your slowest month’s surplus from bank statements.
2. Subtract the new repayment.
3. Make sure a buffer remains.

Then think about the term. Equipment that’ll work for eight years can reasonably be paid off over several years. Equipment that’ll be outdated in two shouldn’t be on a five-year repayment plan.

An illustrative example

A small bakery wants a second deck oven so it can supply wholesale customers. (All figures illustrative.)

• Oven, installation and electrical upgrade: about $42,000
• The owner has $55,000 in the bank, but her slowest month (January) usually uses about $15,000 of that buffer.

Option A: pay cash. She’d have about $13,000 left, which her slowest month could nearly wipe out.

Option B: borrow most of it. She contributes $7,000 and borrows about $35,000 on an unsecured business loan over four years with weekly repayments. Her buffer stays healthy, the repayment fits her January numbers, and the wholesale orders the oven enables more than cover it.

Option C: lease. A lease could work too, but she expects to keep the oven for ten years or more, so owning it makes more sense for her.

She chooses B. Our café story shows a similar decision step by step.

Step 6: New or second-hand?

For a first big purchase, good-quality second-hand equipment can be a smart move:

• Lower cost means a smaller loan and smaller repayments.
• Proven models have known reliability.
• Check service history, warranty, parts availability and whether a technician will support it.

The main risk is downtime. If the equipment breaks and you can’t trade, what does that cost? Build that into your decision.

A first-equipment checklist

• Purpose written in one sentence, with a monthly value
• Real quotes, plus installation and extras
• Cash vs borrow vs lease compared
• Buffer checked: what would be left if you paid cash?
• Repayment tested against your slowest month
• Term matched to the equipment’s working life
• Accountant asked about the tax treatment and timing
• New vs second-hand weighed, including downtime risk

Questions to ask the seller

Before you commit, especially for a first big purchase, ask:

• What’s included in the price: delivery, installation, training?
• What warranty applies, and who honours it?
• How quickly can a technician attend if it breaks down?
• Are parts readily available in Australia?
• For second-hand gear: can I see the service history, and why is it being sold?
• Is there a trade-in or buy-back option when I upgrade?

Write the answers down. They’ll help you compare quotes fairly, and they’re useful to have if a lender asks what the money is for. A written quote with the seller’s ABN on it is also one of the documents lenders commonly want to see.

What if the equipment doesn’t earn as planned?

It’s worth thinking this through before you buy, not after. Ask yourself what you’d do if the new equipment brought in half the extra work you expect for the first six months. Could the repayments still be met from existing trading? Could you sell the equipment if you had to, and roughly what would it fetch? Having a plan B doesn’t mean you expect things to go wrong. It means a slow start won’t turn into a crisis.

Words you’ll hear when buying equipment

• Depreciation — spreading an asset’s cost over its useful life, as business.gov.au describes it.
• Chattel mortgage — a loan where the lender takes security over the item itself.
• Hire purchase — paying the item off in instalments, owning it at the end.
• Balloon or residual — a larger final payment at the end of some finance terms.

Anything else puzzling? The jargon buster translates it.

Ready to make your first big purchase?

The right way to pay for equipment is the one that leaves your business stronger and your buffer intact. For many first-timers, that’s a well-sized loan with repayments that fit comfortably.

If you’d like to explore it, the enquiry takes about a minute. There’s no credit check to ask, and your details won’t be shopped around to lender after lender. A real person looks at the equipment, your trading and your buffer, and explains whether borrowing makes sense and how. Please include accurate quotes and turnover on the form, so the options you hear about match the purchase you’re actually making.

Talk through your equipment purchase →