The Leon reporter. (Leon, Iowa) 1887-1930, 1914-06-11
Five Rules for Borrowing Money.

Five rules designed to convince
farmers that there is no magic about
credit are set down in Farmers Bull
letin 1913 "How to Use Farm Credits
which the United States Department
OF Agriculture has just published
Unless the farmer who is thinking OF
borrowing money fully understands
these rules and is willing to be guild
ed by them, the governments advice
to him is: DON'T AS it is, there are
probably almost as many farmers III
this country who are suffering from
too much as from too little credit.
Of these rules the three most i'm
portant are:
!. Make sure that the purpose
for which the borrowed money is to
be used will produce return great
err than needed to pay the debt.
2. The length of time the debt is
to run should have a close relation
to the productive life of the improve
ment for which the money is borrow
ed.
3. Provision should be made i'll
longtime loans for the gradual re-
ductlon of the principal.
The first rule is of course the key
to the wise use of credit. Between
borrowing money to spend on one
self and borrowing money to buy
equipment of some sort with which
to make more money there is all the
difference between folly and fore
sight, extravaganza and thrift. II
the money is borrowed for wise
purpose it will produce enough to
pay back the principal and interest
and leave fair margin of profit for
the borrower into the bargain. If it
is borrowed for foolish purpose it
will produce nothing and consequent
ly there will be nothing with which
to repay the loan. From this point OF
view it matters comparatively little
whether the interest be high or low.
It is the repayment of the principal
that is the chief difficulty.
Rules 2 and 3 deal with the most
satisfactory ways of repaying. I'm
derneath them both is the same prin-
ciple: The loan must be repaid with
the money it earns itself. For ex-
ample. if the money is used to buy a
machine that will last ten years, the
machine must earn enough in that
time to pay for itself or it never will.
The loan, therefore, should be entire
ly repaid before the ten years are up
or the farmer will lose money on the
transaction, paying out interest for
no benefit in return. On the other
hand, if too early date is set for
repayment, the machine will not have
sufficient opportunity to make the
requisite money and the borrower
may have difficulty in raising it else
where. Rule provides for some
form of amortization, the system by
which the principal is repaid in in
stallments so that the amount OF the
loan is continuously diminishing and
in consequence the interest charges
also. Such system is quite feasible
when the loan is really productive,
when it returns to the borrower
definite revenue every year. Tables
showing the payments required to
pay off principal and interest in vary
ing periods of time are appended to
the bulletin and are recommended to
the serious consideration of everyone
who contemplates borrowing money.
The bulletin also advises the farmer
to secure the lowest possible interest.
At first sight this seems too obvious
to be worth mentioning. Of course
the interest should be as small as pos
sible. Everybody knows that-ex-
cept the lender. But if the other
rules are observed, if the borrower
manages his financial affairs soundly,
he will be surprised to find how much
easier it is to obtain favorable terms.
The right kind of lender does not
want to foreclose mortgages; he
wants his money back with fair
profit, like any other merchant. For
that is borrowed wisely, for
that is sure to be repaid, he
charges low interest.
This in fact is why the government
has published these rules for borrow
ers. 1t is not SO much matter of
driving a shrewd bargain as it is of
observing a few fundamental princi-
pies which alone can make credit a
and not a curse.