What is a presale in film financing?
A is a deal to license a film to a distributor in a territory before the film exists. The distributor signs a contract committing to pay a minimum guarantee when the finished film is delivered, and the producer now holds a piece of paper that says money is coming.2
That paper is the beginning of most independent film financing. On its own it pays for nothing, because the distributor won't pay until delivery and the crew wants to be paid on Friday. So the producer takes the contract to a bank.1
I wrote a separate piece on how minimum guarantees work from the buyer's side of the table. This one follows the contract after the buyer signs it.
How does a bank lend against presales?
The bank lends less than the contracts are worth and gets repaid when the distributors pay on delivery. The Gotham, the New York film organization, gives the example of $1 million in presale contracts supporting a loan of about $800,000.1 A legal outline puts a $1 million MG closer to $850,000 after fees and interest.2 Either way, the discount pays the bank for waiting and for the risk that something goes wrong.
Banks are picky about which contracts count. The buyer has to make an unconditional promise to pay, and it has to be financially solid. A distributor who agrees only to "review and consider" the finished film has given the bank nothing to lend against.1 A contract from a shaky distributor may be valued at zero.2
The plumbing matters as much as the paper. Through an , each distributor agrees to pay the bank directly on delivery, and an ties the bank, the distributors and the producer together so everyone knows which account the money goes to. Many deals also use a , an independent company that receives the revenue and pays it out in the agreed order for a small fee.2
Nobody in this structure trusts anybody else, which is exactly why it works.
What is gap financing?
is a loan against the territories a film hasn't sold yet. After the presales, the tax credit and the equity are counted, there is usually a hole left in the budget. A gap lender fills it, using the estimated value of the unsold territories as collateral.2
That makes gap the riskiest loan in the stack. The lender sits in second position behind the senior bank lending against presales, and it charges significantly higher fees and rates to compensate.2 Its collateral is a forecast: the sales agent's , a spreadsheet of what the film should fetch in each remaining country.
Lenders protect themselves by demanding a cushion. The Gotham reports that a bank wants projected revenue from the unsold territories to be at least twice the size of the gap.1 One banker quoted by MovieMaker described wanting the loan covered 150 percent.3 In plain terms, to borrow $1 million against Spain, Brazil and Scandinavia, a producer needs a sales agent willing to say those countries are worth $1.5 to $2 million, and a bank willing to believe them.
The bank believes them about as much as you believe a real estate listing that calls a studio apartment "cozy."
How big can a gap loan be?
Smaller than most first-time producers hope. In a MovieMaker piece first published in 2014, a Comerica banker said the bank looked at films budgeted at $10 million or more and would gap finance up to 20 percent of a budget. Another source in the same piece advised producers to have 70 to 80 percent of the budget covered by verified presales before applying.3
The costs were real. The same banker described pricing at LIBOR plus one to two percent, a two percent fee and about $75,000 in legal costs, and estimated about $775,000 in combined interest and fees on a $10 million film.3 LIBOR has since been retired and rates have moved, so treat those figures as the shape of a deal and get current numbers from a lender.
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The tax credit slice in that picture is its own market, with its own discounts and brokers. I cover it in how film tax credits are sold.
Why does every lender want a completion bond?
Because presales only pay on delivery, and a film that runs out of money before it is finished delivers nothing. The bank usually requires a , a company that promises the film will be finished and delivered, and that will step in and cover overruns if it isn't. The guarantor only issues the bond if it believes the film can be made on budget.1 One source in the MovieMaker piece put the bond's cost at 3 to 6 percent of the budget.3
The bond turns a promise from a producer into a promise from an insurer, and banks lend against insurers. I wrote a full explainer on how completion bonds work, including what happens on the day the bond company takes over a production, which every producer should understand and none should experience.
Who loses money if the sales estimates are wrong?
The people at the bottom of the stack. The tax credit lender is repaid from the credit, the senior bank from the signed presales, and the gap lender from whatever the unsold territories eventually bring in. If those territories sell for less than the estimates, the gap lender still has priority over the equity investors, so the shortfall lands on the equity first.
Producers sit even further down if they deferred any of their fee. A deferred fee is usually repaid after the lenders, which means a producer can make a film that sells well, watch every bank get paid in full, and still be owed money. I explain how producers get paid, and why residuals aren't part of it, in do film producers get residuals.
This is why the sales estimates deserve more scrutiny than any other document in the package. Ask the sales agent which titles they used as comparables in each territory, and how recent those deals were. A good agent will tell you. An agent who won't is telling you something too.
Is gap financing a good idea?
Sometimes it is the only way a film gets made. Gap money is expensive, but it replaces equity that would be even more expensive, since equity investors usually expect their money back plus a premium and a share of profits.
The risk is that gap financing lets a film get made at a budget the market might not support. If the estimates were optimistic, the gap lender gets repaid slowly from whatever sells, and everyone below the lender waits. A film financed with gap is a bet that the sales agent was right about the countries that haven't said yes yet.
The safest gap loan is a small one, sitting on top of strong presales, with a sales agent whose estimates have a track record. Everything else is a negotiation about how much optimism the bank is willing to finance.
Questions people search
What is gap financing in film?
A loan against a film's unsold territories, used to fill the part of the budget not covered by presales, tax credits or equity.
How much of a film budget can be gap financed?
Usually a small portion. A Comerica banker quoted in 2014 said up to 20 percent of the budget, on films of $10 million or more.
What is a film presale?
A deal licensing a film to a distributor in a territory before it is made, with the distributor paying a minimum guarantee on delivery.
How much will a bank lend against a presale?
Less than face value. Examples range from about $800,000 to $850,000 for every $1 million in presale contracts, depending on the distributor's credit.
Why do film lenders require a completion bond?
Presales only pay when the finished film is delivered. The bond guarantees the film gets finished, so the bank can be confident the distributors will pay.
Who gets paid first in independent film financing?
Generally the lenders, in their agreed order, then equity investors, then deferred fees and profit participants. The interparty agreement sets the exact order.
- The Gotham, "Borrowing Against Pre-Sale Agreements." thegotham.org
- LexPlug, "Pre-Sales, Gap Financing, & Tax Incentives," entertainment law outline. lexplug.com
- Oliver W. Tuthill Jr., "Gap Financing: How Does It Work?" MovieMaker, November 5, 2014, updated January 6, 2025. moviemaker.com
I'm a producer and a former film acquisitions executive, not a lawyer or an accountant. Nothing here is legal, tax or financial advice. Before you sign anything, talk to an entertainment attorney.