Film Gap Financing
Gap financing is a film funding strategy where filmmakers secure a loan from a specialized gap financing company to bridge the financial gap between the total production budget and the funds already raised from other sources. This funding option becomes available after other financing options, such as pre-sales, tax incentives, and grants, have been secured, but there is still a shortfall in the budget.
How Gap Financing works
- Availability After Other Funding Sources: Gap financing is contingent upon having other funding sources already committed to the film. It is typically the final step in the financing process.
- Loan Against Unsold Rights and Territories: Gap financing companies evaluate the film’s potential by looking at its unsold distribution rights, streaming rights, and territories where it has not been pre-sold. They provide a loan based on their estimation of the film’s future revenue potential.
- High-Risk Nature: Gap financing is considered high-risk because the loan is based on projections of the film’s performance. The actual financial returns may not align with the estimated value of the unsold rights, leading to uncertainties in the return on investment for the gap company.
- Risk Management: Filmmakers need to carefully manage the financial risks associated with gap financing. While it can provide much-needed funds to complete the project, the film’s actual performance at the box office or in the distribution market is unpredictable.
- Impact on Distribution Rights: Filmmakers must carefully assess the rights they pledge as collateral for the gap financing. Pledging significant rights may limit their flexibility in future distribution deals.
- Completion Guarantees: In some cases, gap financing companies may require the filmmaker to provide a completion guarantee. This means a third party (completion guarantor) promises to step in and ensure the film’s completion if it goes over budget or faces other production challenges.
Gap Financing Eligibility
To be eligible for gap financing, filmmakers need to fulfill certain requirements and provide specific documentation to demonstrate the film’s financial viability and potential for success. Gap financing is a high-risk funding option, and lenders or gap companies seek assurances that the investment is secure. Here are some key elements typically needed for gap financing eligibility:
- Other Financing Sources: Gap financing is usually available only when other primary funding sources are already in place. Filmmakers must show that a significant portion of the film’s budget has been secured through pre-sales, tax incentives, grants, or other investments.
- Budget and Production Plan: Provide a detailed budget for the film that outlines all production expenses and a clear production plan that includes shooting schedules and key milestones.
- Production and Distribution Strategy: Present a well-thought-out production and distribution strategy that outlines how the film will be marketed and released to reach the target audience.
- Sales Projections: Provide realistic and well-supported sales projections that estimate the film’s potential revenue from various distribution channels.
- Film Package: Prepare a comprehensive film package that includes the script, director’s vision, key talent, and any other relevant materials that showcase the film’s potential.
- Completion Guarantee: Some gap financing companies may require a completion guarantee from a third-party completion bond company. This guarantee ensures that the film will be completed on time and within budget.
- Collateral: Gap financing is usually secured against the film’s unsold rights, streaming rights, and foreign territories. Filmmakers must be willing to offer these rights as collateral.
- Legal and Ownership Documentation: Provide clear documentation of the film’s rights and ownership to assure the gap financing company that the rights being offered as collateral are secure.
- Filmmaker’s Track Record: Filmmakers with a successful track record or prior experience in the industry may have an advantage in securing gap financing.
- Market Research: Conduct thorough market research to demonstrate the film’s potential in the target markets and to support the sales projections.
- Financial Projections: Present financial projections that show the film’s potential profitability and return on investment for the gap financing company.
Where to find Gap Financing
Gap financing for films is typically offered by several types of organizations:
- Film Financing Companies: There are many specialized companies dedicated to providing film gap financing, such as Silver Reel Partners, The Fyzz Facility, or Molinare. However, their terms, conditions, and the projects they finance may vary greatly.
- Banks and Financial Institutions: Some banks and financial institutions offer gap financing for films as a part of their portfolio, especially those that have an entertainment financing division. Institutions like the City National Bank in the USA or Barclays in the UK have been known to finance films.
- Government Agencies: In some countries, government agencies provide film financing, including gap financing. This often comes with certain stipulations, like the film needing to be produced in the country, or a certain percentage of the cast and crew being from that country. Examples include Telefilm Canada, the British Film Institute (BFI), or Screen Australia.
- Film Funds and Grant Organizations: Many organizations offer grants for film production, including gap financing. These are often more selective and might be oriented towards certain kinds of films (e.g., independent, cultural, or environmental films). Examples include the Sundance Institute, the San Francisco Film Society, or the Tribeca Film Institute.
- Private Investors and Production Companies: Some private investors or production companies might be interested in offering gap financing. This usually involves networking and pitching your project to potential investors.
- Crowdfunding Platforms: Although not traditional, websites like Kickstarter, Indiegogo, or Seed&Spark have been used to fill the financing gap in some projects.
It’s essential to understand that gap financing is a high-risk funding option, and gap companies may have stringent criteria for evaluating projects. Filmmakers should be prepared to provide comprehensive documentation and demonstrate the film’s commercial viability to increase their chances of securing gap financing.