EP NowStoreAcademySupportProduction LotProducts by Country
Blog Home

The Beginner's Guide to Production Financing

What to know before starting your next film or television project
April 6, 2021

John Hadity

EP Blog-WIDE-John Hadity-beginners guide to production financing

Ready to bring your script to life and get the cameras rolling on your next project? Start with a solid financing plan, mapping out the best funding options available to you. Whether you’ve been in the entertainment industry for decades, or you’re just starting out, this guide will help you on your way to financing your project like a pro.

Understand Your Financing Options

If you want to finance your film or television project you’ll first have to decide which option, or blend of options, will best fit your production. Key to this decision is understanding what’s available to you. A good place to start is with the four most common forms of financing:

1. Soft Money

In the film and television financing world, this generally means financing that does not need to be paid back, and includes incentives like refundable or transferable tax credits, rebates, and grants (from government authorities, nonprofits, or foundations). If you're new to incentives, visit our guide to production incentives.

When it comes to incentives, productions should always be aware of the requirements to claim a tax incentive in a specific jurisdiction. Are you considering a state that requires you to complete the project there, or in other words, are you considering a spend state vs. a completion state? In a “spend state” as long as you spend your money there, you can earn the credit whether or not you finish the project; other states will require you to complete the project there in order to be eligible for the credit.

If grants are the preferred route of financing, connect with organizations whose work aligns with the story of your script. If you’re creating intellectual property that completely falls within the mission and vision of a foundation doing work educating people in the same space, it’s worth the ask for funding. Nonprofits can even serve as fiscal reps for a project, handling the grant money and reporting, as long as the production is within the mission statement of the foundation.

2. Equity

This is financing from outside investors who contribute to a project in exchange for part ownership, and a cut on profits after sales. It’s a risky business investing in film, so be sure to bring on a lawyer to lay out all the terms and payment structure that will accompany the equity investment.

Transparency is key so investors need to know exactly what to expect and so you’re not held liable, especially if the film doesn’t make money in the end, which is the case more often than not with independent projects. Three questions to ask when planning out an equity investment: 1) How much of the project will the investor own? 2) How do you plan to pay them back? 3) What kind of potential profit might they make?

3. Traditional Loans (also known as Senior Debt or Gap Loan)

There are multiple different kinds of loans available for financing a project. You can get a loan against a tax credit, a loan from a bank or financing provider like Entertainment Partners, a loan against a minimum guarantee, or a loan against projected sales on territories.

An important consideration before approaching a bank or other lender for a loan is the completion bond.

Completion bonds (also referred to as Completion Guarantees) are a form of insurance purchased by the production to ensure the project will be completed on time and on budget. This protects the project from running out of money before completion which is especially important when working in jurisdictions like New York State, which requires the project be completed before they will issue the tax credit certificate. One of the first questions a lender will ask when reviewing a loan application for this funding option is, “Do you have a completion bond?”

It is always recommended that producers do their homework ahead of time to determine whether they need and qualify for a completion bond.

In the case of projected sales on territories, you’re looking to finance the anticipated value of a project on a worldwide basis and which will require sales estimates from a lender-approved sales agent, based on territory, in order to pursue a loan. Once the desired estimates are obtained, a bank or lender may say ‘yes’ or ‘no’, or require additional conditions, such as your sales agent selling the project in a few territories to vet if the estimates are accurate.

4. Mezzanine Loan

If there is a shortfall in traditional funding, Mezzanine Loans are also available to help finance a project. While these loans may seem attractive, they should be considered carefully and not as your first choice of funding options. Because Mezzanine lenders get paid back following the Senior Debt, and take a bigger risk, they often have higher interest rates.

Productions can secure Mezzanine Loans from private equity firms, hedge funds, private wealth desks, or other privately financed companies who are willing to contribute to a project for a high risk, high reward contribution.

After you’ve estimated your tax incentive money, how much equity you can raise, all loans that you might be eligible for, and however much you’re able to raise in crowdfunding, you may still have a short fall. Only then should you go out and look for a Mezzanine Loan.

