The Kendrick gazette. [volume] (Kendrick, Idaho) 1892-1968, 1914-06-19
Five Good Rules

16I IucIo til0I ILIcIC 10 IlO IIluklC dDOut
credit are set dow in Farmers Bull
etin 500, How to Use Farm Cred
it" which the department 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 probably
almost as many farmers in this
country who are suffering from to
much as from too little credit.
Of these rules the three most i'm
portant are: l. 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
to the productive life of the impro-
vement for which the money is
borrowed.
8. Provision made in longtime
loans for the gradual reduction of
the principal.
The first rule is, of course, the
key to the wise use of credit. Be
tween 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 difference 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 a fair margin Of profit for the
borrower into the bargain. If it is
borrowed for foolish purpose it
will produce nothing and consequent
thy there WILDE nothing with which
to repay the loan. From this point
of view it matters comparatively
little whether the interest be high
or low. It is the repayment of the
principal that is the chief difficulty.
Rules 2 and 3 deal with the most
satisfactory way of repayment. I'm
derneath them both is the same
principals: The loan must be repaid
with the money it earns itself. For
example, if the money is used to buy
machine that will last 10 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
10 years are up or the farmer will
lose money on the transaction, pay
ing out interest for no benefit in
return. On the other hand, if too
early date is set for repaymet, the
machine will not have had
sufficient opportunity to make the
requisite money and the borrower
may have difficulty in raising
elsewhere. Rule 3 provides for
some form of amortization the sys-
tenn by which the principal is re-
paid in installments so that the loan
is continually diminishing and in
consequence the interest charges
also, such a system is quite feas-
ible when the loan is really produc-
tive, when it returns to the borrower
definite revenue each year. Tab
les showing the payments required
to pay off principal and interest in
varying periods of time are appen-
ded to the bulletin and are rec
commended to the serious consider
alton of every one 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 affairs sound
ly, 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 mort
! cages; 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, the charges low
interest.
+ This, in fact, is why the Govern
ment has published these rules fol-
borrowers. 1t is not so much {
E matter .,of driving a shrewd bargain
! as it is of observing few funda
: mental principles which alone car
: make credit blessing and not {
curse.