How to Secure 20% or More of Your Budget Before Filming Even Begins

Filmmaking is a craft that demands creators use all the resources they have at their disposal. And when it comes to building a budget, tax incentives could be the difference between shooting in your hometown or a production hotspot like Atlanta. 

In conversation with Cast & Crew vice president of sales John Cooke, Adrian Ward, president of Cast & Crew Financial Services, shares insights on how filmmakers can best leverage tax incentives and make sure investors are interested in their project. 

What are the key elements producers should focus on to make their project more attractive to potential investors?

Investors are looking for a return on their investment. One of the key strategies for that is to mitigate risk. [Producers should] start by looking for getting bang for their buck when it comes to paying for talent and all the other elements. A lot of that strategy is also through the financing model that they’re going to use.

[Producers will] utilize pre-sales of distribution rights to validate the film in the marketplace, and they’ll also use tax incentives, which is basically money to the bottom line of the movie that’s non-recoupable. It’s a great way to have 20–30% of your budget already taken care of before you’ve even gone into production.

What are the factors a producer should consider when trying to decide on a tax incentive jurisdiction, or what state to film in?

I think the first-and-foremost [consideration] is having the right location for the film creatively. Assuming that’s taken care of, then it’s: What are the demands of the financing, and what can the tax credit location provide?

If you have a larger above-the-line expenditure, then there are tax credits that can accommodate some of that. Otherwise, it could be a film that needs more in postproduction or special effects, and there are definitely programs that lean into that a little bit more as well.

You don’t want to film a story about New York City in New Mexico. 

Exactly.

How can producers leverage these tax incentives to secure their financing given that the incentives are usually paid out far after production wraps?

These days, most producers will have a relationship with a lender who will monetize that tax incentive upfront in a project. So it’s part of the initial financing. The factors that go into that are based on the type of credit—whether it’s a rebate or a transferable credit—and the requirements of the lender.

It’s really something that should be a conversation early on in the process, to make sure the lender is OK with that jurisdiction. There have been legislative changes over the years, and lenders may know of better jurisdictions. There are always new [programs emerging] from different countries or states.

That’s sort of the point of the loan in the first place: to get money upfront into the producer’s hands to get the film made, knowing it’ll be a long time before they see that money from the state. 

The other consideration that producers need to take into account is that lenders are looking at it from not only the size of the tax credit, but the timeline for repayment. Some tax credits take longer than others, and you have to allow for that in the financing costs.

I’m assuming that some films have more than one tax incentive. Depending on where they’re filming, they may have a regional tax credit as well as a state credit, which I’m sure will be on different timelines.

Yes, absolutely. A lot of producers will mix and match different credits. Then you get into the world of co-productions where several countries are involved. It can get quite complicated.

How do lenders determine the amount of the loan they’re willing to provide, especially when they might not offer the full value of the tax credit?

Rarely will they offer the full value. They will discount based on a few factors, starting with the track record of that jurisdiction, in terms of what it’s done historically. Has it paid mostly according to the estimate? Has it paid mostly according to the timeline? 

Most lenders will loan 90–95% of the gross tax credit amount, and there’s usually an opinion letter from a neutral third party that validates that amount. [Regarding repayment timelines,] if there’s strong documentation or a guarantee, they may lend more against the tax credit.

What’s the typical timeline for getting the tax credit back from the state?

It really varies by jurisdiction, especially between different countries. But from the time you submit your audit work or files to the jurisdiction, it’s usually somewhere between six and 18 months.

This interview has been edited for clarity and length. Watch the full conversation here:

Presented in partnership with our parent company, Cast & Crew.