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NEWSLETTER: THE FILM ENTREPRENEUR New Financing Sources - Maybe Spring 2000 1. Small Business Administration Excitement ran through the indie film community, when the Los Angeles district office of the Small Business Administration (SBA) announced a first: it was making a guarantee to back a bank loan to Producers Mychal Wilson and Eugene "Geno" Taylor for their film Gristle. The film is a humorous look at racial labeling geared to appeal to a wide, crossover audience. A federal law dating to the 1930s, which was changed in 1994, originally had prohibited SBA-backed loans to "opinion molders" such as newspapers, radio stations and even greeting card companies. The change, however, didn't make the SBA pay much attention. Although media reports have said that filmmakers weren't interested, TFE's experience has been that they have tried, but it was the SBA that wasn't interested. Here's the catch: collateral always has been a major problem. Indie filmmakers, as a rule, don't have any. SBA loans have always been made based on the soundness of a business plan and existence of collateral. It is true that Wilson and Taylor had to be incredibly persistent to get this loan. But Taylor is also the owner of a beauty supply business and several pieces of property, one of which serves as collateral for 25% of the loan. The filmmakers are not announcing their budget (nothing new there). The SBA guarantees a loan, but banks (in this case, Moreno Valley-based Valley Bank) must agree to make them. The bank made it clear to the press that they are not looking to be major funders. The filmmakers had the credit and character (i.e., other business people who vouch for you) to meet their standards. 2. Export-Import Bank The Export-Import Bank Of The United States (Ex-Im) has agreed to furnish American Film Market (AFMA) members (producers and lenders) with film production loan guarantees. The agreement is innovative in that it guarantees the production loan and not the individual distributor contracts that make up the loan collateral, thus protecting lenders and producers against the vagaries of foreign economies and buyers. The production loan guarantees are specifically designed for independent films with budgets from $1M-$15M, although higher budgets may be considered, subject to greater scrutiny given to producer and talent fee deferments. The model, designed by Ex-Im Bank and Lewis P. Horwitz, president of The Lewis Horwitz Organization, vice chairman of AFMA and chairman of its banking committee, calls for bank lending using foreign pre-sales contracts as security. The guarantee can cover up to 90% of the loan amount. The loan must be secured by a loan from a reputable and experienced lender and the assignment of all intellectual property rights related to the film and screenplay in all media. A completion bond is also required. Gap financing may be used, but is not covered by the guarantee. Ex-Im Bank has set a projected minimum of $100M during the first year of the program, which begins in May. The Ex-Im Bank will charge a flat guarantee fee of just 1%, split with the lender for the life of the loan. AFMA hopes to increase the number of films produced and to offer financial enticement that could stanch the flow of independent production to Canada and other incentive-heavy territories. At least 50% of a movie's production cost must be U.S.-based to qualify for the program. Although Jackie M. Clegg, COO of Ex-Im Bank, indicated that there would be no strings attached to film content, some in the film community voiced disbelief. Concern is that the loan guarantees will come with conditions, such as scripts with anti-drug messages or the insistence on a racially diverse film crew. But Andrew Stevens, President and CEO of Franchise Pictures, who was on the dais for the announcement, on one hand said that there was not enough incentive to keep him from filming in Canada, but, on the other hand, said that he wasn't concerned about the government and the program was a viable opportunity. In general, it appears that for the average reader of this publication to make use of the Ex-Im Bank program, you had better get friendly with an AFMA member. We agree with Stevens in principle. Anything that furthers the economic health of independent film is a good thing. Nothing in this life comes without strings attached. Even if you have a rich uncle who loves your film, he is likely to negotiate a deal that has conditions to which you have to agree before getting the money.
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