Middletown transcript., 1914-06-27
NO MAGIC IN CREDIT
U. S. Department Tells Glow to
Use Farm Credit
THREE RULES TO CONVINCE

/ r.
Five rules designed to convince far
mers that there is, no magic about credit
are set down in Farmers Bulletin in
593 'How to Use Farm Credit, which
the United States Department of Agri-
culture 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 G 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 important 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 a close relation to the
productive life Of the improvement for
which the money is borrowed.
8. Provision should be made in long
time loans for the gradual reduction of
the principal.
The first rule is, of course, the key
to the wise use OF credit. Between bor-
rowing 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 foresight extra
vagance 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 bar
gain. Ifit is borrowed for foolish
purpose it will produce nothing, and
consequently there win be nothing with
which to pay the loan. From this point
of view, it matters comparatively little
whether the interest be high or low.
1t is the repayment of the principal
that is the chief difficulty.
Rules and deal with the most sat
isfactory ways Of repayment. Under
meath them both is the same principle:
The loan must be repaid with the
money it owns itself. For example, if
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 be-
fore the ten years are up, or the far
mer will lose money on the transaction,
paying out interest for no benefit; if
too early a-date is set for repayment,
the machine will not have had sufficient
opportunity to make the requisite
money, and the boaSoyer may have
difficulty in raising it elsgsT5.slEsss. Rule
8 provides for some form Of amor
tization, the system by which the
principal is repaid in installments, SO
that the amount Of the loan is contin-
ually diminishing and in consequences
the interest charges also. Such sys-
TEN is quite feasible when the loan is
really productive when itreturns to the
borrower definite revenue each year.
Tables showing the payments required
to pay off principal and interest in
varying periods of time are appended
to the Bulletin, and are recommended
to the serious consideration of anyone
who contemplates borrowing money.
The Bulletin also advises the farmer 20
secure the lowest possible interest At
first sight this seems too obvious be
worth mentioning. Of course, the in
terest should be as small as possible.
Everybody knows that, except the
the lender. But if the other rules are
observed, if the borrower manages his
financial affairs soundly, he will be sur
prised to find how much it is to obtain
favorable terms. The right kind of
lender does not want to foreclose mort
cages; he wants his money back with a
fair profit, like any other merchant.
For money that borrowed wisely, for
money that is sure to ebe repaid, he
charges low interest.
This, in fact, is why the Govern
ment has published these ruAes for bor-
rowers. 1t is not so much matter g
driving shrewed bargain as it is
observing a few fundamental primes
pies which alone can make credit
blessing and not a curse.