Low leverage refers to a financial strategy where a company or individual uses a minimal amount of debt relative to equity to finance its operations or investments. In other words, it indicates a conservative approach to borrowing, with a focus on maintaining a strong equity base. A low leverage ratio, such as a low debt-to-equity ratio, signifies that the entity relies more on its own funds rather than external debt, reducing its financial risk.

For businesses, low leverage can be advantageous in several ways. It lowers the risk of insolvency during economic downturns, as the company is less burdened by debt obligations and interest payments. This stability can make the company more attractive to investors and lenders, as it demonstrates financial prudence. Additionally, low leverage provides greater flexibility to invest in growth opportunities or weather unexpected challenges without the pressure of high debt repayments.

However, low leverage may also limit potential returns, as debt can amplify profits during favorable conditions. Companies with low leverage might miss out on growth opportunities that could have been funded through borrowing. Overall, low leverage reflects a cautious financial approach, prioritizing stability and risk management over aggressive expansion. It is often preferred by risk-averse investors and businesses in volatile industries.