A fabrication business in Port Pirie has found the machine it wants.
It is a CNC plasma cutting table priced at:
$38,000.
The business could potentially pay cash for it.
There is around:
$95,000
sitting in the business bank account.
So the owner isn’t asking:
“Can I afford this machine?”
He can.
His question is:
“Should I put $38,000 of our cash into it, or finance some or all of the purchase?”
That’s where the equipment-finance conversation becomes more interesting.
Because the amount of cash a business can contribute isn’t necessarily the amount it should contribute.
Is a Deposit Always Required for Equipment Finance?
Not necessarily.
Depending on the business, equipment, transaction and lender, it may be possible to finance a substantial portion of an equipment purchase.
In some circumstances, a borrower may potentially be able to finance the purchase without making a large cash contribution.
In other circumstances, a contribution may be required.
There isn’t one deposit percentage that applies to every equipment-finance application.
Why Is the Port Pirie Business Buying a CNC Plasma Cutter?
The business has been operating for several years and undertakes fabrication and engineering work for commercial and industrial customers in Port Pirie and the surrounding region.
It already cuts and fabricates steel.
But some cutting work is:
slower than the owner would like,
completed manually,
or sent elsewhere when the workshop becomes busy.
The CNC plasma table would allow the business to bring more cutting capability into its own workshop.
The owner isn’t buying machinery simply because:
“We want a new machine.”
There is a commercial reason for the purchase.
What Does a CNC Plasma Cutting Table Actually Do?
A CNC plasma cutting system can be used to cut metal according to programmed designs.
For a fabrication business, that can potentially help with work involving:
steel plate,
brackets,
components,
frames,
custom fabrication,
and repeated production work.
Instead of manually cutting every component, computer-controlled equipment can produce programmed shapes and parts.
The important question for the business is whether the machine will:
increase capacity,
reduce outsourcing,
improve productivity,
or allow the workshop to undertake work it currently cannot complete efficiently.
The Machine Costs $38,000
The owner looks at the bank account.
Cash available:
$95,000.
Machine:
$38,000.
If he pays cash, approximately:
$57,000
remains before other business expenses.
At first glance, that may look perfectly comfortable.
But the bank balance today isn’t the whole story.
What Happens Over the Next Four Weeks?
The business still needs to pay:
wages,
steel suppliers,
fuel,
vehicle expenses,
insurance,
rent or property costs,
tax obligations,
and other operating expenses.
It may also need to purchase materials for jobs before customers pay their invoices.
That’s why the deposit decision shouldn’t be made by looking only at today’s bank balance.
A Deposit Is Also a Working-Capital Decision
Every dollar contributed towards the machine is a dollar that is no longer available in the business bank account.
That doesn’t mean:
never contribute a deposit.
It means:
understand what the business looks like after the contribution is made.
Compare Three Different Positions
The owner could potentially consider several structures, subject to lender approval.
Position 1: Pay the $38,000 in cash
Machine:
$38,000.
Finance:
$0.
Cash remaining before other expenses:
approximately $57,000.
There are no equipment-finance repayments.
But the business has immediately converted:
$38,000 of liquid cash
into:
a productive business asset.
That may be perfectly reasonable.
Or the business may have better uses for some of that cash.
Position 2: Contribute $10,000
Purchase price:
$38,000.
Cash contribution:
$10,000.
Potential finance requirement:
$28,000.
The business retains approximately:
$85,000
before its other expenses.
It now has a finance commitment, but considerably more cash remains available.
Position 3: Investigate financing more of the purchase
The owner could ask whether a lender may be prepared to finance a larger proportion of the machine’s cost.
Whether that is available depends on the application.
If it is, the business may preserve more cash.
But it also borrows more.
That generally means:
higher repayments
and
more total interest.
There isn’t automatically one correct answer.
“Why Would I Borrow Money When I Have $95,000 in the Bank?”
That’s a reasonable question.
Paying cash avoids finance costs.
But businesses don’t hold cash only to purchase equipment.
Cash also funds:
operations.
Imagine the Port Pirie business has:
$95,000
today.
It pays:
$38,000
for the CNC plasma cutter.
Now:
$57,000
remains.
Then a large steel order is required for an upcoming job:
$24,000.
Now:
$33,000.
Payroll falls due.
Then BAS.
Meanwhile, two commercial customers haven’t paid invoices that were expected during the month.
The business may still be profitable.
But the cash position has tightened considerably.
Profit and Cash Are Different
A fabrication business can have:
plenty of work,
good margins,
and strong forward orders
while still experiencing periods where cash is tied up.
Why?
Because businesses frequently need to spend money before they receive money.
Materials may be purchased before fabrication begins.
Employees are paid while work is being completed.