Look at the Bigger Picture

As you weigh out your production’s financing options, it is important to remember that additional factors may play a large part in your decision making.

Consider what distribution rights you are giving away in exchange for cash

There is real currency in the distribution rights of a project, especially in the international market. In exchange for financing, productions need to weigh what kind of rights they are giving away, sometimes in perpetuity, and weigh all the collateral of a project before signing on with a distributor for financing. As a producer, you have to look at the cost of the project and say, ‘what am I giving away in exchange for this money? Is it enough? And what is this going to look like financially two years from now?

It may also be worth shopping around for a variety of distributors.

When you look at the value of a film, you have to look at it from the perspective of what is this film worth on a worldwide basis...not just in the US. If you are selling your movie to a North American distributor, who only wants North America, you still have the opportunity to sell the movie in Europe, Asia, Africa, etc. There is a real value in the international rights to your project.

Plan your cash flow needs

Anticipating the timing of cash needs is crucial during production to avoid jeopardizing tax credits. Incentive programs track productions closely on how they allocate the money to ensure it’s spent locally and that local vendors are paid on time.

A lot of producing and production accounting involves cash management. Not anticipating cash needs, or the timing of those cash needs, can be crippling.

Being able to look at cash flow and see if there is going to be a problem down the road is essential for a production to stay on track with their budget. Having a strong financial team, such as EP, to anticipate these cash flow needs can make all the difference.

Stay up-to-date on changing legislation and incentive programs

It’s important to be aware of how laws and incentive programs are changing since it could affect production budgets.

Changing legislation or incentive programs can significantly impact a production’s budget, so be aware of what’s happening in your filming jurisdiction. For help with this arduous task, look no further than EP’s Production Incentives site, which is consistently tracking proposed changes to legislation and providing regular updates with the latest information. You can also sign up for our monthly newsletter to stay informed about changes that may affect your financing opportunities.

To learn more about the Incentives Group at Entertainment Partners, and how we can support your production with loan opportunities or other financial questions, visit our Production Incentives page, or click the Contact Us button.

Related Content

How to Secure Film Financing: An Overview for Independent Producers

6/19/2024
From choosing the right funding source to setting up LLCs and agreements, learn about the financing...
More
EP Blog_SQUARE_Filming in Australia

Filming in Australia: Your Guide to Incentives, Infrastructure, and the Future of Production Down Under

5/1/2024
Learn about Australia’s growing film incentives, new production facilities, and what’s next for Aussie...

8 Locations Independent Filmmakers Should Consider for Their Next Project

7/16/2024
Global jurisdictions with enticing incentive packages (and low minimum spend!) every filmmaker should know...

How Production Incentives Help Indie Filmmakers Choose the Best Filming Location

7/9/2024
Learn how selecting the right location can play a large part in preserving your production budge, thanks...

The Filmmaker’s Guide to Equity Financing and Compliance

7/2/2024
Get answers to common questions about equity financing and what corporate compliance responsibilities...

The Independent Filmmaker's Guide to Production Incentives

6/28/2024
Expert guidance on how production incentives work, and which may be best for your project and budget.
director looking at a woman on a camera monitor

Is New Jersey the New Hotspot for Filming on the East Coast?

5/14/2024
From attractive tax incentives to creative advantages, find out why the Garden State is emerging as a...
Master Series Thumbnail–UK indie film tax credit

Boost Your Budget with the Independent Film Tax Credit

5/9/2024
Learn how to maximize UK incentive dollars with the new IFTC!
black and white filmmaker logo

Credits Where Credits Are Due

5/7/2024
Scott Macaulay looks at the state of film tax incentives in 2024.
Cameraman filming outside in a field

HMRC Announces Changes to Claiming UK Creative Sector Tax Incentives

4/26/2024
What productions should know about the increased disclosure requirements under the UK's Audio-Visual...
Four Panelists from Indie Producer's Playbook

Indie Producer’s Playbook: Setting Up a Successful Production

4/19/2024
Learn best practices for how to set up and run a successful production, from choosing the right corporate...
Los Angeles Times logo-sq

Georgia Film Tax Credit Bill Fails

4/1/2024
Georgia lawmakers kill effort to cap film tax credits as production hub continues to rival California.

