When small businesses have cash to hold for awhile, and think about investing it, many bank and corporate based options are available. As the excellent Gretchen Morgenson wrote in the New York Times Fair Game column, an investment that was represented as "near cash", so called auction-rate notes, turned out to be anything but. These notes are a relatively new type of short term investment, offered by closed end funds, with artificially low cap rates. As she notes not all "liquid" investments are truly liquid.
I can think of many short term investments that are truly liquid no matter market conditions, like money market funds and commercial paper, where interest rates float to clear the market. Banks and brokers offer a diverse number of offerings. For the truly risk adverse there are Treasuries.
Any company worth it's salt should have an investment policy that addresses the investment parameters for short term funds. Long term funds should of course be used to pay down debt, make investments in the business using ROI analysis, or repay shareholders if there are not enough good internal or external investment opportunities.
Think long and hard about the risks involved in gaining those extra basis points by putting your money in a closed fund or anything you don't understand. As we've seen recently, even the insured funds are having trouble.
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