Q: Why do entrepreneurs often sell 100% of their healthy business to achieve some personal liquidity?

A: Because they mistakenly believe they have no alternative.

As banks tighten lending standards and scrutinize credit lines, even robust businesses face financial obstacles that may limit growth initiatives well into 2010. For many businesses, the turmoil in the credit markets means a substantial increase in borrowing costs and the possible postponement or even cancellation of expansion plans and hiring.

But there's an alternative funding source for CEOs who are serious about growing their companies. Private equity firms continue to successfully raise capital to invest in businesses and are actively making investments in this market.

A recent Federal Reserve study found that companies owned by private equity firms increased in enterprise value at an annual compounded rate of 24% during the time they were held in a PE firm's portfolio. That's double the rate of comparable publicly-traded companies.

Private equity firms also increased the earnings before interest, taxes, depreciation, and amortization (EBITDA) of these portfolio companies 33% faster than their publicly-traded counterparts.

Finally, these companies had productivity levels 33% higher than publicly-traded company benchmarks.The reason behind this out-performance is simple: disciplined private equity firms focus their portfolio companies on specific initiatives to increase growth and improve margins. These efforts are all designed to create sustainable increases in the value of the companies.

Smart CEOs realize that by selling an equity stake in their companies to a private equity group, they are able to reduce their personal risk and continue to grow their companies in these difficult times. By retaining equity these CEOs are also able to take a second bite at the apple. Given the 24% average annual increase in value that private equity firms have historically delivered, a second bite can be a very significant way to build personal wealth and lower risk at the same time.