The Delta independent., 1914-06-12
Five Rules For Borrowing Money

FlNC ndlco VI 6oi'o"i'S
Five rules designed to convince
farmers that there is no magic about
credit are set down in Farmers
Bulletin 593 How to Use Farm Cred
it," which the United States Depart
ment of Agriculture has just published.
Unless the farmer who is thinking OF
borrowing money fully understands
these rules and is willing to be guild
ed 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
too 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 improve
ment for which the money is borrowed
g. 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
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 diS-
ference between folly and foresight,
extravaganza and thrift. If the soney
is borrowed for a 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 a fool
ish purpose it will produce nothing and
consequently there will be nothing
with which to repay the loan. From
lively little whether the interest be
high or low 1t is the repayment Of
the principal that is the chief diff
Guilty.
Rules 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 ex-
ample, 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 before the ten years
are up, or the farmer will lose money
on the transaction, paying out inter
est 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 rails
ing 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 continually diminishing and
in consequence the interest charges
also. Such a system is quite feasible
when the loan is really productive,
when 1t returns to the borrower a
definite revenue each year Tables
showing the payments required to
pay off principal and interest in vary
ing 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 low as pos
sible. Everybody knows that-except
the lender. But II the other rules are