Production Loans, Negative Pick-Up Deals, and Pre-sale Financing
Production Loans: These loans can be structured in multiple ways. They can be either debt or equity transactions. If characterized as debt, the loan, which can be from a non-bank third party, will have to be secured by some kind of a hard asset and the borrower can be made personally liable for repayment. A loan provides the filmmaker greater freedom as far as the creativity in making the film is considered. Of course, the disadvantage is that the loan has to be paid back no matter how the film does. Also, the lender may require you to find a completion guarantor so that the lender is protected from budget over-runs.
Negative Pick-Up Deals: Under such deals the producer can get a distributor to purchase the rights of the film in advance. This letter of guarantee from the distributor then can help you to secure loans from third parties such as the banks and private investors. These deals are a little hard to come by, especially if the filmmaker is not well known, simply because of the extra risk the distributor is being exposed to.
Pre-sale Financing: This kind of financing lets you fund the production of the film through granting of licenses to distributors in a particular media or territory even before the film has been made. This arrangement typically avoids the lender’s intervention in your creativity. This is a very viable option for those, who want to stay away from the control on creativity that a typical studio imposes.
Conclusion: As you can see, lender financing is both time-consuming and very complicated. When deciding how to finance your film, you must seriously consider all forms of financing, the reason being is that each producer’s situation is unique. The bottom line is that you get your message out.