The details of independent film financing can be a difficult to wrap your head around, especially if you're not business savvy. Many of us know how to go about receiving financing through crowdfunding platforms, like Kickstarter and Indiegogo, because the process is relatively simple. But when it comes to getting financing from other sources, you'll need to have a little knowledge on how the business of film works. Producer Cassian Elwes (Blue Valentine, Ain't Them Bodies Saints, Lee Daniels' The Butler,) as well as others, break down the process at a ScreenCraft seminar, giving helpful information on how financing an indie film works and where the money comes from.
With 62 credits to his name, Elwes is not only one of the most influential people in independent film, but also one of the leading industry experts on film finance. In the video, he explains the different types of financing, as well as where it all comes from. He describes it within the framework of a hypothetical situation: a $5M film that already has made $2M in pre-sales.
This is the money a bank will lend you, usually after you've made considerable headway in pre-sales (selling the right to distribute before the film is completed -- based on the script and cast.) Elwes explains that the interest on this kind of financing is usually low, because the risk for the bank is low. If you've got a pre-sale deal, that means that the risk lies mostly with a different party, because they're the ones making sure the film gets made. So, a bank would be willing to take on a certain percentage of the film cost (Elwes, in his hypothetical, says $1.5M.)
This includes tax credits and incentives, co-productions, subsidies, rebates, etc. Elwes says that you can sell your tax credit for cash, which puts however much money the credit was for toward your film budget. So, according to Elwes' hypothetical, if that tax credit is worth $1M, then you have half of the budget for your film, but the question is where to get the rest of the financing.
Do you have rich friends and family who want to invest in your film by writing you a multimillion dollar check? No?Well, you might have to look for an equity investor who is willing to pay to own a certain percentage of your movie, which means they receive a certain percentage of all the profits. However, Elwes explains that very few equity investors are willing to put down considerable amounts of money toward a film ($2.5M in his hypothetical.)
So, to combat this, he explains the process producers are using now, where they convince an equity investor to invest a smaller amount ($1M or $1.25M in the hypothetical,) and find another investor to pick up the Gap, or "Mezzanine" financing.
Gap / "Mezzanine"
This is a low-risk investment without huge returns, which is perfect for certain businesses who want to be conservative and play it safe, because they're simply "closing the gap" that is left in the film finance package. Sometimes, these companies (or company) will put up the rest of the money needed to finance the film, and others may lend against the unsold foreign rights.
Check out the video below to hear it from Elwes himself.
Another interesting thing talked about in the video is the current trend of private investors, in that in the last few years, though it has been harder to get loans from banks, it has been easier to raise private equity. So, more private individuals and companies are looking to loan filmmakers money at interest rates of 10% to %15 -- depending on the deal and which part of the financing is being covered.
What do you think? What has your experience been when financing your projects? Let us know in the comments.