Considering that small and medium-sized enterprises (SMEs) facing severe resource constraints inevitably rely on external capital, understanding the relationship between leverage and performance is of great academic and practical importance. Despite numerous scholars attempting to elucidate this relationship, the multifaceted nature of leverage leaves its association with performance still ambiguous. In this respect, this study aims to unravel the perplexing puzzle by focusing on the cumulative, deferred effects of leverage, examining the long-term effects (mortality rate) of leverage on SMEs. Building on strategic flexibility and signaling theory, we predict that an increase in SMEs’ leverage will lead to a higher mortality rate. This is because first, high leverage in SMEs can reduce the firm’s flexibility to environmental changes, accordingly accelerating mortality, and second, high leverage may act as a signal of financial distress, threatening the legitimacy of leveraging behavior, thereby increasing the mortality rate. To clarify the positive relationship between SMEs’ leverage and mortality rate, this study adopts a situational approach through firm age. This is because firm age affects the two main mechanisms explaining the relationship: flexibility and legitimacy. Specifically, we suggest that as a SME’s age increases, the positive effect of leverage on mortality rate will be weakened. To test the hypotheses, we employ an event history analysis using U.S. small and medium-sized manufacturers from 1956 to 2018. We find that an increase in a SME’s leverage is associated with a higher mortality rate, and this effect weakens as the SME’s age increases. Such results provide useful insights into effective leverage utilization strategies for SMEs with scarce resources. Finally, we discuss the academic and practical implications of the findings of this study.