Film Accounting Glossary
Gap financing
What is gap financing?
Also called gap, or gap loan.
Gap financing is a loan that covers the part of a budget not already backed by presales or incentives, secured against the unsold territories' estimated future value.
Lenders typically require the remaining sales estimates to cover the loan by a comfortable multiple, and they charge accordingly. Gap is the most expensive money in a typical independent capital stack after equity, and its fees and interest belong in the budget.
Example
With $3.2M of presales against an $8.4M budget, the show borrows $900,000 secured on unsold territories that the sales agent estimates at $2.7M. Lenders typically want that cover at a multiple of the loan, and price the risk accordingly.
Figures are illustrative, chosen to show the mechanics rather than to quote market rates.
Where you'll see it
The last and most expensive debt in an independent capital stack, with its fees and interest budgeted as a cost of the picture.
Common mistake
Assuming unsold territories support a loan at their estimated value. Lenders want cover at a multiple of the loan, so $2.7M of estimates does not fund $2.7M.
Related questions
- What is gap financing in film?
- A loan covering the part of a budget not backed by presales or incentives, secured against the estimated value of territories that have not been sold.
- How expensive is gap financing?
- It is typically the most expensive debt in an independent stack, priced for the risk that the unsold territories underperform their estimates.