2 The bank loan
Banks do not invest in films. They lend money to film projects which enables the producer to cash flow their production.
Banks loans are backed up by collateral or security in the form of film assets, which are in the main pre-sales distribution contracts and in some jurisdictions tax incentives. But lending money to a film production is still a relatively risky activity.
Judith Chann, head of the media department at the UK private bank Coutts, outlines three important considerations when she is evaluating whether or not to lend money.
Before agreeing to provide a loan to a film project, Judith assesses the project on three levels.
Firstly, the reputation of the producer or their colleagues is extremely important. A producer with a ‘good track record’ gives the banker a certain amount of comfort or confidence in the project.
Secondly, the completion guarantee provides expert, third party reassurance that the production team is likely to deliver the project on time and to budget, and that if it all goes wrong, the guarantor will step in and complete the project. (In Week 6 you will meet the completion guarantor, James Shirras, Managing Director of Film Finances, and learn more about his role, and in particular the role his company has played in the history of the business of film in the UK.)
Finally, in the pre-sales contract, the distributor undertakes to repay the bank on delivery of the film. Much depends on whether the bank is persuaded that the distributor can and will pay back the money.