"gang aft aglee." If he has lost some of the energy and optimism of youth he will see risks and possibilities of failure, and he prefers to spread the risk, even though in so doing he may also spread the profits.

The young man on the other hand usually prefers to take all the risk and retain for himself all the possibilities of profit. Usually though he has not sufficient capital of his own to float his enterprise unless he is content to begin in a very humble way and work up by gradual development and must perforce offer to others a share in the enterprise. This share may take the form of a partnership or a stock holding.

The three methods of financing a business most commonly employed are as follows:

1. Borrowing at interest.

2. Sharing profits among partners.
3. Forming a corporation.

Rockefeller a Shrewd Borrower

The ability which John D. Rockefeller has displayed in borrowing money accounts for not a little of his remarkable financial success. In the early days when Mr. Rockefeller in partnership with a Mr. Andrews entered into the refining of oil, the firm's capital was limited and the rapid growth of the business found the two partners often needing money. It was the senior partner, low-voiced, soft-footed, humble, knowing every point and every man's business, "smooth," "a savvy fellow," as the neighbors described him, who then set out to borrow and rarely if ever did he fail.

"There is a story handed down in Cleveland from the days of Clark and Rockefeller, produce merchants, which is illustrative of some of his methods. One day a well-known and rich business man stepped into the office and asked for Mr. Rockefeller. He was out and Clark met the visitor. 'Mr. Clark,' he said, 'you may tell Mr. Rockefeller, when he comes

in, that I think I can use the $10,000 he wants to invest with me for your firm. I have thought it all over.'

"Good God!' cried Clark, 'we don't want to invest $10,000. John is out right now trying to borrow $5,000 for us.'

"It turned out that to prepare him for a proposition to borrow $5,000 Mr. Rockefeller had told the gentleman that he and Clark wanted to invest $10,000!

“And the joke of it is,' said Clark, who used to tell the story, 'John got the $5,000 even after I had let the cat out of the bag. Oh, he was the greatest borrower you ever saw!'"

Why Borrow

This episode concerning Mr. Rockefeller evidently in its teachings is at variance with the old idea of borrowing—the sad result of misfortune, of improvidence or prodigality, but in no case a legitimate business operation in which both parties benefit.

son:

This point of view is well expressed by Polonius to his

Neither a lender nor a borrower be,

For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.

This advice of Polonius to his son is eminently sound if the young man was extravagant and in danger of expending his money without adequate returns. Yet this is not the business man's attitude toward borrowing. He borrows because the money under his direction, he is convinced, will return more than its interest charge. Upon this basis he appeals to possible lenders for funds.

Confidence a Business Asset

The chief test of one of the world's greatest lenders, J. Pierpont Morgan, was that described by him shortly before his death: "I have known a man to come into my office and

I have given him a check for a million dollars, and I knew he had not a cent in the world." In other words, in the estimation of the greatest banking house in this country, character was sufficient collateral upon which to loan a million dollars.

Character was ranked by Mr. Morgan as the chief test but, needless to say, it is not the only test. The sum total of these tests, in brief, is confidence-and confidence is something which can be cultivated in the minds of those having funds and can be developed by others with projects requiring from time to time outside funds. In other words, credit is a plant whose growth can be nourished by whoever sets about it properly. The detailed ways and means are exceedingly numerous, but the general principle is clear-if you wish to borrow money, develop the confidence in the minds of those who control funds that their money will be safe in your hands and that they will receive a satisfactory return for its use.

Borrowing for Business Purposes

Borrowing money to finance a business introduces the matter of regular fixed charges for interest, with the attendant danger of foreclosure and loss of the property in case these are not met when due. Yet under normal conditions it permits the original parties to retain their control of the enterprise and the rate charged is not serious compared to what the profits of the enterprise should be. If on the other hand an enterprise ends in failure the loaning plan is disastrousfar more so than if the money were secured as an investment in the first instance. For this reason many business men with good credit and well able to borrow all the funds they need, prefer to secure part of the capital they require for the new enterprise as an investment and not as a loan. In this way they divide up the risk. They do not look for failure but they recognize its possibility in any enterprise no matter how sure

a thing it may seem. Therefore they prefer to lessen their own risks by sharing the profits to be made rather than take the chance of total and perhaps disastrous loss in case of failure. It is true that interest on money borrowed is usually less than the profits of a successful business and that to give a share in the business for the loan of capital often seems to promise a big return for a small favor. There are other dangers connected with borrowing besides those mentioned above.

Loans and interest payments have a tendency to become due at inconvenient times; or if left to run after they become due, may be called unexpectedly. If not met they may be used as a means of forcing the business into bankruptcy and buying it for a mere song. As a matter of fact loans are often made to the owner of a promising enterprise with the hope or expectation that he will not be able to repay the amount when due. If this happens the lender promptly forecloses, the business is forced under the hammer or it becomes bankrupt, and he buys it at a fraction of its real value. To secure properties in this way is considered by those who engage in the practice to be smart business and entirely legitimate. The fact that it is done and can be done should always be borne in mind when loans are made. The agreement should provide for extensions of time when necessary so that the borrower may have the opportunity to raise funds elsewhere. In this way the first lender can be repaid if he insists upon calling in the loan.

Financing By Means of Partnership

These limitations on borrowing cause oftentimes recourse to moneyed partners. This is but a modification of the usual plan of securing money as an investment in the enterprise usually in the form of stock subscriptions-but it has some special advantages and disadvantages of its own.

A very important point to be considered when a financing partner is to be taken into a new undertaking is the fact that

should the enterprise not reach the point of self-support before its funds are exhausted-a contingency that frequently occurs -the conditions are not favorable for securing further money. Under such circumstances, each partner should, of course, contribute pro rata according to his interest, but in practice the original owner is usually unable to increase his investment and it not uncommonly happens that the "financing" partner declines to increase his.

Sometimes the moneyed partner refuses because he thinks the management of the business has been poor and that therefore the "working" partner, who is responsible for this, should bear the burden of securing additional funds. At other times, he declines from purely selfish reasons, thinking that the working partner's interests are sufficiently large to force him to pull the enterprise out somehow unaided. On rare occasions help is refused because the financing partner hopes that the embarrassment of the business will result in conditions which can be made to serve his own interests, possibly resulting in his acquisition of the whole enterprise.

can.

In any such case, the working partner must do the best he He may be able to borrow, or he may have to make very material sacrifices of his own interests to obtain the needed funds. In such case, if the enterprise is successful, he will be able to recoup himself. It is, however, far better that the possible need of more funds should be anticipated and provided for in advance by some provision of the partnership agreement. It is better still to avoid the contingency by the incorporation of the undertaking.

Selection of a Partner

It should be borne in mind that a partner has all the rights in the business that the original owner has himself. He can interfere in the management of the enterprise, run it into debt, if he sees fit, or make trouble in many other ways.