These businesses are basically dead—but they keep limping along.
Economists call them “zombie companies.” They survive by borrowing funds from banks. But they can’t pay off their loans. So what happens when they finally fail?
Cash-strapped companies often take out loans. When they do, they don’t just need to pay back what they borrowed. They also pay an extra charge called interest. The interest rate changes over time.
“Zombie companies” are businesses that didn’t earn enough to pay interest for three years. They include the corporations behind Carnival Cruise Line, JetBlue Airways, and the Manchester United soccer team. About 7,000 zombie companies exist worldwide, and that number keeps growing.
So does the potential fallout. These companies employ about 130 million people worldwide. Investors buy in to these companies without seeing the risk. If the companies fail, those employees lose their jobs. Those investors lose their money.
How did these companies become zombified? They took on too much debt. Plus, during the COVID-19 pandemic, banks lowered interest rates for businesses. They wanted to encourage borrowing to prevent an economic depression. But those cheap rates weren’t fixed in place. Today, with inflation on the rise, interest rates rise too. Those loans have grown much pricier.
JetBlue took advantage of the cheap pandemic loans. With few people traveling during the outbreak, the company needed cash. But JetBlue’s debt has doubled over the last decade. Now it can’t afford its loan payments.
Many zombie companies didn’t use their loans to expand, hire, or invest. Instead, they used the extra money to increase the pay of CEOs and other executives. While executives at Bed Bath & Beyond received big paychecks, the company plummeted. The store chain filed for bankruptcy in 2023.
This year, zombie companies will owe over a trillion dollars in loans. More might go bankrupt. A few companies going under doesn’t harm the economy much. But what about many companies at once?
“They’ve created a tinderbox,” says one investor. “Any wildfire now threatens the entire ecosystem.”
But it’s not all bad news. Most major companies avoid zombification. How? They invest wisely. When they borrow money, they use it to help make more money. Then they can weather higher interest rates—or pay off loans in full.
Not everyone has money to invest in big companies. But we all have gifts given to us by God, and He wants us to use them wisely. In Matthew 25, Jesus praised a man who invested his gifts and increased them. How can you wisely invest your God-given talents?
Why? When companies don’t treat debt wisely, others may feel the consequences.
