What is illiquidity?

In the investment world, illiquidity means that assets cannot be easily converted into cash. It may be because there are not enough investors willing to buy.

In corporate terms, the term can mean that a company does not have enough cash to pay its debts.

Where have you heard of illiquidity?

Assets may lose a certain amount during economic or market turmoil. Liquidity. For example, you may have heard that commercial real estate loses liquidity when the economy is underperforming and business confidence is low.

What you need to know about illiquidity...

Although assets change hands frequently in the liquid market, there are very few possible sales transactions for non-current assets. If a buyer cannot be found, the seller may need to sell the asset at a reduced price for profit.

On the commercial side, non-current companies that do not have enough funds to repay their debts may have difficulty maintaining transactions. Even companies with large assets (such as land, real estate or machinery) may become insolvent if they cannot be liquidated quickly.