Short Post on Hard Costs
Just to set the record straight from previous comments about one of the main reasons entertainment banks ignore film budgets under 10m.
The traditional finance model (via senior banks and mezz lenders) does not willingly service films with budgets under $10m because there are numerous hard costs that (as a percentage of budget) cannot be reasonably sustained by low budgets.
It’s important to remember that each of the financing parties in a film are going to require the production to cover their legal expenses as well as a deposit before they even start the closing, in case you don’t close.
This being the case, expecting a production to pay $125k in legal fees for the pre-sale and gap loan is not unthinkable, which is in addition to:
- $80k for the equity deal
- $20k for the tax credit loan
- $25k – $50k to represent the producer for all of these deals
(side note: make sure you tell your attorney to make that a package deal which includes production legal if your attorney is competent in both or at a firm that handles each, production and finance).
That’s $275k in sunk costs, all billed to the production, and you haven’t even shot a frame of film. That’s 3% of a $10m budget, which isn’t great, but it’s bearable. But, when your legal costs reach parity with your 10% contingency (on any budget under 3m), that’s a problem — and that’s a big chunk of your budget that never makes it to the screen.
The exception to the $10m rule for banks is if they’re servicing an important relationship (like a producer of larger budget movies who decides to do a documentary.)
The current budgeting software that I know of won’t tell you the mistakes you’ve made and it certainly won’t remind the producer of the hard costs possibly over-looked, which in turn causes your budget to lose credibility with financiers and the bond company.