Written by Giovanni Cuarez on Wednesday, June 26th 2019
If you are feeling the pinch and challenge of today’s economy but also trying to finance your film project, you are not alone. This is a common struggle to many filmmakers and financing a project may feel daunting. However, what some people don’t know is that lenders are cash heavy. As a result, they are willing to lend money to filmmakers and financing qualified film projects.
Unfortunately, when it comes to filmmakers and financing, most don’t know understand the process or who to approach and what to look for. Not only can the process be confusing, but there are certain aspects to keep in mind.
Show Me the Money
All lenders require collateral, a Completion Bond and Production Insurance that includes Cast Extra Expense Coverage (cast coverage). An Equity Investor is a person(s) who is willing to “share the pain and gain” of your project. They understand that their investment is 100% at risk of being lost. This is an advantage to the filmmaker, because the filmmaker gets to make his/her film. But an immediate disadvantage to the investor, because the investment is lost unless the film turns a profit.
Example of a “Filmmakers and Financing” Agreement: 110 – 50/50 structure:
Film Profits come in, Equity Investor(s) recoups 110% of their investment, then 50/50 split of all profits in perpetuity thereafter between the investor(s) and filmmaker.
Between the filmmakers and financing entity, filmmakers should always request up front from the investor a bank statement to demonstrate their “proof of funds.” This is a must, because there are a lot of “money-people” out there who claim to have money but really don’t. These are “looky-loos” and are a complete waste of time. Beware of these people and always ask for proof of funds in advance.
When it comes to filmmakers and financing entity as an Institutional Lender on the other hand, does not take risk at all. They want to make sure that your collateral can pay back 100% of the loan, plus the annual interest rate of the loan amount. This is a disadvantage for the filmmaker, because most filmmakers do not have collateral to meet the requirements of the lender. However, the advantage to using a lender is that once your project satisfies 100% of the loan plus the interest rate, any profit generated thereafter now belongs to the filmmaker in perpetuity. Plus, proof of funds is often not necessary, because institutional lenders use major U.S. Banks as the custodian of deposit.
Years ago, a common form of collateral was “Pre-Sales,” Monetized State Tax Incentives, real estate value, film libraries and any form of tangible asset that the filmmaker owns.
Total Budget Breakdown
Below is an example of a filmmakers and financing elements: total budget needed to make a film is $1M and comprised of:
- 25% tax incentive from a state was monetized at 90% = $225k.
- Foreign Sales Rep or Distributor issue a Money Guarantee (MG) of $100k.
- DVD contract for $200k.
- Network Licensing deal for $50k.
- Crowd Funding raised $200k.
- Filmmaker’s personal investment is $20k.
- Equity Investor(s) invested $250k
Total Money Raised = $1,045,000. This example is easy to reflect on paper, but sometimes hard to put forth in the real world. However, as a result it gives the filmmaker an idea of the other ways a film can be financed. Filmmakers and financing will always go hand in hand. But, the most common way filmmakers fund their films is to simply make the best film possible with the least amount of money spent.