River Falls journal. [volume] (River Falls, Pierce County, Wis.) 1872-2019, 1922-01-19
THE BORROWING OF MONEY
CLEARLY EXPLAINED
Different Kinds of Loans, Why They
Are Necessary, Where We Can Get
Them, What Security Can BE Given.
BY DIR. w. J. Spiilman.

There is nothing very mysterious
about borrowing of money, and yet II
is subject which is apt to be looked
upon with fear and awe by the or
binary citizen. The banks have helped
bring this about by their habit OF talk
ing solemnly about agricultural cred
its" and Financing the farmer" and
they ought TO stop it, for 1t is not
good business to terrify your custom
ers. Let us see if we cannot make the
whole subject plain in a single Farm
Journal page.
A man makes use of one kind OF
credit when he borrows money TO pay
his living expenses. Money is bor-
rowed for things which are immedi-
ately consumed, so we call this Con-
sumptive Credit. Sometimes he bor-
rows from a bank and pays cash to
the merchant, or he may borrow from
the merchant direct-that is, have his
purchases charged" 1t makes no
difference, the principle is the same.
But when he borrows money for the
purpose of using it to make more
money, we call it Commercial Credit.
It is Commercial Credit which IS so
often misunderstood, and with which
this article deals.
When money is borrowed fer COM
nlercial purposes it is expected that
the business will sooner or later pay
back the money, with something extra
for profit. 1t is a sound principle of
finance that the length of time for
which a loan may safely be made, is
the time required by the business to
earn or produce the money with which
to repay 1t.
Farmers need money for three en-
tirely distinct purposes. Not only is
the length of time for which money IS
needed different for each Of these, bat
the kind of security suitable IN each
case is different.
Money To Buy Farm
In the first place farmers need
money with which to buy land, and to
erect houses and barns and make 9th
er permanent improvements. This
may be called Investment Credit. The
money can be borrowed for as long a
time as the land or the Improvements
are to be in use. This means that such
a loan may be practically permanent,
though most farmers prefer to pay it
off as soon as possible. The Federal
Land Banks make loans of this kind
for a period as long as thirty years.
if desired.
Money To Prevent dumping"
In the second place when farmer
has harvested crop and has it ready
for market, ne is often in debt, or his
cash balance is very low. Unless he
can borrow money on the crop itself,
he is obliged to throw it on the market
at once. This often results in swamp
ing the market and in temporary
fall in prices. But as soon as the crop
has passed into the hands of specu-
lators and there is no longer a flood
of it coming to market, prices begin
to rise again Some one must hold
such products till the consuming mark
ct is ready for them. If farmers
could get the credit to do this them
selves, selling only as the crops are
needed for consumption, they would
average better prices even without
any cooperative marketing machinery
of their own. Hence farmers need
Marketing Credit. The crops them
selves, stored in warehouses and fully
insured, are the proper basis for such
credit. The length of time for which
loans Of this kind should be made is
the length of time during which the
product must be marketed, which is
generally from few weeks to year.
Sometimes, however, it is necessary
to carry over a surplus into another
market year, so that eighteen months
credit is probably about the maximum.
Money To Raise Crop
In the third place. farmers often
need money with which to produce
crop or live stock product. This is
Productive Credit. The usual plan is
to buy live stock, fertilizers, seeds,
machinery, and whatever else is need
ed for the years operations, on credit,
often paying considerably more than
cash prices, and then sometimes pay
lIlR InleIcSl UCSltC>s 4 tiAiAA ~ - ''S~AN
to say that more farmers use this kind
of credit than both the other kinds
combined, though the amount used
may be smaller, and nowhere in the
whole business world is there more
shameless robbery of the helpless Dor
rover than here. Many a poor farm
er pays fifty per cent or more for such
money, and is continuously on the rag
ged edge of restitution in consequence.
The period for which this kind of
credit is needed is the time required
for the business to produce the wealth
with which to repay the loan. In the
case of most crops this is about nine
months; sometimes it is year OF
more. In the case of a man who starts
in the live stock business with some
young heifers, it may be two or three
years before the business will pay off
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