Vermont phÅ“nix. [volume] (Brattleboro, Vt.) 1834-1955, 1894-03-02
Guarantees.
Shall Investment Companies Continue TO
Guarantee Their LORnsl

Shall Investment Companies Continue 20
Guarantee Their Loansi
The experience of many investment
companies during the past eight months
has raised the question in the minds OF
many careful investors as to the soundness
or the desirability of the practice of invest
ment companies in guaranteeing their
loans. It has come to be generally
believed that this custom has made
clients carless of the real merits of their
loans, whereas this should be the first
thought rather than the guaranty of
the company. The question is well stated
in recent issue of the United States In
weston:
"The many failures of investment
companies during the past year, whose
death was largely brought about by their
efforts to protect their guaranty, is con-
vincing proof of the worthlessness of
such promises when carried to excess and
brought to the test. Loan agents have
used It as a catch-word to increase their
sales, and all the possible changes have
been rung on it until many investors came
to look on the guaranty as the one thing
needful in loan, and would make their
purchases regardless of all the vital essen
tials of soil, improvements, location, ETC.,
that gave value to the security.
because it was a good selling card,
loan companies used it regardless of the
amount on which they placed their def
mite promises to pay, until their capital
stock represented but fractional part of
the contingent liabilities they had in
Cured. Had guaranty never been used,
companies and investors alike would have
been better off, for to the guaranty is
largely attributable the great sale of west
ern loans in the past, and the inflow of
money and the demand for loans bred
such carelessness on the part of compa-
MES that loans were made and sold that
never would have been accepted by in
vestoTs but for the glamor of the guaranty.
"With the education the investing pub
lie has received in the past year or two,
has not the time arrived for investment
| companies to return to the original method
OF selling loans on their merits, and not
on the guaranty? And will it not be
better for both investors and companies that
the pernicious practice be done away with?
"By dropping the guaranty it does not
follow that loan company will use less
caution in making loans. On the con-
trary, they will necessarily exercise more,
for when a loan is to sell on its merits
alone it must be of a quality that will
commend itself to the purchaser. Neither
would company relax any of its care
after loan was made, for the investor
interests are the company's also, for on
the reputation the company has for care
and promptness of collections of interest
ava1 vlvfw, al 81 1r.4 IL, Ia
"The relief to a company from being
absolutely obliged to meet its interest pay
ments on the day they are due, regardless
of outside financial conditions, cannot
be overestimated; and if they can take
the necessary time to collect and transmit
the funds, it will, without detriment to
the investors, place them in an easy posi-
ton; and anything that benefits the COM
pany is of equal advantage to the holder of
its securities, for company which can
preserve its organization and care for
the loans 1t has sold is vastly better for
the purchaser than one that has been
guaranteed into the hands of a receiver.
1.-The fact that all companies who have
not guaranteed their loans, so far as heard
from, went through the late panic safely,
is strong argument in favor of all COM
panies giving it up; and the fact that
already several companies who formerly
guaranteed all their loans have given up
the practice in whole or in part, goes to
show the trend is in that direction. When
all do it loaning business will be on a
more solid basis than ever, for the whole
tendency will then be towards more con-
sentative methods both in making and in
caring for loans, and with far less loss to
investors and companies.