Businesses are much better off financially if they borrow to purchase equipment rather than using their cash reserves, according to the results of a financial modeling study conducted by Interlease.

According to Interlease finance broker Peter Morrow, companies will on average be more than $114,000 better off for every $100,000 they borrow over a five-year term than if they had used their own cash to make the same equipment purchase.

"Our financial modeling demonstrates that financing the equipment is a smarter business decision than paying cash," Morrow said.

Morrow explained the reasoning behind his findings: “When you finance, your $100,000 is still accessible and over a five year term will earn $40,255 based on 7% per year compounding interest. In comparison, the interest on $100,000 borrowed will cost only $26,000 at 9.5% over five years, as interest is paid on the diminishing debt. This creates an interest benefit of $14,255. Given that you still have your $100,000, plus the difference in interest, you are $114,255 better off."

Morrow says businesses often prefer not to borrow on the premise that debt was risky, whereas financing for equipment actually improves cash flow, is tax-effective and enables the business to use other's money to make money.