Run an internet search on hard money and the chances are pretty good that the vast majority of results will be related to alternative lending for real estate investors. You will see links to companies like Salt Lake City’s Actium Partners, a hard money lending firm that specializes in real estate transactions. But sometimes, hard money has nothing to do with alternative lending.
English is a curious language inasmuch as words can have multiple meanings that don’t relate to one another in any way, shape, or form. The term ‘hard money’ exemplifies that. If you want to see the principle in action, run that search on hard money. Then follow up with a new search on hard money vs. soft money.
Comparing hard and soft money reveals just how many different definitions there are for the former term. Hard money isn’t just money loaned by a company like Actium Partners. It can be many other things, depending on context.
Hard Money as Currency
Central banks and currency traders refer to hard and soft money in relation to the physical units that constitute cash. In other words, coins are considered hard money while paper bills are soft money. It is a rather quaint distinction that hearkens back to the days when the majority of people still carried cash.
These days, cash is pretty passé. Unfortunately, the same people who refer to hard and soft money in the context of cash haven’t come up with anything to describe digital payments and cryptocurrencies. But it doesn’t matter in the end. They still understand hard money as coins and soft money as bills.
Hard Money as Payment for Services
Hard money is a term utilized in the financial services sector to refer to direct payments for services rendered. For example, you might pay your stockbroker commissions on every trade they initiate for you. Those commissions represent a direct payment for your broker’s services. They are hard money to the broker.
On the other hand, your broker might make a serious error that negatively impacts your portfolio. Rather than reimbursing you with a direct payment, they might offer to do some free research for you. This example is cited by Investopedia to describe soft money in the financial services sector.
Hard Money as a Political Contribution
Moving on, the law distinguishes between hard and soft money in terms of political contributions. Just like in the financial services sector, distinguishing between the two is a simple as determining direct and indirect payments.
A political donation made directly to a candidate or their campaign is considered hard money. Money contributed to the candidate’s party or a political action committee (PAC) is considered soft money, even if that money eventually winds up in the candidate’s war chest.
The thing about hard and soft money in the political arena is that it is limited by law. During the last presidential election cycle, individuals were limited to contributions of no more than $2,800 per candidate, $5,000 per PAC, and $10,000 combined to local, district, and state parties.
Additional limits are placed on individual donors at the national party level. In addition, candidate committees, PACs, and party committees are also limited in the amount of contributions they can make to individual candidate campaigns.
So now you know that hard money does not have to be a loan made to a real estate investor for acquiring property. The term has many different meanings you would only know from context. That is the way things are with language. If you are confused by it, you are not alone.