The Complete Guide to Production Financing for Beginners From OakParkFinancial

Are you ready to bring your script to life and start filming your next project? 

Begin with a thorough financial strategy that outlines your best financing choices. 

This book will assist you in financing your project like a pro, whether you’ve been in the entertainment industry for decades or are just getting started.

Recognize Your Financing Choices

If you want to fund your film or television project, you’ll need to figure out which option, or combination of possibilities, will work best for you. Understanding what options are available to you is critical to making this decision. The four most popular types of finance are an excellent place to start: source: oakparkfinancial

Soft Cash

This mainly refers to non-repayable financing in the film and television industry and includes incentives such as refundable or transferable tax credits, rebates, and grants (from government authorities, nonprofits, or foundations). Visit our production incentive guide if you’re new to incentives.

Productions should always be aware of the rules for claiming a tax advantage in a particular jurisdiction regarding incentives. Do you think about a state that forces you to finish the project there, or do you think about a spending state vs. a completion state? In a “spend state,” as long as you spend your money there, you can get the credit whether or not you finish the project; in other states, you must finish the project there to get the credit.

Connect with groups whose work matches the story in your script if grants are your chosen method of funding. It’s worth asking for money if you’re developing intellectual property that aligns with the goal and vision of a foundation that works to educate individuals in the same field. Nonprofits can even act as fiscal representatives for a project, handling grant money and reporting, as long as the production aligns with the foundation’s mission statement.

Fairness

Outside investors contribute to a project in exchange for an ownership portion and part of the earnings after-sales. Investing in film is dangerous, so get a lawyer to set out all of the conditions and payment structure that will come with the equity investment.

Investors need to know exactly what to expect, and you don’t want to be held liable if the film doesn’t make money at the end, which is more often than not the case with independent productions. When considering equity investment, there are three questions to consider: 

  • What percentage of the project will be owned by the investor? 
  • How do you intend to repay them? 
  • How much money could they possibly make?

 Conventional Loans 

There are many different types of loans that can be used to fund a project. A tax credit loan, a loan from a bank or financing company like Entertainment Partners, a loan against a minimum guarantee, or a loan against predicted sales on the territory are all options. The completion bond is essential before approaching a bank or other lender for a loan.

Completion bonds (also known as Completion Guarantees) are insurance that the company buys to ensure that the project is finished on schedule and budget. This keeps the project from running out of money before it’s finished, which is especially crucial when operating in states like New York, where you must complete the project before the tax credit certificate can be issued. 

“Do you have a completion bond?” is one of the first questions a lender will ask when examining a loan application for this funding option.

Producers should always do their study ahead of time to see if they require and qualify for a completion bond. In the case of projected sales on territories, you’re trying to fund the estimated value of a project on a global scale, and to pursue a loan; you’ll need sales projections from a lender-approved sales agent based on territory. A bank or lender may say ‘yes’ or ‘no’ after receiving the needed numbers or may impose additional restrictions, such as your sales agent selling the project in a few regions to verify the accuracy of the projections.

A mezzanine loan is a type of loan that allows you to borrow money

If traditional funding is insufficient, Mezzanine Loans might be used to finance a project. 

While these loans may appear appealing, they should be carefully reviewed and not used as your primary funding source. Mezzanine lenders have higher interest rates because they are paid after the Senior Debt and incur more significant risk.

Private equity firms, hedge funds, private wealth desks, and other privately financed corporations can provide Mezzanine Loans to productions for high-risk, high-reward investment.

You may still have a shortfall after calculating your tax incentive money, how much equity you can raise, all loans you could be eligible for, and how much you might raise through crowdfunding. Then and only then should you look for a Mezzanine Loan.

Other things to look into

As you consider your financing choices for your production, remember that other things may play a significant role in your selection.

Think about the distribution rights you’re giving up in return for money.

The distribution rights have significant value, especially in the worldwide market. 

Before signing on with a distributor for finance, productions must consider what kind of rights they are giving away, sometimes in perpetuity, as well as all of the project’s collateral. 

As a producer, you must consider the project’s cost and ask yourself, “What am I giving away in exchange for this money?” Is it sufficient? And what will this mean in terms of finances in two years?

It’s also a good idea to look for a selection of wholesalers. When evaluating a film’s worth, it’s important to consider how much it’s worth globally, not only in the United States. Suppose you sell your film to a North American distributor who only wants to distribute it in North America. In that case, you still have the option to sell it in Europe, Asia, Africa, and other regions. 

The international rights to your project are quite valuable.

Prepare for your cash flow requirements.

To prevent losing tax credits, it’s critical to plan for cash demands during manufacturing. 

Incentive programs rigorously monitor how productions spend the money to ensure that it is spent locally and that local vendors are paid on time.

Cash management is a big part of manufacturing and production accounting. It can be debilitating not to anticipate cash needs or the timing of such needs. To keep on track with their budget, a production needs to be able to look at cash flow and identify if there may be a problem down the line. It might make all the difference to have a solid financial staff, such as EP, to anticipate these cash flow issues.

Stay informed about new legislation and incentive schemes.

It’s critical to stay informed about how regulations and incentive programs are changing because it may impact production expenditures.

Be abreast of what’s going on in your filming jurisdiction because changing legislation or incentive programs can greatly impact a production’s budget. Look no further than EP’s Production Incentives webpage for assistance with this difficult chore, always tracking pending legislative changes and giving frequent updates with the most up-to-date information. You can also subscribe to our monthly email to receive updates on changes that may influence your financing options.