May 20, 2018
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What do massive stockpiles of corporate cash mean for Maine businesses?

Joshua Hayward
By Joshua Hayward, Special to the BDN

OK, my fellow Maine businessmen and businesswomen, here’s the deal on this one: the current buzz of “record levels of corporate cash” — the $1.9 trillion — which is being splashed about by financial media completely ignores the facts and is heavily skewed by the largest corporations.

First of all, if you want to ignore liabilities and the liquidity challenges of short-term marketable securities, then yes, you can see trillions of dollars. Cheering this as “signs of the big turn” is not only misleading, it is highly frustrating to hear for most Maine business owners — not to mention contradictory to their own experiences.

Large corporations are holding the lion’s share of this so-called cash buildup. It is not being held by middle-market and small-market companies which account for the majority of our national, and more heavily, local employment base.

We all know that our largest corporations nearly collapsed in late 2008 when the commercial paper markets literally froze and found themselves unable to fund short-term cash needs for the basics like payroll. This created incredible fear.

Then, thanks to the Fed, the past 24 months have offered a historically favorable borrowing environment for large corporations. Low rates and the fear from 2008 have pushed them to borrow at record levels ­— levels truly never seen before.

So what’s the deal, do we really have a cash pile up?

No. The cash has not been created from incredible retained earnings; rather it has been largely created from borrowing! According to the Federal Reserve, nonfinancial firms borrowed at record pace in 2010, taking their total domestic debts to $7.2 trillion, the highest level ever. That’s up by $1.1 trillion since the first quarter of 2007; it’s twice the level seen in the late 1990s.

Fed Reserve and Commerce Department data reveal that gross domestic debts of nonfinancial corporations now amount to more than 50 percent of GDP. But that is enough of the mind-numbing statistics for now.

Why it is important for Maine business owners to know this?

Because referring to cash accumulated through massive amounts of recent, low-cost, short-term borrowing as a stock pile that has strengthened our largest firms is just wrong and misleading. The largest firms, however, will defend it with four of five balance sheet ratios used to analyze the balance sheet in relative review to all other components and tell you they’re great.

Don’t be sheep and flock just yet. And don’t feel like you’re stupid, crazy or missing the boat with your business.

Go talk to most Maine business owners and ask them how hard it has been to get a loan since 2007. I am confident you’ll get a far different picture from the volumes of cash exchanged between our nation’s large corporations and our government.

It’s a good thing to know you haven’t done something wrong if you haven’t accumulated piles of cash. Be strong in your convictions to refrain from borrowing, which is what many small businesses have done.  Let any denials for requests for loans pass as a result of the environment and perhaps your financials.

Keenly assess your market conditions. Work to reduce costs to improve earnings and cash. Prove your ability to manage your business, show you can create cash, and only borrow when you’re ready and confident in your business’ ability to grow profitably.

Of course then you won’t have to beg for a loan!

Don’t let all of this talk about trillions in cash get you down or get you too excited. We have to parse financial news and data today. Take from it what applies to us as Maine business men and women and use it accordingly.

Joshua Hayward has worked as a financial strategist for 19 years and can be heard Monday Mornings at 7 on the George Hale & Ric Tyler Show, 103.9 FM Bangor, 101.3 FM, Augusta. He can be reached at

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