Despite understanding the financial arbitrage of borrowing at a low rate to invest for a higher return, Dean Sweetman chooses to be nearly debt-free. He buys cars and homes outright, prioritizing the psychological benefit of simplicity and sleeping well over maximizing returns through leverage, a counter-intuitive stance for a savvy businessman.

Not all debt is negative. Using leverage to acquire assets that generate returns—like real estate, inventory, or business investments—is a smart wealth-building tool. Conversely, financing depreciating lifestyle items ('flexing') creates a financial hole that's nearly impossible to escape.

Spresso, a $5M ARR SaaS company, maintains a conservative debt strategy. Leverage is kept below 10% of ARR (e.g., <$500k debt on $5M revenue) at a ~10% interest rate. The lender also received warrants for an equity position under 10%, providing a clear model for early-stage debt.

Michael Mauboussin's research reveals a surprising trend. Despite a long period of low interest rates, non-financial corporate debt to total capital is around 15% today, significantly lower than the historical average of 26%. This suggests balance sheets are stronger than commonly perceived.

Wealthy people don't avoid debt; they use it as a tool called 'leverage'. They borrow money at a low interest rate to invest in assets that generate a higher return, effectively profiting from the spread.

Unlike firms that maximize leverage, Triton intentionally keeps debt levels low—likening it to water around the ankles or knees, not the head. This conservative approach is a core strategy to ensure portfolio companies have the financial flexibility to undergo significant operational improvements.

A debt-free balance sheet gives portfolio companies the "freedom" and "simplicity" to make the right long-term strategic decisions. It shifts management focus from short-term survival tactics, like making interest payments, to sustainable investments in people, culture, and building a resilient business.

The market penalizes even stable, cash-generative businesses for high leverage (e.g., >3.5x debt/EBITDA). This creates a "distress multiple," as investors price in tail risk from events like interest rate spikes. Deleveraging is critical to remove this discount and achieve multiple expansion.

A company's ability to adopt AI and robotics is directly limited by its debt load. Highly leveraged incumbents cannot afford the necessary capital investments to retool their operations. In contrast, unlevered competitors can reinvest freely, creating a decisive advantage and ultimately winning the market.