INTEREST RATES ON SHORT-TIME FARM LOANS. 9 
to improvement in the 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 sufficient at least 
to repay both interest and principal. If the returns are not sufficient 
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 OF 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. 
The agricultural adviser employed by this bank, after a conference 
with the prospective borrower, decides whether the proposed loan is 
businesslike 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 $1,000. As a result 
of his conference with the adviser it may be found that $700 is suffi- 
cient. 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 
