Vital Things to Keep in Mind When Funding Your Film

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Films are rarely financed entirely through one source. Financing can take numerous forms, especially at the indie level, which can be difficult even for the most experienced filmmakers to navigate.

Pre-orders

A presale is when a studio or distributor buys distribution rights and significant equity in a project before completion, then commits to buying it once it’s “in the can,” and specific requirements are met. Preselling distribution rights can require the distributor to pay regardless of whether the picture is a commercial success. 

After the distributor has recouped their initial investment, these agreements frequently include extra revenue splits and royalties. The first stage in getting a distribution contract is to put up a compelling presentation, referred to as “packing” a picture.Same Day Deposit – OakPark

This covers the script, director, producer, cast biographies, and sales projections. Presales are frequently aided by the involvement of well-known actors and directors. Keep in mind that a portion of the pre-sold distribution rights may be sold overseas on a territory-by-territory basis. 

Presales, in my experience, typically occur during film festivals, and lower-budget films are more challenging to acquire presales for because they are less likely to attract big-name performers. As part of a distribution agreement, cash advances may be paid before or in installments during the production process, with full payment due upon delivery. Because the filmmaker is paid upon delivery of the completed film negative, this arrangement is known as a “negative pick up.”

A contract committing a distributor to pay a set sum when the film is finished, on the other hand, is “bankable,” meaning you can use it to apply for a bank loan.

Investments in private equity

Private equity investing can happen during the manufacturing process, whether it originates from family and friends, institutional investors, or hedge funds. A producer, for example, may be able to start production with finances from their network but will need to raise cash for post-production and distribution later.

In such circumstances, a legal dossier, known as a “private placement memorandum,” includes critical legal disclosures required by federal law and describes how much money is needed, how it will be utilized, and how the investor will profit. Investors bet on the success of a film early on with these forms of investments. Unfortunately, independent filmmaking is dangerous, and your investors must understand this. 

If you’re raising private equity, you should consult with a lawyer specializing in film finance to guarantee that you don’t break any complicated federal securities rules.

Tax Benefits

Many states and foreign territories offer tax incentives to films that film in their state or country. These incentives might take a tax credit or a tax reduction, and they differ by region. 

Each state or country will have certain restrictions for filming in that state, such as hiring local talent to qualify for the reward. 

Most jurisdictions have film commissions that will work with producers to satisfy these requirements.

Loans from financial institutions

A producer may choose or be forced to take out bank loans to support production and other sources of funding. Once a producer has secured presale commitments from distributors, they can use those contracts to get bank loans worth up to 75% of the minimum guarantee (the value of the presale contracts). 

Payments are due when the finished picture is handed to distributors, and the bank loan is paid off with the proceeds from the presale agreements. Before granting a production a loan, banks want a completion guarantee to assure that the film is completed and delivered to distributors (thus triggering the payments).

Gap loans and bridge loans are two more sorts of loans. A gap loan covers the difference between what a film costs to make and what it earns in presales; these loans provide between 10% and 20% of a film’s budget against the anticipated value of all unsold distribution areas. 

(In my experience, banks often lend half of that estimate.) 

Because gap loans are often riskier than presale loans, banks can insist that they prioritize all other funding until they are fully repaid. They may also demand upfront payments and complete assurance. On the other hand, a bridge loan does not require a completion guarantee and can be used to fund preproduction costs until presale or gap finance is secured, after which the bridge loan is repaid. Bridge loans are the riskiest and most expensive alternative, with weekly interest rates as high as 1% and 10% upfront costs.

Conclusion

While making a film is a creative undertaking, it is also a sophisticated business endeavor that many producers are unfamiliar with. As I previously stated, even minor errors may be costly, time-consuming, and, in some situations, fatal to a project. As a result, filmmakers should be aware of their options as they work through their project’s finance and legal aspects.

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