Show PUZZLE OF WHY DEBT HELPS SOME soak BUT ms OTHERS EXPLAINER EXPLAINED how a debt can be put to work to increase earnings Earning 8 thrift tind and loans go hand in hand to aid the industrious the true uso use of debt in personal and business affairs remains something of ft a puzzle to many people to sonic some the very word debt signifies misfortune while others merely fail to understand the ways in which they can put ft a debt toworu to wac for them to increase their oarn earnings ings tho the committee on public education of the american banker alsoe association hils has undertaken in the following discussion of how and why banks loan money to clear up un these misunderstandings somo some people think that to incur a debt at tho the bank la is unwise or a reflection on their business standing this la Is not tho the caso case where tho the debt Is in contracted tor for legitimate business purposes soB incurring debt to livo beyond onon ones income Is something no thrifty person would do and careless caro leaa use of credit leads leada to extravagance and disaster but wise bor borrowing Is an encouragement to thrift and industry the first function of 0 tho bunker banker la Is to encourage industry and thrift to BO that a largo large fund of bank deposits deposit may be accumulated this fund Is in often likened tou to n reservoir in cheth water la is accumulated tor for community needs tho the banker then loans from this fund to those conduct conducting lug tho the business of tho the community tho the banker bases credit on what are known as tho the three Cs of credit character capacity and capital character to Is an imperative business qualification allied with character la Is capacity before making a loan a banker takes into consideration the capacity pt the applicant that dishis la hla ability to oarn earn through his honesty and hla his industry capital la Is a mans worth in money merchandise stocks and bonds bonda or lands which m may acu bo be given its AB collat collateral oral ju in security of a loan to make maleat att safe lot let us dou consider elder tho the actions of mr smith tho the storekeeper ho he finds with his business increasing that he needs a larger idock of goods also some of hla his custom ori arado sodo not noi pay cash and their accounts raus mus be carried until pay day day he must haye have moro more money tor for his bis business bohe ao he goes to his hio banker tor for advice the banker asks mr 0 smith in ith to submit a statement of his business showing what ho be owns and what he be owes he knows smiths character and responsibility from his observation ot his dealings and from the tha conn deneu that people have in him it if he be finds mr smiths statement anil and the progress ho he Is making satisfactory ho he will bo be glad aglid to consider tho best method of loaning him the needed funds funda how money la Is loaned money la Is loaned by banks on straight notes on endorsed indorsed Indor Indar sed notes on an collateral notes on bills receivable ana on trado trade acceptances mr smith may ity be ba told by tho the banker that because he has money inthis business and manages it well tho bank will extend him credit without his putting up any security be yond his anya own word ot of honor evidenced by hla his note lot ua say bay that mr smith needs A maximum amount of 2600 during his abis text season and that tho the bank has baa co consented ansen fd to grant crant him such buch a iline of credit mr smith could 4 ab tho tha bank an and d make out a n note 0 te for or any portion cr c all of this j amount for or any time up to six months 1 to apay pay some bills ho he needs may aay ho estimates that within sixty I 1 days day ho be will receive from hla his charge customers enough money to repay this his amount ile ho therefore makes a sixty day dar note which vie the banker f disco discounts at tho the prevailing rate of interest lot us say 6 0 per cent and p places laces the proceeds to mr smiths credit how much does doe s ho he credit to 1 mr smiths account six per cent I 1 on 1500 for sixty days Is 5 this amount the banker deducts at the time the note to Is made it being the interest which ho he charges mr smith for tho the use of tho the money ho then credits mr smith with the he proceeds of tho note or when tho the note nofe la Is duo in sixty days mr smith baa received received payment from hla his customers customer and ho he pays tho the bank tn the bunk bank marks tho the note paid and returns return it to mr smith it if mr smiths business condit condition lan wore were not strong to warrant granting him unsecured credit the banker might say to mr smith i want to help you but you will have to ret r et the indorsement endorsement Indor ot of your friend mr jones jones Is known to the banker as a very reliable roll ablo and responsible business man should ho he bo be willing to help mr ho he will write i hla his name on the back of mr fr smiths note and it smith cannot pay the tha note nota whon whoa duo doo mr air jones jone s will haye have to pay in another caso case the banker still anxious to help smith wight say 1 I am willing to loan you up to 2600 butyok but you must secure the loan with the goods which you purchase for or that amount and with some soma additional goods mr smith would havo have t to warehouse tho the mor merchandise chandise used an a collateral in such a way that it might be easily identified through warehouse receipts as being the banks property until the note 1 Is paid if smith finally found himself unable to pay the banker could sell the mer chau claudise dise and uso the proceeds to pay th the enote note it if the goods brought more mor alian the amount ot of the noted the bank would pay the tha excess to mr smith it if the amount were not hot enough the th bank would took look to io mr smith to make good the difference mortgage loam Loans loans against farm lands called mori mortgage gago loans are frequently made in country districts it if mr smith lacking anin an Indora dorser or or sufficient clent col lateral or business standing owned a farm free of debt he might give giro a mortgage on it as security the procedure would be somewhat different from loaning against mer chan chandise chandl diso so tho the law realizing the use noo ful place farm and homo home owners occupy protects them lu fr a special mannor manner it says to the lender blender in lase of default on a mort mortgage gago loan you must give this owner of land one year after serving notice that you ex vict to sell hla his land to pay the mort mortgage Cake and fe redeem da din tho the debt this la in called the Ier period lod ot lot redemption mr smith has hlll another method open to obtain tun da from his banker banke ile has hae sold say a bill of mer chandlee chan chau dleo diso to mr brown a dealer sn in a smaller community who must sell tho the goods to hla big own customers be foro fore he can pay smith smith says to brown it you cant pay cash give ms me a ninety day note I 1 will discount li it and ana 9 get et imme immediate alato cash on it from my y bank I 1 will havo have to pay 9 0 per cent interest to do so and I 1 shall want you to pay that interest mr brown agrees and makes his ninety day noto note for with interest at S 6 per par cent mr smith takes this note to the bank which advances him credit tor foi when the bank collects the note from thrown brown ninety days later it receives the added being the 6 per cent interest chargo for the use meanwhile of 0 the money for the ninety day period of the note these aro are the various ways in which tho the bank serves its community by placing through loans thu accumulated thrift ot of the community at the ho disposal of business bust nois and industry |