The term Hard Money is used to describe certain financial instruments or transactions which are backed by some sort of added certainty or security.
Gold and Hard Money
Hard Money can also refer to currencies which are backed by some sort of tangible asset, such as gold or silver that will act as a long term store of value. This term is less important in the modern world as world currencies are no longer backed by gold reserves. Modern currencies are known as flat currencies and have no intrinsic value of their own.
It is also possible to use hard money in the context of government subsidy, such as in funding for childcare. In this case the beneficiaries can rely on the level of funding for a specified period of time. This type of funding differs from a government grant which is a one-off payment. Hard Money financing is preferred to grants by the recipients as it allows them to implement longer term planning as their levels of funding are assured.
You may have heard of the term “hard money loan” as well. Basically, a Hard Money Loan is a specific type of financial instrument which allows the borrower access to funding once they have pledged real estate as security for the loan amount. Hard Money Loans are asset based loans with high rates of interest and may indicate that the borrower is in a distressed financial position such as being in arrears on existing financial commitments or where bankruptcy or foreclosure proceedings are in process. Hard Money Loans are usually granted for between sixty-five and seventy per cent of the value of the underlying real estate.
This low loan to value ratio provides the lender with the security for his loan and demonstrates the risks involved in granting this type of credit. Hard Money Loans are seldom issued by commercial banks or traditional deposit taking institutions. However, they are similar in structure to Bridging Loans which are granted over properties which are in ownership transition or do not qualify for traditional financing in some way, and without any financial distress on the borrowers’ part.
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