Business Finance vs Paying Cash: Which Is Better for Your NZ Business?

When your business needs a new vehicle, piece of equipment, machinery or technology, one of the first questions you may ask is: Should we pay cash or use finance?

Paying cash may seem like the simplest option because you avoid borrowing and interest costs. However, using business finance can allow you to preserve working capital and keep your cash available for other priorities.

There is no single answer that works for every New Zealand business. The right choice depends on your cash position, growth plans, asset requirements and overall financial strategy.

The advantages of paying cash

Buying an asset outright has some obvious benefits.

You don't have to make ongoing loan repayments, and you avoid the interest associated with borrowing. You also own the asset outright from the beginning, subject to the terms of the purchase.

For businesses with strong cash reserves and predictable expenses, paying cash may be appropriate.

However, there is an important consideration: what else could that cash be doing for

your business?

Using a large amount of cash to purchase an asset could reduce the funds available for:

• Payroll

• Inventory

• Marketing

• Expansion

• Unexpected expenses

• New business opportunities

• Working capital

A business can be profitable and still experience cash-flow pressure.

Why businesses consider finance

Business finance can help you acquire the assets you need without using all your available cash.

For example, imagine a construction business needs a new excavator to take on additional contracts. Instead of using a large portion of its cash reserves, the business could explore equipment finance and preserve some working capital for operations.

WFS provides finance solutions for a wide range of business assets, including vehicles, plant, machinery, industrial equipment and IT equipment.

Finance can support business growth

The biggest benefit of finance isn't necessarily avoiding a cash purchase. It is about matching the cost of an asset with the income or value it is expected to generate.

If a new vehicle allows your business to take on more jobs, or new machinery increases production capacity, financing the asset may allow you to benefit from it sooner.

The important consideration is whether the repayments are affordable and appropriate for your business.

Don't focus only on the interest rate

When comparing finance options, look beyond the advertised interest rate.

Consider:

• Total repayment cost

• Loan term

• Establishment fees

• Ongoing fees

• Early repayment conditions

• Balloon or residual payments

• Security requirements

• Repayment frequency

WFS notes that interest rates and fees vary depending on the lender, security, client circumstances and loan term.

What should your business do?

Before deciding between cash and finance, consider:

How much cash will remain after the purchase?

Does the asset generate income or improve productivity?

Could that cash be better used elsewhere?

Can the business comfortably manage repayments during slower periods?

How long will the asset remain useful to the business?

These questions can help you make a decision based on your business strategy rather than simply choosing the cheapest option upfront.

Talk to a business finance specialist

The right financing structure depends on your circumstances.

Whiting Financial Services Limited works with a range of banks and non-bank lenders to help New Zealand businesses explore finance options suited to their requirements.

If you're considering purchasing a vehicle, equipment or other business asset, speak with WFS before deciding whether to pay cash or finance the purchase.

Your cash is an important business asset too.