How to Secure Film Financing: An Overview for Indie Filmmakers

John Hadity
John Hadity Member Posts: 20
edited June 3 in Producers

From choosing the right funding source to setting up LLCs and agreements, learn about the financing timeline and essential steps to structure your strategy effectively.

Securing film financing is a complex process. First, you must figure out how to fund your project, sort out how to structure your legal business entity, file the paperwork needed to bring it to life, and put legal agreements in place to minimize your risk—and then hire writers, directors, talent, and crew. It can be a lot to manage, especially if you are new to the process.

Whether you need a refresher, or guidance on how to get started, you’ve come to the right place! This post provides a high-level overview of each step of the film financing process, along with things to consider as you make important business decisions along the way.

Choosing the right funding source

There are many ways to fund a project, and it’s not unusual for a producer to combine multiple funding sources on a single film.

Here are six common funding options (and a few pros and cons associated with each):

  1. Personal funding is exactly what it sounds like: funding a project with your own money, contributions from family and friends, or both. While this is technically the easiest and most predictable way to finance a project, it's rare to see personal funding be the sole capital used to carry out a project.
  2. Crowdfunding involves collecting small amounts of money from a large number of people, typically via online platforms (Kickstarter, Spark&Seed, etc). One big benefit of crowdfunding is there are very few strings attached to how you can spend contributions. Thanks to minimal complexity, this can be a great choice for producers who are new to film financing. Among the cons, there’s no guarantee you’ll reach your goal with this method. If you’re intrigued, check out this post on the ins and outs of crowdfunding.
  3. Grants and film funds are financial awards given to filmmakers by government agencies, non-profit organizations, film institutes, or private foundations. These funds are typically non-repayable and are awarded to projects that meet specific criteria (e.g., artistic merit, social impact, or cultural significance). With grants, the barrier to entry can be high—starting with the lengthy, involved application process. Grants also typically require producers to meet strict eligibility criteria—and competition can be fierce.
  4. Tax incentives and rebates are financial incentives offered by governments at national, state, or local levels to encourage film production in a particular region. Incentives typically include tax credits, rebates, or grants for qualifying production expenses incurred within the jurisdiction and generally allow productions to recoup a certain percentage of eligible costs. When used wisely, a good incentive program can dramatically reduce production costs and help you stretch your budget further. The eligibility criteria and application process can be complicated, and programs are subject to change, so it’s wise to work with incentives experts to achieve the best results. Learn more about grants, film funds, and rebates in The Beginner’s Guide to Soft Money Financing.
  5. Equity funding involves bringing investors (often executive producers or production companies) in on your project as stakeholders or shareholders. In exchange for funding a portion of your film, these investors receive a partial ownership stake, a share of profits, or both. On the plus side, smart partnerships can bring unique expertise, creative direction, connections with other industry experts, and access to larger sums of money to the table. In exchange, you lose some creative control and are obligated to provide returns on each contributor’s investment, which can be risky.
  6. Production-Financing Distribution Agreements are unique in that you sell distribution rights for a film before it’s produced or completed in exchange for up-front financing. In these deals, a studio or mini-major will fund your project in exchange for exclusive rights to sell your film for a set number of years. While these deals can help validate market interest, the cost can be high as the issuer often obtains substantial control over the production. It can be hard for niche projects to secure these types of deals since their success relies on a reliable market response to the content.

Financing timeline: From action to wrap

As you plan out your production timeline, it’s important to know which critical steps of the production process need to be initiated at various stages of financing.

Specifically, you need to know:

  • When to set up an LLC
  • When to apply for incentives (if applicable)
  • When to engage talent (writers, directors, producers, cast)
  • When it’s safe to dissolve the production entity

Independent producers should set up an LLC after a handful of major production decisions have been made (e.g., how the project will be funded, whether or not incentives will play a starring or supporting role) but before initiating any legal agreements with others involved in filming. It’s important to understand the pros and cons of various LLC structures and to learn how to identify which option is right for you. The answer is dependent on a wide variety of factors covered in this post, which walks you through the process.

