Money for Nothing: The Gappetite of Lenders
It’s a great time to make movies. Gap is coming back into vogue and it costs virtually nothing. I received an offer for LIBOR + 150 bps: that’s a 1.75% interest rate on gap and pre-sales! That’s virtually free, in my book.
The gap market all but dried up last year (down from it’s ridiculous 40% three years ago.) Now, the gappetite of lenders is back up to a respectable 20% of budget (while the gappetite of producers still remains at 100%). Even the traditional gap/mezz lenders aren’t really lending more than 20%, but they are know trying to compete with the banks.
With rates like these, it’s almost irresponsible not to stock-up on a full 20% gap loan in your budget, thereby relieving some pressure from your equity. Then there are some cool tricks you can pre-negotiate into your loans that will really make your ROI sing. It’s always good to find ways to elevate your investors’ IRR (Internal Rate of Return), even if the cash-on-cash return doesn’t vary much. It makes everybody look good, for future borrowing.
So, what is the catalyst for this renewed gappetite? For starters, there is a small steady crop of dependable bankable sales agents; secondly, there are fewer movies being made (which increases the odds that unsold territories can be sold); thirdly, it’s a trust factor. If you’re going to be in the gap borrowing business, then you either need great relationships with the lenders, or find someone who can vet your numbers so the bank will trust you.
Lastly, once again, your finance plan has to be rock solid. Getting banks to lend millions of dollars against a single sheet of paper (the estimates) is a cross between a confidence game and a Hail Mary.
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