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The aim of this paper is to provide empirical evidence of the importance of financial variables in explaining differences in investment rates among firms. The main contributions of the study are twofold: the use of a variable that approximates the degree of financial constraint, and the effect of indebtedness on investment is allowed to be non-linear. The empirical application to the case of Spain is of interest because of the large proportion of SMEs among Spanish firms (SMEs being highly dependent on bank financing) and the drastic tightening of credit conditions in Spain during the banking crisis. The results provide evidence of the impact of financial constraints on firms’ investment behavior—an impact distinct from, and far greater than, that of indebtedness. Overall, above a debt-to-asset ratio of 53%, the negative impact of indebtedness increases. The impact increased significantly after the financial crisis, suggesting that when dealing with highly indebted firms, banks became more risk averse, thus further constraining access to credit. Conversely, for large, most productive, and exporting companies, leverage has a positive effect, although this effect decreases with indebtedness. From an economic policy point of view, the results show the importance of banking regulation in preventing corporate indebtedness from reaching levels where it becomes a drag on investment.