“Hard money” refers to ongoing private or government funding for specific projects, as well as the production of coins made of durable materials. Private businesses may also provide hard-money loans for community causes, with rates based on qualifications. Governments used to back their currency with precious metals, but now use fiat money.
“Hard money” is a financial term used to describe two different types of money situations. One application has to do with ongoing private or government funding rather than simply a one-off grant. The second application focuses on the production of money in the form of coins which include gold, silver or platinum. In the latter application, the term indicates that the currency is composed of a durable and tangible material and is highly likely to hold some level of value over the long term.
With regards to government grants, “hard money” has to do with the continued support of specific projects that meet the qualifications put in place by a government agency. An example of this type of demand would be grants provided to daycare centers to enable them to provide services in the community where they reside. A similar approach is often seen with clinics providing rudimentary healthcare to people living in a limited geographic area. Rather than occurring as a one-off, these grants are renewed on an annual basis.
Private businesses and organizations can also provide hard cash to worthy causes. One example is scholarship programs that are continuously funded by a company or group of companies. Additionally, businesses or non-profit organizations may also provide hard-money loans associated with a cause or project considered vital to the community, usually at rates well below those charged for commercial loans.
As with other types of lenders, hard money lenders establish the basic qualifications for receiving the loan. When loans are extended to charities or community causes, there’s a good chance that loan rates will be low. At the same time, hard-money lenders providing mortgages may charge higher interest rates than the average rates available from other lenders. Typically, such a mortgage is based more on the equity in the property and less on the owner’s current credit rating or income level. The higher interest rates and fees associated with the hard money mortgage serve to offset some of the risk the lender takes in exchange for approving the loan.
At one time, governments tended to use hard money as a backing for their paper and money. This is because precious metals such as gold or silver tended to hold their value, creating a solid foundation for the value of the national currency. Over time, many nations have moved away from this process and tend to use what is known as fiat money. Although negotiable, fiat money is legal tender as a result of a government decree and not because it has any value of its own.
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