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In finance, a zombie is usually a company that can keep operating and pay the interest on its debt, but cannot reduce the original amount it borrowed. That original amount is called the principal.
A company may earn enough to cover salaries, rent, and loan interest, then rely on a new loan when the old one comes due. Low borrowing costs can keep this cycle going for years. A rise in rates from 3% to 7%, however, makes refinancing much more expensive.
Not every weak or loss-making business is a zombie. The term usually describes a company that remains alive mainly because lenders continue extending credit, rather than because the business has returned to solid financial health.
