INTEREST RATES ON SHORT-TIME FARM LOANS. 9 



to improvement in tlie farming business ? Is the size of the loan well 

 adapted to the purpose in view ? Does the period for which the loan 

 is to run conform to the time the capital is actually needed ? All of 

 these questions have a direct bearing on the costs of short-time farm 

 ''oans. 



PURPOSE OF THE LOAN. 



The use of any given loan ought to yield a return sufhcient at least 

 to repay both interest and principal. If the returns are not sufhcient 

 for this purpose, then the money should not be borrowed. The only 

 way in which the use of credit can be directed so as to serve the inter- 

 ests of improved agriculture is to control the extension of loans so 

 that they may be used for productive purposes only. This means, at 

 the same time, a safer use of credit. 



In some localities banks offer loans to farmers at reduced rates of 

 interest when the money borrowed is used for some specific and 

 approved purpose, such as the purchase of live stock, the building of 

 silos, or the making of other improvements which will make farming 

 more profitable under the given conditions. 



SIZE OP THE LOAN. 



The banker usually charges a higher rate of interest on a small loan 

 than on a large one. The clerical and bookkeeping expenses are the 

 same in both cases. Unless a higher rate were charged on small loans, 

 the point would be reached where the expenses connected with such 

 loans would be greater than the interest. On the other hand, it pays 

 the banker to handle large loans at a lower rate of interest. 



The importance of restricting loans to those for approved pro- 

 ductive purposes and of having the size of the loan conform to the 

 requirements of sound farm investment has been recognized by some 

 bankers to such an extent that they employ advisers who discuss 

 such questions with their farmer patrons in order to promote the 

 interests of their farm-loan business. This plan has been followed 

 by banks in the Central West, in New England, and in the South. 

 The plan of one of the southern banks may be taken as an example. 

 Tlie agricultural adviser employed by this bank, after a conference 

 with the prospective borrower, decides whether the proposed loan is 

 businessUke and expedient. If the purpose of the loan meets with 

 his approval, he works out a plan of procedure with the farmer. 

 The farmer may consider that he needs a loan of SI, 000. As a result 

 of his conference with the adviser it may be found that $700 is sufh- 

 cicnt. They discuss the safety of the proposed investment, the 

 additional equipment necessary, and in case live stock is to be pur- 

 chased, the crop rotation that will furnish the most economical sup- 

 ply of feed. These items are all arranged and agreed upon before 

 the bank makes the loan. After the loan has been made and the 



