The Idaho Republican. [volume] (Blackfoot, Idaho) 1904-1932, 1914-06-12
FIVE RULES FOR BORROWING
MONEY
Executive Commissioner

farmers that there is no magic about
credit are set down in Farmers Bull
letin 593 How to use Farm Credit. "
which the United states departm snt
of agriculture has Just published.
Unless the farmer who is thinking of
borrowing money fully understands
these rules and is willing to be
guided by them, the government s
advice to him is: don't. AS it is,
there are probably almost as many
farmers in this country who are suf-
fering from too much as from too
little credit.
Of these rules the three most i'm
portant are:
l. Make sure that the purpose for
which the borrowed money is to be
used will produce a return greater
than needed to pay the debt.
2. The length of time the debt
is to run should have a close rela-
ton to the productive life of the
Improvement for which the money
is borrowed.
). Provision should be made in
longtime loans for the gradual re-
duction of the principal,
The first rule is of course the kew
to the wise use of credit. Between
borrowing money to spend on ones
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. If
the money is borrowed for a wise
purpose it will produce enough to
pay back principal and interest and
leave a fair margin of profit for
the borrower into the bargain. If
1t is borrowed for a foolish purpose
it will produce nothing and conse-
quently there will be nothing with
which to repay the loan. From this
point of view it matters comparative
ly little whether the interest be high
or low. 1t is the repayment of the
principal that is the chief difficulty.
Rules two and three deal with
the most satisfactory ways of repay
ment. Underneath them both is the
same principle: The loan must be
repaid with the money it earns it.
self. For example, II the money
IS used to buy 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 entirely repaid
before the ten years are up or the
farmer will lose money on the trans
action, paying out interest for no
benefit in return. On the other hand,
If too early date is set for repay
ment, the machine will not have had
sufficient opportunity to make the
requisite money and the borrower
may have difficulty in raising it else
where. Rule three provides for
some form of amortization, the
system by which the principal is re-
paid in installments so that the
amount of the loan is continually
diminishing and in consequence the
interest charges also. Such a svs-
tenn is quite feasible when the loan
is really productive, when it returns
to the borrower a definits revenue
each year. Tables showing the pay
ments required to pay off principal
and interest in varying periods of !
time are appended to the bulletin and
are recommended to the serious con-
sideration Of everyone who contem-
plates borrowing money. The bulle-
tin also advises the farmer to Sc
cure the lowest possible interest. At
first sight this seems too obvious to
be worth mentioning. OF course the
should be as small as pos
sible. Everybody knows that-ex-
cept the lender. But If the other
rules are observed, If the borrower
his financial affairs soundly,
he will be surprised to find how
much easier it is to obtain favor
able terms. The right kind Of lend
er does not want to foreclose mort
cages; he wants his money back with
a fair profit, like any other merchant.
For money that is borrowed wisely,
FOR money that is sure to be repaid,
he charges low interest. !