Show PUZZLE OF or WHY DEBT 0 KELPS HELPS SOME BUT HARMS OTHERS EXPLAINED how a debt can be put to work to increase earnings thrift and nd loans go hand in in hand to aid the industrious the true use of debt in personal and business affairs remains something of a puzzle to many people to some isome the very word debt signi signifies fles misfortune while others merely fail fall to understand the ways in which they can put a debt to work for them to increase their earnings the committee on an public 10 education dU cation of tho the american bankers association has undertaken in the following discussion of how and why banks loan lohn money to clear these some caplo coplo think that to incur a debt at tae bank IN to unwise or a re roo on at their business standing this in 1 not the case whore where the debt la for legitimate business pur incurring debt to live beyond onas ono income ie is something no thrifty would do and ato careless aeo of credit lead leads to extravagance aul disaster but wise borrowing Is an encouragement to thrift and in austry the farat function of at the banker ie to to encourage industry and thrift to 0 o that a largo large fund of bank deposits may bo be accumulated thia this fund Is in often likened to a re reservoir in water in 1 accumulated for community needs the banker then loans from this fund to those conducting tho the business of the community tho banker bases credit on what are known aa as the throe three Cs of credit character capacity and capital character Is a an imperative business qualification allied with character la Is capacity buforo making a loan a banker taken into consideration the capacity of the applicant that lehla ability to earn through his ills honesty andas nd his industry capital la in a mans worth 1 in a y stocks and bonde bonds or lands which may be given as collateral in security of a loan to make it safe let us consider the business transactions of mr smith the er ar lie finds with his hi business busl increasing that ho he needs a larger stock of goods also name of hie his custom era an do not tot pay cash and their accounts must be carried until pay day he tie must have more money tor for his business so he goes to his bat banker ker for advice the banker asks mr smith to submit a statement of his business showing what he owns and what he owes he knows known smiths character and responsibility from his observation of hia his dealings and from the confidence that people have in him if he be finds mr smiths statement and the progress he la Is making satisfactory he will be glad to consider the best method of loaning him the needed funds how money Is in loaned money la is loaned by banks on straight notes on indorsed notes on collateral notes on an bill bills receivable and on trade trado acceptances mr smith may be told bv by the banker that because be bet has tins suM clent money in his business and manages it well the bank will extend him hirn credit without his putting up any security beyond bis his own word of honor evidenced by hia his note lot let us say nay that mr smith needs a maximum amount of 2500 during his busiest season and that the bank has consented to grant him such a line of credit mr smith could come to the bank and make out a note for any portion i all of this amount tor for any time up to aix six months to pay some bills he needs say lie ile estimates that within sixty days he will receive from his charge customers enough money to repay this amount he ile therefore makes a day note which the banker discounts at the prevailing rate of interest let us say 0 per cent and places the proceeds to mr smiths credit how much does he credit to mr smiths account six per cent on tor for sixty days la is 5 6 this amount the banker deducts at the time the note to 1 made it being ballig the interest which ht bl charges mr smith tor for the cje as of the money maney ho then credits mr smith with the proceeds edi of the noto note or when the dot note la in due in sixty day days mr smith has ro calved payment from hia ibis customer customers and he pay pays tho the bank the bank marks the note paid and return it to mr smith if it mr smiths condition were wara not sufficiently strong to war rant granting him unsecured credit the banker might eay say to mr smith 1 I want to help you but you will have to not got the endorsement indorsement indor tudor of your friend mr bir jones jonea jones is known to the bank er aa as a tory vory reliable and responsible business busi nesa man should be he be willing to help mr smith he will write hi his name on the back of ur mr smith smiths note and it smith cannot pay the note when due mr jones will hare have to pay par in another case tho the banker till still anxious to help smith nay 1 I am willing to loan you up to 2500 but you must vaunt secure the loan with the goods which you rc for that amount and with some additional goods mr smith would hare have to warehouse the merchandise used as collateral in such a way that it might be easily identified through ware waro hous house r as being the banks anks b property until thimio the thi iio note ti saad Ispa td if 71 smith anally finally found himself unable to pay the banker could sell the merchandise and uso use tho the proceed edis to pay the note if it the goods brought more than the amount of the noto note tho the bank would pay day the excess to mr smith if it the amount were not enough the bank would look to mr smith to make good the difference mortgage loans loans against farm lands called mortgage ge loans are frequently made in country districts if it mr smith lacking lackin van an indorser dorser in or sufficient col coli I lateral or business standing owned a farm free of debt he might give a mortgage on it as security the procedure would be somewhat different from loaning against merchandise eban disa the law realizing the use ful place farm and home owners occupy protects them ii a special specia linan man ner it says to the lender in case of default on a mortgage loan you must giro give thia this owner of land one year after serving notice that you ex hect to soil sell his land to pay the mortgage and redeem the debt thi this Is called the period of redemption mr smith has still another method open to obtain funds from his banker he has sold say a bill of merchandise chand lse to mr brown a dealer in a smaller community who must sell the goods to his own customers before he can pay par smith shuh says to brown it if you cant pay cash give me mei a ninety day note I 1 will discount it and get immediate cash on jt from my bank I 1 will have to pay aper 6 per cent interest to do so and I 1 shall want yon you to pay that la interest terest 11 mr brown agrees and makes his ninety day note for or with interest at 6 pr per r cent mr smith takes this note to the bank which advances him credit for when the bank cop coll elects the note from grown brown ninety days later it receives the added being the 6 per cent interest charge for the use meanwhile of ot the money tor for the ninety day pe ve hod of the note these are the various ways in which the bank serves its community by placing through loans the acau mutated thrift of the community at the disposal of business and industry |