Most gap loans only cover 10% to 25% of a film’s budget. That small piece is still often the difference between a film that gets made and one that stalls before it starts shooting. Tax credits, presales, and equity usually get a production most of the way to a full budget, and gap financing is often the last piece that closes the rest of the gap.
This guide explains how gap lenders work in film, what they usually ask for, and where gap financing fits next to the other pieces of a film’s budget.
What Is Gap Financing in Film
Gap financing is a loan backed by the value of a film’s unsold distribution rights, not by a signed deal. A sales agent looks at the territories that haven’t sold yet and puts a number on what they might be worth once the film is finished. A lender then loans against part of that number, usually 50% to 70% of the agent’s more conservative estimate.
Because the lender is loaning against a guess rather than a signed contract, gap loans usually only cover a small part of the budget, typically 10% to 25%. Going above that is sometimes called a supergap. This kind of loan also costs more than most other types of production financing.
A typical gap loan breaks down like this.
- Upfront fee
Usually 7% to 15% of the loan amount, charged when the loan closes. - Interest
Runs well above the prime rate for the length of the loan. - All-in cost
Adds up to roughly 15% to 22% of the amount borrowed over an 18-month loan term.
Film Gap Loan Explained
A film gap loan explained in plain terms is a loan that fills whatever is left after presales, equity, and tax credits fall short of the full budget. Producers choose this option so they don’t have to sell more of the film’s future earnings through additional presales, which would lower how much the film is worth once it does hit the market.
The higher cost comes from the risk the lender is taking. A lender backing a signed contract knows the money is coming. A gap lender is betting that a sales agent’s guess about unsold territories will turn out to be roughly right once the finished film reaches buyers.
How Gap Lenders Work in Film
To understand how gap lenders work in film, start with one simple check they run before approving anything. Lenders want the total value of a film’s sales, both the money already confirmed and the estimates on what’s left to sell, to add up to more than the loan itself, usually somewhere between 1.2 and 2 times the loan amount. Say a producer asks for a $750,000 gap loan. If $600,000 in presales is already confirmed and another $900,000 looks realistic from unsold territories, that’s $1.5 million in total value against a $750,000 loan. That’s a strong ratio, and the kind of deal a lender will approve.
Beyond that math, gap lenders usually ask for a few other things.
- A sales agent with a solid track record
Estimates only mean something if they come from someone the lender already trusts. - At least one or two confirmed presales
Without any sold territories, the lender has nothing real to compare the estimates against. - A completion bond
This guarantees someone will step in and finish the film if the production runs over budget or falls apart. - A minimum budget
Most gap lenders skip anything under roughly $2 million, since a small loan still takes the same amount of work to review and approve.
Independent Film Gap Financing
Independent film gap financing matters more for producers working without a studio behind them, since there’s no bigger company to absorb the loss if a film doesn’t do well. A producer who takes out a gap loan has to pay it back no matter how the film performs in theatres or online. That’s different from equity, where investors usually only get paid back if the film earns enough money.
This is also why gap financing usually comes near the end of the financing process. A producer typically locks in tax credits, presales, and enough equity first, so that the remaining gap is small enough to make the higher cost of a gap loan worth it.
Bridge Loan vs Gap Financing Film Structures
The bridge loan vs gap financing film comparison comes down to one simple question. What is the loan actually backed by?
- Bridge loan
Backed by money the production is already owed under a signed deal, like a tax credit that’s been approved or a distribution payment that’s confirmed. - Gap loan
Backed by a sales agent’s guess about what unsold territories could be worth later, once the film is finished and reaches the market.
That’s the difference between them. A bridge loan is backed by money that’s already locked in. A gap loan is backed by a bet on future sales. Since a signed deal is a safer bet than a guess, bridge loans usually cost less and move faster. If you want to see how bridge loans work in more detail, check out our guide on how to get funding for a film. Both loans fill the same kind of gap, just from different angles.
Film Financing Capital Stack Explained
A film financing capital stack explained in simple terms looks something like this.
- Tax credits and presales
Come first, since they’re backed by the strongest paperwork. - Senior debt
Comes next, also backed by that same paperwork. - Gap financing
Comes after that, backed by unsold territory value. - Equity
Fills whatever is left, and gets paid back last, after everything else.
Where gap financing sits in that lineup explains why it costs what it costs. It’s pricier than senior debt because the money behind it is less certain, but it still gets paid back before equity does. That’s why producers use it instead of selling off more of the film’s future earnings than they need to.
“The King’s Speech” is a well-known real-world example. It was made for $15 million and went on to earn more than $414 million worldwide. According to The Hollywood Reporter’s account of the production, the U.S. and other territories were sold to the Weinstein Company, which arranged gap funding through the Aegis Group to help close out the budget.
Frequently Asked Questions
What is gap financing in film production?
Gap financing is a loan backed by the guessed value of a film’s unsold distribution rights. It covers the difference between what a production has already secured and its total budget, based on a sales agent’s estimates rather than signed deals.
How do gap lenders decide how much to lend on a film?
Gap lenders usually loan 50% to 70% of a sales agent’s conservative estimate for each unsold territory. They also check that the total value of all sales, confirmed and estimated, is worth about 1.2 to 2 times the size of the loan.
What collateral do film gap lenders require?
The main thing backing the loan is the sales agent’s estimated value of unsold territories. Lenders also usually want a completion bond, at least one or two confirmed presales, and a sales agent with a track record they already trust.
What is the difference between gap financing and bridge financing in film?
Bridge financing is backed by money the production is already owed under a signed deal, like an approved tax credit or a confirmed distribution payment. Gap financing is backed by a sales agent’s guess about unsold territory value, which is riskier for the lender and usually costs more.
How does gap financing fit into the film capital stack?
Gap financing usually fills the space left after tax credits, presales, and senior debt are counted, and it gets paid back before equity investors do. It costs more than the debt ahead of it, but it’s still cheaper for a producer than giving up more of the film’s future earnings through extra presales.
Closing
Gap financing exists because even a well-planned film rarely closes its budget on the first try. Tax credits, presales, and equity get a production most of the way there, and gap financing is often what gets it the rest of the way without forcing a producer to give up more of the film’s future than they have to.
Stargazer works on the other side of that budget, putting cash against tax credits and signed distribution deals, the strongest paperwork a production usually has, for producers working in Canada and the U.S.
