Picking up from An Evening With Lew Horwitz, Part 3, let’s continue our discussion by talking about completion bonds and banks.
It’s easy to get bonds confused with insurance because sometimes there appears to be little difference between them, so here’s a quick explanation of what they do. They both provide coverage for financial risk or loss, however, bonds usually cover the performance of a specific project, service, or act. Whereas insurance usually covers financial risk to a tangible item such as a house, boat, or car. There are exceptions to this rule of course, such as errors and omissions (E&O) insurance, which is more like a bond because it provides financial protection for acts performed or not performed.
Film production completion bonds guarantee delivery of the completed film. They guarantee that the film will be in a technically perfect condition, on budget, and on time. Banks always require that independently financed films have a completion bond. This protects their interests because it guarantees that in the end there will be a product to distribute.
Lew gave us the names of three film completion bond companies:
Lew insists that you should never produce a film without a bond. He says that bonds not only protect the bank, but they also protect you. However, if you’re a first-time producer, you’ll need to convince the bonding company that you know what you’re doing.
Bonds usually run about 3% of the budget, but might be more for a first-time producer.
So where do you find banks that will loan you money against distribution contracts? Well, Lew recommended the International Film and Television Alliance. Their membership includes bankers as well as sales agents. You’ll want to ask for a membership booklet from them.
It’s a good idea to get to know bankers ahead of time. Here are some tips from Lew for getting aquainted with a banker:
- Be sure to approach the banker professionally.
- Talk about your project.
- Never predict what your film is going to make.
- Ask what he or she needs.
- Which sales agents do they like?
- What type of films do they like?
When you’re ready to ask for a loan from your banker, don’t approach them without a sales agent. Be sure you have all your details together such as start date, bond, and chain of title. Also, be sure to give them enough time. Deals can take anywhere from two to three months, even up to six months. So don’t go to the bank and tell them your shooting in two weeks and will need the money by then. You won’t get it.
Keep in mind that bankers will not take all contracts. Who you sell to is very important. Only reputable distributors will be accepted by the bank.
This is turning into quite a lengthy series of blogs, but I should have the series wrapped in one or two more blog posts. Next, I’ll talk about the three components of film financing and the real budget.