Suppliers may need to be paid before customers settle invoices.
Equipment is only one part of that operating cycle.
What if the Business Has Customers Paying on Terms?
Suppose the business invoices:
$140,000
during the month.
That sounds strong.
But if a significant portion of those invoices won’t be received until later, the bank account doesn’t immediately increase by:
$140,000.
This is where retaining working capital can become important.
The Lowest Deposit Isn’t Automatically the Best Decision
Some business owners approach equipment finance with one objective:
“I don’t want to put anything in.”
But preserving every dollar of cash isn’t automatically the best commercial structure.
If the business has:
strong cash reserves,
consistent cashflow,
limited existing debt,
and no major upcoming commitments,
contributing some cash may make sense.
The appropriate position depends on the business.
The Largest Deposit Isn’t Automatically the Best Decision Either
The opposite can happen.
A business owner says:
“I’ve got the cash. I’ll just pay for it.”
Then something unexpected occurs.
A major customer pays late.
A vehicle needs repairs.
A large supplier account arrives.
Tax becomes payable.
Another machine breaks down.
Suddenly the business wishes it had retained:
$20,000
or
$30,000
of the cash it used to buy equipment.
The Question Isn’t Just “Can We Afford It?”
A better question is:
“What does the business’s cash position look like after we buy it?”
That’s much more useful.
What if the CNC Machine Creates More Revenue?
That strengthens the commercial reason for buying it.
Suppose the business currently sends certain cutting work to another supplier.
The owner estimates outsourcing costs approximately:
$4,000
during a busy month.
The new machine may allow some of that work to be completed internally.
But don’t automatically conclude:
$4,000 outsourced = $4,000 saving.
The business still needs to consider:
labour,
electricity,
consumables,
maintenance,
software,
and operating time.
The commercial benefit needs to be realistic.
What if the Machine Lets the Business Take Different Jobs?
That can be another reason for the purchase.
The workshop may currently decline certain fabrication work because it cannot efficiently produce:
repeated components,
complex shapes,
or particular plate-cutting jobs.
The CNC equipment may expand what the business can manufacture.
Again, that needs to be considered against:
the purchase cost
and
ongoing operating costs.
What if the Equipment Is $138,000 Instead of $38,000?
The same principle applies.
But the cash decision becomes larger.
Suppose another business has:
$180,000
in cash
and wants:
$138,000
of equipment.
Paying cash would leave:
$42,000.
That may create a very different working-capital position.
As equipment values increase, it becomes increasingly important to consider the effect of the contribution on the broader business.
Deposit Percentages Can Be Misleading
Imagine someone says:
“It’s only a 20% deposit.”
On a:
$38,000 machine,
20% is:
$7,600.
On a:
$500,000 machine,
20% is:
$100,000.
The percentage may be identical.
The impact on the business isn’t.
What Determines Whether a Deposit May Be Required?
There is no single answer for every application.
Depending on the lender and transaction, consideration may be given to matters such as:
trading history,
financial performance,
credit profile,
repayment capacity,
existing commitments,
purchase amount,
equipment type,
equipment age,
and how the equipment is being purchased.
The required contribution, if any, depends on the overall application.
Does New Equipment Need Less Deposit Than Used Equipment?
Not automatically.
New equipment purchased from an established supplier may present differently from:
older machinery,
a private sale,
or equipment purchased at auction.
But it would be misleading to say:
new equipment always means no deposit
or
used equipment always requires one.
The complete transaction needs to be assessed.
What if the CNC Machine Is Used?
Suppose the Port Pirie business finds a three-year-old CNC plasma cutter for:
$27,000.
Now the owner has another decision.
The used machine is:
$11,000 cheaper.
But the business needs to investigate:
condition,
service history,
software,
controls,
hours or usage,
consumables,
manufacturer support,
and expected useful life.
A lower purchase price doesn’t automatically make it the better purchase.
What if I’m Buying a Laser Cutter?
The same deposit question can arise with other fabrication equipment.
For example:
laser cutters,
press brakes,
lathes,
milling machines,
welding systems,
and other manufacturing machinery.
A business may have enough cash to purchase the equipment outright but prefer to retain liquidity.
The appropriate finance structure depends on the transaction.
Equipment Finance Isn’t Only for Heavy Machinery
This is important.
Equipment finance can potentially apply across many types of productive business assets.
Depending on eligibility and lender appetite, that may include:
CNC machinery,
manufacturing equipment,
robotics,
automation equipment,
commercial cleaning machines,
medical equipment,
dental equipment,
commercial kitchen equipment,
refrigeration,
warehouse equipment,
printing machinery,
packaging equipment,
gym equipment,
and other specialist commercial assets.
The actual equipment matters.
