RURAL CREDITS 749 



has an advantage over the commercial paper broker in that the 

 favorable location of the company always at the receiving cattle- 

 market of the district in which its loans are exclusively placed 

 enables it fully to protect its interests by claiming the proceeds of 

 sales of mortgaged cattle. This is particularly true in the case 

 of range cattle, which can be readily identified by the mortgaged 

 brands. 



To cover expenses of administration the cattle loan company 

 secures for itself a part of the interest paid on the loan. The rate 

 charged the borrower is usually determined by conditions in the 

 locality where it is made, sometimes running as high as 10 per cent, 

 and again, influenced by general rates for capital, falling as low as 

 7 per cent. From this gross interest charge a commission has to be 

 given to the local banker who makes the loan, expenses of examination 

 and management must be met, and an appropriation made to a con- 

 tingency reserve fund to cover occasional losses incurred from the 

 circumstance that the companies usually become surety, by indorse- 

 ment, for the final payment of all the loans which they have placed 

 with lenders. These deductions determine what may be safely paid 

 to eastern purchasers of the paper, usually 5 or 6 per cent. 



Holders of cattle paper have never suffered in times of financial 

 panic from failure to pay at maturity. Cattle, like gram, are a cash 

 commodity purchased by retailers and sold by them, largely for cash, 

 to satisfy a relatively constant consuming demand. This character- 

 istic is retained even in times of panic. 



Maturities are usually six months for feeding purposes; and less 

 often of two and one-half years for developing two-year-olds for 

 market. This two-and-one-half-year paper is occasionally converted 

 into the six-month variety by the sale of notes running for six months, 

 based upon the two-and-one-half-year mortgage. These notes are 

 taken up at maturity by the loan company and reissued or renewed 

 for like succeeding periods until the original loan is repaid. 



It is to be expected that the operation of a Federal Reserve act 

 will cause this form of loan to increase in desirability in the near 

 future. Eastern bankers possessing these six-month notes will prob- 

 ably find them readily rediscountable with the local federal reserve 

 bank at any time up to maturity. And a considerable amount of 

 two-and-one-half-year notes may be held to advantage, since, if 

 properly selected with successive maturities, one-fifth of their total 

 amount will be immediately rediscountable when necessary. 



