Gap Financing
Loans secured against unsold distribution rights to fill budget gaps in film financing.
Definition
Gap financing provides funds against the estimated value of unsold distribution rights. When a film has pre-sold certain territories but needs to fill a budget "gap," lenders provide capital secured by the expected value of remaining rights.
Gap financing is riskier than lending against firm pre-sales, so it carries higher interest rates and typically covers only a portion of unsold value. Lenders analyze comparable sales to estimate eventual revenue.
Why It Matters
Gap financing enables independent productions to complete budgets without selling all rights upfront. It allows producers to retain some territories for better deals after the film is completed.
Understanding gap financing is crucial for producers structuring complex independent film finance.
Examples in Practice
A film with $8 million in pre-sales using $2 million in gap financing to reach its $10 million budget.
Gap lenders requiring a minimum amount of firm pre-sales before providing their portion of financing.
A sales agent's track record influencing the gap percentage lenders will accept for their films.