Entrepreneurs obtain funding liquidity by issuing securities backed by the current period dividend and resale price of a long-lived collateral asset. They are privately informed about the collateral quality. Higher (lower) resale price lowers (increases) adverse selection and makes the asset a good (lousy) collateral. Conversely, a good (lousy) collateral has high (low) resale price. When only equity can be issued, this dynamic feedback between the asset price and collateral quality can lead to self-fulfilling prices and multiple equilibria: When asset price is high (low), equity is liquid (illiquid) and real output is high (low). Optimal flexible security design, which involves short-term liquid collateralized debts, eliminates multiple equilibria fragility and improves welfare through inter-temporal coordination. When security design is rigid, multiple equilibria reemerge. Comparative statics generate rich dynamic properties of haircuts and interest rates.