What if the Business Is Buying Several Machines?
Now the decision changes again.
Imagine the Port Pirie workshop wants:
a CNC plasma cutter,
a new welding system,
and
a press brake.
Total requirement:
$126,000.
The owner could purchase one machine with cash and finance the others.
Or potentially investigate financing the equipment together.
The structure depends on:
the assets,
suppliers,
timing,
business,
and lender.
Don’t Empty the Bank Account Just to Reduce Repayments
Lower repayments feel attractive.
But the purpose of the business bank account isn’t:
to make the equipment loan as small as possible.
The business needs enough liquidity to operate.
For a fabrication company, that can include purchasing:
steel,
consumables,
gas,
parts,
and other materials
before customers pay.
But Don’t Borrow Unnecessarily Either
There is a balance.
If the business genuinely has surplus cash and no better commercial use for it, paying for some or all of the equipment from cash may be reasonable.
Finance isn’t automatically better.
Cash isn’t automatically better.
The decision should be based on what supports the business.
Think About the Next 90 Days
Before deciding how much cash to contribute, look forward.
What is coming?
Payroll?
BAS?
Tax?
Supplier accounts?
Insurance?
Vehicle registrations?
Large material purchases?
New staff?
Another equipment purchase?
Seasonal slowdown?
A large contract starting?
If several cash demands are approaching, retaining liquidity may become more important.
What if a Customer Pays Late?
This is a useful test.
Suppose the business expects:
$65,000
from customers over the next month.
What happens if:
$40,000
of that arrives three weeks later than expected?
Can the business still comfortably meet:
wages,
suppliers,
tax,
and finance commitments?
If not, putting a large amount of cash into equipment deserves careful consideration.
What if the Supplier Requires a Deposit?
The equipment supplier may have its own requirements.
For example, the supplier might request:
10% when the machine is ordered
and
the balance before delivery.
That supplier deposit isn’t necessarily the same thing as the ultimate contribution required under the finance structure.
Tell the broker:
how much is required,
when it must be paid,
and when the machine is expected to arrive.
Don’t Commit Significant Cash Before Understanding the Finance
Suppose the business pays the supplier:
$15,000
and then asks:
“Can we finance the rest?”
Maybe.
But the transaction has already started.
Where finance is required, it’s generally useful to investigate the proposed structure before committing substantial cash.
What if the Machine Is Imported?
Some manufacturing equipment may involve:
international suppliers,
shipping,
customs,
installation,
and commissioning.
Now the transaction can become more complicated than:
machine price = amount required.
The business should establish the complete project cost and discuss which components may potentially be financed.
The $38,000 Machine May Not Cost Exactly $38,000 to Put Into Production
The business may also need:
delivery,
electrical work,
software,
consumables,
training,
or workshop modifications.
Suppose those additional requirements total:
$7,000.
Now the overall project is:
$45,000.
The business needs to understand which costs it will fund from cash and which, if any, may form part of the finance transaction.
Tell the Broker What You’re Trying to Protect
This can make the conversation much easier.
Instead of saying:
“I want the smallest deposit possible.”
say:
“We’ve got about $95,000 in cash, but I want to keep at least $65,000 available because we’ve got several large material orders coming.”
Now the objective is clear.
What Information May Be Needed?
Depending on the application and lender, information could include:
business details,
trading history,
equipment quote,
supplier details,
financial information,
bank statements,
and other supporting documents.
Requirements vary.
The broker can tell you what is likely to be needed once the transaction is understood.
Back to the Port Pirie Fabrication Business
The owner started with:
$95,000 cash.
He could simply purchase the:
$38,000 CNC plasma cutter.
But after looking at:
supplier payments,
payroll,
tax obligations,
material purchases,
and customer payment timing,
he decides he would prefer not to remove the full $38,000 from the business.
Now he can investigate whether financing:
some
or
potentially more
of the purchase is appropriate.
He may still choose to contribute cash.
The difference is that the contribution becomes a deliberate business decision rather than:
“We have the money, so we’ll use it.”
Need Equipment but Unsure How Much Deposit to Put Down?
Thrive Broking can investigate equipment-finance options based on the equipment and the broader business position.
Tell us:
what you’re buying,
the purchase price,
whether it’s new or used,
how much cash you have available,
how much you’d prefer to retain,
and why the business needs the equipment.
We can then look at potential finance structures and contribution requirements depending on the lender and transaction.
The objective isn’t automatically:
the smallest deposit possible.
And it isn’t automatically:
pay as much cash as possible.
It’s finding a structure that allows the business to acquire productive equipment while retaining an appropriate amount of cash to keep operating.
Because the CNC machine might help produce the next job.
But the business still needs enough cash to buy the steel.