Japan's Latest Film Tax Incentive Sets the Stage for Global Productions

3/13/2024
From Miyazaki to Godzilla, Japan is entering a cinematic renaissance and poised to attract international...

What Does the UK’s New Independent Film Tax Credit (IFTC) Mean for Productions?

3/7/2024
As the UK government strengthens its support for productions, find out what the latest changes to the...

Entertainment Partners Hosts 'An Independent Producer's Survival Guide' in Park City

2/27/2024
Joe Chianese, EP’s SVP & Production Incentives Practice Leader, brings independent filmmakers and industry...
Four panelists discuss co-production-square

Unlocking the Myths and Benefits of Co-Production

2/15/2024
Learn the difference between an official co-production and PSA, and how to leverage these opportunities to...
Big Ben, London

5 Things to Consider Before Transitioning to the UK’s New AVEC Regime

1/16/2024
A comprehensive overview to help determine if you should use the UK’s new incentive regime to fund your...

Production Incentives Update: December 2023

12/20/2023
Notable dates and modifications to production incentive programs in California, India and Spain.
Camera man filming on a snowy mountain in the winter-sq

Production Incentives Update: November 2023

11/28/2023
Your guide to recent production incentive changes in Connecticut, Minnesota, New York and Japan.
Camera operator filming a hotel scene

Budgeting Basics: How to Create a Film Budget

11/21/2023
Learn about the various types of costs that go into a production budget and how tools like Movie Magic...

Minnesota: Land of 10,000 Opportunities

11/17/2023
Learn about Minnesota's new incentive program, dynamic locations, strategies for boosting crew training...
BBS-Radio-TV-logo

The Cathy Durant Show: Featuring John Hadity

11/9/2023
Cathy interviews guest, John Hadity, EVP of Incentive Operations who oversees the film financing...

Regional Success: Why Small UK Hubs Aren’t Afraid of Big Productions

11/7/2023
Learn about the stunning natural scenery, historic architecture and film-friendly incentive schemes that...

Production Incentives Update: October 2023

10/26/2023
Learn about recent legislation changes boosting tax incentives in Colorado, Florida, Virginia and ...

The Beginner's Guide to Pitching a Film

10/24/2023
Tips on building 13 key elements of a winning pitch deck.
Master Series Thumbnail Square UK Productions

UK Production: Sites, Services and Studios

10/20/2023
Learn about UK incentives, infrastructure and production innovation spanning from London to Wales,...

Minnesota Becomes Land of 10,000 Opportunities with New Incentive Launch

9/29/2023
Minnesota introduces a new tax incentive program to renew the state’s status as a dynamic location for...
Georgia Incentives Panel_sq

GA Incentives Insider: Your Questions Answered

9/27/2023
Brian Shanaghan, Audits Manager at the Georgia Department of Revenue (GA DOR), addresses the industry's...
Film crew on location filming outdoors

Production Incentives Update: September 2023

9/27/2023
Insights on recent changes to production incentive programs in D.C., Kentucky, Montana, Ohio and Ontario.
Expert Advice_Sam Collett

Spotlight: Sam Collett, UK Production Accounting and Incentives Expert

9/19/2023
Meet the Senior Partner at FLB Accountants, an Entertainment Partners company specializing in UK media and...

Payroll & Finances

PayrollResidualsSmartStartSmartTimeProduction PortalEP On LocationSmartAccountingEP LiveSmartPOCASHétPayPaymaster Rate GuideEP ResidencyMoneypenny

Manage Multiple Productions

AssetHubSmartHub

Additional Services

Academy
Subscribe now

Be an industry insider with EP's
newsletters and alerts

LegalPrivacy NoticeSecurity
© 2024 Entertainment Partners. All rights reserved.