Charlevoix county herald. (East Jordan, Mich.) 189?-1953, 1914-06-27
FIVE RULES FOR BORROWING
MONEY.

Five rules designed to convince far
mers that there is no magic about
credit are set down in Farmers Bull
letin 593, "How- to Use Farm Credit"
which the United State Department
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 Governments advice to
him is: don't. AS it is, there are prob
ably almost as many farmers in this
country who are suffering FROM
much as from too little credit
OF these rules the three most inn
| 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 re-
lat;on to the productive life of the
improvement for which the money
il borrow ed.
3. Provision should be made 10
longtime loans for the gradual
reduction 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 buy
equipment of some sort with which to
make mCrc money there is all the diff
ference between folly and foresight.
extravaganza and thrift. If the
money is borrowed for wise purpose
it will produce enough to pay back
principal and interest and leave fair
margin of profit for the borrower
into the bargain. If it is borrowed
for a foolish purpose, it will pro1cfe
nothing and consequently there will
be nothing with which to repay the
lean. From this point of view it mat
tiers comparatively little whether the
interest be high or low. 1t is the re-
payment of the principal that is the
chief difficulty.
Rules 2 and 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 it earns itself. For exam
pie, if the money is used to buy ma
chine that will last ten years, the ma
chine must earn enough in that time
to paw for itself or it never will. The
loan, therefore, should be entirely re-
paid 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 a 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 elsewhere.
Rule 3 provides for some form OF
amortization, the system by which the
principal is repaid in installments so
that the amount of the loan is contln-
ually diminishing and in consequence
the interest charges also. Such SyS-
tenn is quite feasible when the loan is
really productive, when it returns to
the borrower a definite revenue each
wear. Tables showing the payments
required to pay off principal and IN
terest in varying periods of time are
appended to the bulletin and are rec
commended TO the serious consldera-
ton of everyone who contemplates
borrowing money. The bulletin also
advises the farmer to secure the low
est possible interest. At first sight
this seems too obvious to be worth
mentioning. Of course the interest
should be as small as possible. Every
body knows that-eXcept 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 a fair profit, like any other iner-
chant. For money that is borrowed
wisely, for money that is sure to be
repaid, he charges low interest
This in fact, is why the govern
ment has published these rules for
borrowers. 1t is not so much mat
ter of driving a shrewd bargain, as it
is of observing a few fundamental
principles which alone can make cred
it blessing and not curse.
-t'----------