Liquid Assets Keep the Credit Flowing

Entrepreneurs with asset liquidity will be able to get loans in a tough environment.
Magazine Contributor
3 min read

This story appears in the February 2009 issue of Entrepreneur. Subscribe »

When it comes to managing our investments, we entrepreneurs want what everybody else wants: to make as much money as possible with as little risk as possible.

But as business owners, we also need to take other factors into consideration when making our investment choices. Unlike investors with corporate jobs and 401(k) plans, we may ultimately need to use our personal assets--our house, our stocks, our bonds, our mutual funds, even the cash value of our life insurance policies--as collateral for credit lines and business loans as our companies grow.

That's why it's important to stay liquid; that is, to put our money into the kinds of assets banks can sell quickly if we miss our payments and our businesses go under. So while it might be fun to take a flier on an up-and-coming artist or amass a huge collection of comic books or baseball cards, your lender will be happier knowing you've also got money socked away in real estate, blue chip stocks and other liquid assets that can easily be bought and sold.

And you can forget about pledging stock in your fledgling startup. The possibility that your company may become the next Google won't hold much weight with the folks at the bank.

Back when I was building my internet marketing company in 1997, we found ourselves in a cash-flow bind, and I called my banker for help. Thankfully, I owned a $1 million Brooklyn brownstone that I was willing to pledge as collateral. I also had several hundred thousand dollars in an S&P 500 index mutual fund. Otherwise, I doubt Citibank would have given us that $100,000 credit line on the strength of our accounts receivable alone--much less the $1 million credit line we were able to get later on.

"The cash value of your insurance policies and stocks that have significant trading volumes are far superior [as collateral] to investments in collectibles, CDs or funds that put limits on redemptions," says William N. Tifft, a managing director at iQ Venture Partners, an advisory firm that helps emerging growth companies raise capital. "You shouldn't worry about marginally better returns on your investments. Your best return is going to be on yourself and your business."

The next time you sit down with your investment advisor, take inventory of your assets and make sure you've got enough liquidity to satisfy your banker if you need to secure a loan or a credit line. If you don't, maybe it's time to lighten your load and free up some additional liquidity in your portfolio. You'll be glad you did.

The information contained herein is provided for informational purposes only and should not be relied upon in making investment decisions. Before investing, you should always consult with a licensed investment professional. Past performance of investments discussed in this column is not an indication or guarantee of future performance.

Rosalind Resnick is founder and CEO of Axxess Business Consulting, a New York City consulting firm that advises startups and small businesses, and author of Getting Rich Without Going Broke: How to Use Luck, Logic and Leverage to Build Your Own Successful Business. She can be reached at or through her website,


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