Montgomery County sentinel. [volume] (Rockville, Md.) 1855-1974, 1914-06-12
FIVE RULES FOR BORROWING
MONEY.

rive rules designed to convince farmers
that there is no magic about credit are set
down in Farmers Bulletin $685. How to
Use Farm Credit" which the United States
Department Of Agriculture has just pub
iished. 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 1t 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:
l. Make sure that the purpose for which
the borrowed money is to be used will pro-
duce return greater than needed to pay
the debt
2. The length Of time the debt is to run
should have close relation to the produc-
tive life of the improvement for which the
money is borrowed
3. Provision should be made in long
time loans for the gradual reduction of the
principal.
The first rule is 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 more money there is all the diff
ference between folly and foresight, ex-
travagance and thrift. II the money is
borrowed for a wise purpose il 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 Dor
rowed for foolish purpose. it will produce
nothing and consequently there will be
nothing with which to repay the loan.
From this point Of view il matters COM
paratively 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 repayment. Under
meath them both is the same principle
the loan must be repaid with the money il
earns itself For example. il 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 il 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 earlier date is
set for repayment, the machine will not
have had sufficient opportunity to make
the requisite money and the borrower may
have difficulty in raising il elsewhere. Rule
three provides for some form of amortiza-
ton. the system by which the principal is
repaid in installments so that the amount
OF the loan is continually diminishing and
in consequence the interest CHARGES also.
Such a system is quite feasible when the
loan is really productive. when il returns
to the borrower a definite revenue each
year. Tables showing the payments re-
quired TO pay off principal and interest in
varying periods Of time are appended to
the bulletin and are recommended to the
serious consideration of everyone who con-
templates 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 IL the other rules are OBJ
served. If the borrower manages his finan-
ciai aiialrs soundly, he will be surprised to
had how much eas'. & il is to obtain favor
able terms. The ff 1t kind of lender does
got want 10 foreclosa mortgages he wants
his money back with fair profit. like any
other merchant Tor money that is Dor
rowed wisely for money that is sure to be |
repaid, he CHARGES low interest.
This, "a fact. is why the Government has |
published these rules for borrowers. Il is
not so mach meteor of driving a shrewd |
bargain as ii is q deserving a few funda-
mental principles. which alone can make
credit blessing and not curse.