What’s the Difference Between Gap Financing vs Mezzanine for Film?
Different types of financing exist to support filmmakers in their efforts to establish independent routes of financial coverage and investments into their productions. Raising capital for a film project typically involves working with, or asking for investments from, a film investor or from others. If you’re a filmmaker that’s just looking into film capital? You’re probably wondering. What’s the difference between gap financing vs mezzanine for film?
When we talk about film financing, the terms gap financing and mezzanine financing frequently come up and may be used interchangeably. Gap financing or super gap financing are both forms of mezzanine debt financing. But what does all of this mean?
What is Gap Financing?
Gap financing is a form of mezzanine debt financing. It represents a form of film financing. One in which the producer backs the film finance package with a secured loan against any unsold territories or rights to the film.
Depending on the investor. You might have a gap financier that will only lend to a film against a particular value of unsold foreign rights.
In deciding the value, a number of factors are considered. Including the quality of the script, who the producer is, who is directing the film, and whether there is theatrical distribution from a major film studio in the U.S.
What is Mezzanine Financing?
Mezzanine financing is the same thing as “gap” financing. The term essentially means “closing the gap” in a film finance package. By declaring a low-risk investment that is not backed by huge returns. This is a conservative form of film financing that is frequently chosen by producers.
Essentially, a producer might get a single equity investor to invest a smallish amount into their production. Such as $1M. But let’s consider that they hypothetically need $2.25M to close the deal.
The producer might find another finance option. Which will provide up to another $1M. But then he will then seek gap financing or Mezzanine financing to fill the gap of $250K to seal the deal.
How is Gap Financing or a Mezzanine Loan Paid Back?
Gap financing, or mezzanine loans are recuperated generally following the recoupment of the first production loan. Once the first production loan has been recuperated then the gap financing is next in line to be paid.
Essentially, in the hierarchy of paying back film financing loans? Gap financing is secondary to the first production loan.
Gap, super gap, and mezzanine financing is recuperated before any equity financing is paid back. Thus, gap financing provides a high risk, high reward investment option.
One that film producers can entertain as a means of establishing the appropriate funding necessary to produce their film and entertain a distribution deal.
What’s the difference between gap financing vs mezzanine for films?
They’re really the same thing. Mezzanine is a term to describe debt financing. In which an investor fills the gap between equity financing packages as a means of lending against a secure, unsold value of foreign rights to a film.
Before you consider any financing package for your production, make sure that you entertain all options available to you. And that you take the necessary steps to ensure the most suitable agreement between your team and your investor.