Funding Sources for Films
Funding Sources for Films
Equity Market/IPO Route
Many production companies float their company shares in the stock market to raise capital for the projects. UTV, Mukta Arts and Balaji Telefilms are good examples under this category.
Until the late 1990’s the film industry was not even recognized as an industry. It was only after film-making was granted industry status that banks were willing to finance films.
The Reserve Bank of India (RBI) issued broad guidelines to commercial banks regarding financing for film production in May 2001. The basic objective of the banks involved in film financing is to fund production of feature films as defined under the Cinematography Rules, 1983. Advertisement films, short films, documentaries, etc. are not eligible for obtaining finances from banks. For a film production to be eligible for finances from banks, it should be a corporate entity promoted by reputed producers, backed by established directors and other technicians, all of whom should possess satisfactory track records. In case the entity is newly corporatized, the track record of its promoters is considered.
As of now, the bank is obliged to assist the entity for financing not less than two cores rupees and not exceeding 50% of the film’s estimated cost. After the bank disburses the loan amount, the production house has to repay the amount within a period not exceeding two years.
The schedule of repayment, however, differs from case to case and considers the following two factors.
- The timing and quantum of sale proceeds from distribution agreements/music rights
- Expected streams of cash inflows
Les us now look at the condition tat a producer needs to fulfill to procure finances from any bank.
- Letter form film processing laboratory conveying rights on the negatives of the film in favor of the lending bank
- Assignment of all agreements and Intellectual Property Rights (IPRs) in favor of the lending bank, which will have the right to negotiate valuation of all IPRs.
- Maintenance of Trust and Retention Account (TRA) for all capital and revenue inflows and outflows. The terms should highlight that receivables on sale of all IPRs shall be credited to TRA. The modalities of TRA will be worked out to the satisfaction of the lending bank. The production house also needs to give the bank a No Objection Certificate (NOC) form all concerned parties for the TRA agreement.
- First hypothecation charges on all the tangible movables assets under the project
- Personal guarantees of the producers
- Assignment of existing rights like music, videos internet, CD, DVD rights, library of old hit films, etc. to the lending bank.
- Comprehensive insurance fro the film. The borrower is required to obtain completion bond guarantee from insurance agencies. Until the guarantee is made available, the risk in this regard will need to be mitigated suitably to the satisfaction of lending bank.
Procedure for Bank Sanction
Before granting finance for a film production the lending bank submits the complete application to an Advisory Committee for screening the proposal. Some times the bank may refer the proposal to a group of experts for guidance and advice. The borrower will enter into an agreement with the bank, after it has conveyed its acceptance of the terms and conditions fo sanction communicated by bank.
The disbursement expenses incurred during the pre-shooting stage are met from the promoters contribution. The bank disburses funds only during the shooting and post shooting stages. The amount disbursed usually depends on the film’s total budget, its progress and various terms and conditions of the letter of sanction.
When a producer or production house enters into an agreement with a bank the latter has the right to appoint specialized agencies for monitoring the timely shooting or processing of the film and assessing if the expenditure incurred is reasonable.
By S3 Cine Production Google Profile