It is a good rule that all firms should be out of debt at least once a year, and better, twice yearly; otherwise the banker, through his loans, supplies in fact a part of the capital to the concern, becoming a silent partner with no share in the profits, and every chance to make a loss. This does not apply to stock brokers, who borrow entirely on collaterals, and who use their money to carry their customers. They are constantly in the market for loans, which they secure for their patrons, enabling them to buy and sell various stocks and bonds in which they expect to realize a profit. Occasionally in New York, Chicago and other large cities speculation runs very high, and many men having good business become interested in the stock market, and unbeknown to their bankers and friends carry stocks on a margin with some broker, who is perchance borrowing the money for him at the broker's bank. Such practices on the part of business men, if discovered, will seriously injure their credit, and bankers are ever on the alert to discover a customer who is speculating, and to discountenance the operation.

When property is on its way to market with a certainty or probability of early sale, it is a legitimate object on which banks loan as collateral. In fact one of the chief functions of a bank is to bridge over the period of time between production and consumption. When merchandise is shipped for sale either in the home or foreign market, bills of exchange are drawn upon the consignee, and if accompanied by a specific pledge of the property in the form of a bill of lading, are called "documentary bills." A very large part of the grain, live stock and cotton of the country is carried to market in this manner. The property is protected by insurance in favor of "whom it may concern," and the bank, by holding possession of the documents, holds title to the property until the draft is paid.

Another form of collateral used extensively in business as security for bank loans is warehouse receipts. Produce or other property may be withheld from market for a better price, and while being so held it is placed in a warehouse and the regular form of warehouse receipt taken for it. This receipt then may be used as collateral to a note for discount at bank. It represents the property and carries constructive possession of the property with it. No one can withdraw the produce or other property from the warehouse without showing the receipt properly endorsed. Loans on this class of collaterals are not, however, regarded with much favor by banks, since the time which the property is to be held in store is indefinite, and the market value is uncertain, making the loan indefinite as to time of payment, and the security liable to fluctuation. Loans of this character are accommodation loans and often have to be inconveniently prolonged.

Accommodation paper consists of notes or drafts made or signed for the express purpose of securing a loan, and do not represent a bona fide business transaction. Sometimes the accommodation consists only of an endorsement upon a note or draft created by the person who desires the accommodation; it may consist of the acceptance of a draft. But whatever form accommodation paper may assume, banks and money lenders do not regard it favorably. It is not regarded as legitimate business paper like the draft or note executed on the basis of a sale of goods. Accommodation paper can be collected legally, for the law protects the bank or any other innocent third party who takes the paper in the ordinary course of business, without knowing its want of consideration between the original parties, and the obligator to such paper must pay. This protection of third parties to commercial paper is a necessary safeguard to enable it to be readily sold and transferred. Accommodation notes and accommodation endorsements are not as common in this generation as in the past. Many an old man plods along to-day, poor, but wiser for his experience in endorsing paper for a friend, perhaps many years ago. That one fatal act reduced him to penury, from which he was never able to recover. Business men of to-day have learned to conduct transactions upon safer and better methods, perhaps owing to the experience and good advice of their fathers. A class of dealers in commercial paper called note brokers handle considerable paper of merchants and manufacturers, and re-discount with the banks. The note broker is a convenience to both the merchant and bank - to the former by buying his paper and thus furnishing him with funds which he may need in his business - to the bank by selling paper to it whereby it is enabled to employ its capital profitably when there is a lack of applications for discounts from its regular customers. Merchants can afford to sell their paper at 6 per cent. interest to a note broker, and discount their own bills at 1 per cent. per month, or better. The question arises at once, why does not the merchant sell his paper to his bank directly, instead of selling it in the "street," and will not his banker grant the merchant all the credit he is really entitled to, and discount all of the paper his capital and financial standing will justify him in uttering? It may not. The bank may have its funds loaned out up to the limit and be practically unable to buy the merchant's paper, even if desirable, while some other bank might be short of good paper. The note broker, as a sort of go-between, can sell the paper wherever there is a demand for it. He may sell it in another town or city where there is a surplus of deposits and a dearth of loans. In some localities the banking capital is much larger than can be profitably employed in the immediate vicinity, and consequently those banks invest large sums through note brokers.

Then again a bank may contract its loans at any time by selling notes previously purchased from a note broker. Such notes are usually made payable to the order of the firm or individual signing them and then endorsed in blank. To sell this paper does not require the bank's endorsement, and it can be sold again through the same class of brokers as purchased from. When a bank makes a loan to one of its depositors, the note is usually made payable to the order of the bank, and it is not customary, except in cases of great need on the part of the bank, to have this paper go out of its possession. Business men who borrow of a bank do not ordinarily wish the bank to let the paper go out of its possession.