Iowa state bystander. [volume] (Des Moines, Iowa) 1894-1916, 1914-07-03
How 70 USE CREDIT
Government Gives Five Rules tor
Borrowing Money.
FarmSrs' Bulletin Points Out Funda-
mental Principles Which Alone
Can Make Credit Blessing
and Not q Curse.


and Not q Curse.
Washington.-F1ve rules designed
e convince farmers that there 10 no
magic about credit are set down IN
Farmers Bulletin 500 How to Use
Farm Credit" which the United States
department OF agriculture has just
published. Unless the farmer who is
thinking of borrowing money fully I'M
'derstands these rules and Is willing
to be guided by them. the govern
ments advice to him Is: DON'T. AS
it Is, there are probably almost as
many farmers In this country who are
suffering from too much as from TOO
little credit.
OF these rules the three most i'm
portant are:
1. 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 close relation 10
the productive life Of the improve
ment for which the money Is Dor
rowed. -.
3. Provision should be made IN
longtime loans for the gradual reduc-
ton OF the principal
The first rule is of course the key
to the wise use OF credit. Between
borrowing money to spend on ones
self and borrowing money to buS
equipment of some sort with which 10
make more money there is all the dill
ference between folly and foresight
extravaganza and thrift. If the money
Is borrowed for wise purpose 1t Will
produce enough to pay back principal
and interest and leave a fair margin
Of profit for the borrower into the
bargain. II it is borrowed for q fool
ish purpose it will produce nothing
and consequently there will be moth
Ing with which to repay the loan.
From this point of view it matters
comparatively little whether the In
terest be high or low. 1t is the repay
ment Of the principal that is the chief
difficulty. .s.z
Rules 2 and 3 deal with the most
satisfactory ways of repayment. I'm
derneath them both is the same prin-
ciple: The loan must be repaid with
the money 1t earns itself. For exam
pie, II the money Is used to buy q
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
transaction, paying out interest for no
benefit In return. On the other hand.
II too early a date is set for repay
ment, the machine will not have had
sufficient opportunity to make the re-
quisite money and the borrower may
have dificulty in raising it elsewhere.
Rule provides for some form OF
amortization, the system by which the
principal Is repaid in installments SO
that the amount of the loan is continu-
ally diminishing and in consequence
the interest charges also. Such sys-
TEN IL quite feasible when the loan is
really productive, when it returns to
the borrower q definite revenue each
year. Tables showing the payments
required to pay of principal and inter-
est in varying periods OF time are ap-
pended to the bulletin and are recon-
mended 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 possible. Everybody knows that
except the lender. But If the other
rules are observed, II the borrower
manages his financial affairs soundly.
he will be surprised to find how much
easier 1t 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
money that is borrowed wisely, for
money that is sure to be repaid, he
charges low interest. n
This in fact is why the government
has published these rules for borrow.
ers. 1t Is not so much matter Of
driving shrewd bargain as It is OF
observing few fundamental princf-
pies which alone can make credit a
blessing and not curse. =.
/. Z = < = 4 g.E j. o. j.