There are a few reasons it’s best to decide if you want to leverage incentives early in the production process. First, you need to make sure you have the appropriate legal entity set up. International incentive programs often require that you establish a local LLC, which can take some time. You also need to ensure that your production will be able to meet all of the incentive program’s eligibility criteria. For example, some jurisdictions require that you hire a certain percentage of your staff from local talent pools. Some programs also have specific application windows, which can throw off your film schedule if you’re not ahead of the game—especially if you’re applying for national, state, and local credits.

You can start engaging talent after you set up your LLC and decide whether to use incentives. It’s fine to talk with individuals you’re interested in hiring or working with, but from a liability standpoint, it’s best not to enter into any binding contracts before you complete these two steps.

As you move through these steps, it’s also important to implement key legal documents designed to set expectations and provide legal protection to all parties involved in the project.

Protect your production: Important agreements to initiate early

It’s not the most exciting part of the job, but it is important to remember that a lot of administrative work is involved in running a production. It’s even more important to build and execute agreements in a way that ensures your creative and financial interests will be protected—a job that requires having access to proper legal counsel. Key agreements for everyone involved in your production:

Operating Agreement: This key component of your LLC is a legal document that outlines the ownership and operating procedures of your limited liability company. This document helps establish company processes and governs how your business will be run. It includes information on how decisions are made, disputes are handled, profits are distributed, and more.

Production Services Agreement: This agreement between the producer and various crew members and vendors outlines the services to be provided, compensation, and other contract terms. It's typically implemented before production begins and is crucial when hiring crew and securing services.

Location Agreement: If any filming will take place on private property, a location agreement is necessary to secure permission from the property owner. This agreement should be in place before filming begins at any privately owned location.

Distribution Agreement: This agreement outlines the terms under which the finished film will be distributed to audiences. It's typically negotiated after the film is completed but before it is released.

Music Licensing Agreement: Producers must get permission from rights holders in the form of a music licensing agreement before using any copyrighted music in their film.

Neglecting to put any of these important agreements in place can make you vulnerable to lawsuits. It’s best to hire an entertainment lawyer as you plan your production to make sure you minimize the risk of potential litigation.

Should you dissolve a production LLC?

As the entity responsible for setting foundational rules and guidelines, defining rights and profit sharing, and even paying residuals once a film has made its way out into the world—your LLC plays a huge role in managing a project from start to finish. It’s basically the ‘mission control’ of your production. So, when is it okay to dissolve an LLC?

It’s typically best to keep a production LLC active until two criteria have been met:

  1. The film being represented by the LLC is not likely to generate further revenue
  2. Any potential liabilities are no longer a concern based on the statute of limitations

Once it’s safe to dissolve or ‘dissolute’ your LLC, you can do so in several steps:

  • Review the LLC’s operating agreement to see if there’s a defined dissolution process. If not, you can turn to legal statutes in the state where your LLC was formed for guidance. For example, in California, a majority member vote can trigger an LLC dissolution.
  • Notify members of the LLC, including all investors. It’s best practice to provide a reasonable window between notification and dissolution to give any individuals who want to speak with a manager time to do so.
  • ‘Wind up’ the LLC. Owners must pay any liabilities and distribute assets to LLC members as defined in the operating agreement—including any profits made from the sale of the film.
  • Take a look at tax obligations. Some states require LLCs to file a final tax return before dissolution; others do not. It’s best to consult a CPA to determine the right option for you.
  • Finally, managers must complete a Certificate of Cancellation. This legal document must be filed with the Secretary of State in the state where the LLC was created.

If there’s a chance a film could produce future revenue, management can appoint a custodian to distribute said money to entitled individuals.

Best practice: Take smart steps to maximize your budget

If sorting out which LLC structure to use, which incentive program to pursue, or what legal agreements to put in place makes you feel a little anxious—you’re not alone. Entertainment Partners has helped tens of thousands of productions navigate the complex world of film financing, production tax and payroll, incentives, legal matters, and more. Our team of experts would love to help you with your next project. When you’re ready to explore ways to fund your film, optimize your budget, and minimize your personal risk, get in touch with our team!

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