Liz: “Melody, is there a certain place you advise your clients to place money they are saving for a project to possibly gain interest?”
Melody: “Typically, if you have a time frame that is less than 5 to 7 years you would not want to subject the money to market risk. So I would not say ‘Let’s go find this great stock or mutual fund to dump the money into.’ The market could just as easily go down as it could go up. I would recommend a money market account or a savings account, or possibly some short term CDs. They would need to make sure the maturity dates would come before the start date of the project. I suggest that savings be as automated as possible to help them get closer to their goal on time.
Liz: “Susie, Is there a certain type of loan that you typically direct business owners to?”
Susie: “If it’s a pretty large project, I set up a construction line of credit for them to draw on and during the project time period they pay interest only then afterwards it flips to a fully amortized loan. The loan would likely be tied to the building as an asset. The bank won’t lock into a rate longer than 5 years because there is too much risk involved in it. As a bank, we need to really know what’s going on with that business so we continue to monitor the changes in the business and their cash flow. We stay involved through the length of the loan.”
Two more days of great tips- stay tuned!