The Republican journal. [volume] (Belfast, Me.) 1829-current, 1914-06-25
Five Rules for BorrowingMoney

WASHINGTON, D. c., June %, 1914.
Five rules designed 20 convince farmers
that there is no magic about credit are
set down in Farm ers' Bulletin 593, ''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 un-
derstands these rules and is willing to be
guided by them, the Government adj
vice 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 too little credit.
OF these rules the three most import
ant are:
l. Make sure that the purpose fer
which the borrowed money is to be used
will produce return greater than need
ed 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 improvements 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 Dor
rowing money to spend on ones self and
borrowing money to buy equipments of
some sort with which to make more
money there is all the difference between
folly and foresight, extravaganza and
thrift. If the money is borrowed for a
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
foolish purpose it will produce nothing
and consequently there will be nothing
with which to repay the loan. From this
point of view it matters comparatively
little whether the interest be high or
low. 1t is the repayment of the princi-
pal that is the chief difficulty.
Rules 2 and deal with the most salts
factory ways Of repayment. Underneath
them both is the same principle: The
loan must be repaid with the money it
earns 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 en-
tirely 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,
if too early 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 it elsewhere. Rule provides
for some form of amortization, the sys-
tenn 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 system is quite feasible when the
loan is really productive, when it returns
to the borrower 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
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. Every
body knows that-except the lender.
But if the other rules are observed, if
the borrower manages his financial af-
fairs 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; be 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.
This in fact is why the government has
published these rules for borrowers. 1t
is not so much matter of driving
shrewd bargain as it is of observing
few fundamental principles which alone
can make credit a blessing and not
curse.