Carolina watchman. [volume] (Salisbury, N.C.) 1871-1937, 1914-06-10
FIVE RULES FOR BORROWING MONEY,
Some Very Sans and Valuable Advice
Greatly Needed Just Now.

!. Some Very Sans and Valuable Advice
Greatly Needed Just Now.
Washington, D. c., June @
Five rules designed to convince
farmers that there is no magic
:. about credit are set down in Farm
. ers' Bulletin 50B "How to Use
, Farm Credit" which the United
States Department. of Agriculture
has just published. Unless the
farmer who is thinking of borrow.
= ing money fully understand
| 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 too much as
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 produce a return
greater than needed to pay the
debt.
! 2. The length of time the debt
Is to run should have close rela-
tlon to the productive life of the
Improvement for which the money
is borrowed.
3. Provision should be 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 bor-
rowed for wise purpose it will
produce enough to pay back prin-
clpal and interest and leave fair
margin of profit for the borrower
into the bargain. If it is bor-
rowed for foolish purpose it will
produce nothing and consequent
ly there will be nothing with
which to repay the loan. From
this point of view it matters COM
paratively little whether the In.
terest be high or low. 1t is the
repayment of the principal that
is the chief difficulty.
Rules 2 and 8 deal with the
most satisfactory ways of repay
ment. 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 ma
chine 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 loose money on the transac-
tion. paying out interest for no
benefis in return. On the other
hand, If too early date is set for
repayment, the machine will not
have have had sufficient oppor.
tunity to make the requisite
money and the borrower may have
difficulty in raising it elsewh here.
Rule 8 provides for some form of
amortization, the system by which
the principal is repaid in install.
ments so that the amount of the
loan is continually diminishing
{ and in consequence the interest
charges also. Such q system il
quite feasible when the loan is
really productive, when 1T returns
TO the borrower definite revenue
each year. Tables showing the
! payments required to pay off
principal and interest in varying
{ periods of tims are appended to
the bulletin and are recommended
to the serious consideration oil
, everyone who contemplates Dor
! rowing money. The bulletin also
, advises the farmer to secure the
} lowest possible lntesest. At fret
=. sight this seems too obvious to be
, worth mentioning. Of course tn
. interest should be as small al
poSsible. Everybody knows that
/. except the lender. But if tn
. other rules are observed, if tn
{ borrower manages his financia
}. affairs soundly, he will be surpris
ed to find how much easier it Is t,
obtain favorable terms. Th,
right kind of lender does not wan
TO foreclose mortgages; he want
!. his money back with a fair profit
like any other merchant. Fo
money that is borrowed wisely
for money that is sure to be re
paid, he charges low interest.
- This in fact is why the govern
10 mont has published these rule
y for borrowers. It is not 80 muc
II matter of driving q shrewd bar.
.e gain as it il of observing a fe,
d fundamental principles who
l. alone can make credit a blessin
2 and not q cure.