Leverage is when you borrow money to buy an asset you expect to appreciate in value and bring returns. The more money you borrow or the more debt you accrue to pay for the asset, the greater the leverage. Leverage can work in your favor when you buy an asset that appreciates and ends up paying for itself. Another way to look at it is that leverage can help you compound your returns. The downside of leverage is when you borrow money to purchase an asset and it declines in value. Not only do you not generate any income from the asset, but you also still have to repay the debt you borrowed. Before using leverage in your personal life, business, or when investing, it’s critical you weigh the risks. If things don’t go as planned, you could end up in debt. How Leverage Works There are several types of leverage including leverage in business and personal finance. While there are nuances between each type, the fundamentals remain the same. Business When companies use leverage in business, they may take out small business loans or