Why is My Investor Requiring an Independent Film Completion Bond?
Wondering why your investor has asked that you supply a completion bond before they’re willing to move forward with an agreement to invest in your independent film? Securing an independent film completion bond is something that might be requested of you as part of an investment agreement made between you and the other party. But is it really necessary?
What is a Completion Bond for Film?
An independent film completion bond represents a form of “insurance” for film investors which essentially protects a film acting as a financial guarantee which benefits the providers of film financing should the film fail to be completed on schedule.
Your investor might request that you have a completion bond in order for your film as part of their agreement to invest into your film production.
Investors expect that they will benefit financially from their investment into your production, if not right away, in the future. They realize that there are risks associated with the investment, but they also realize that some risks are best mitigated ahead of time.
Thus, investors sometimes request proof of an independent film completion bond before they will put up any financial investment into a project to ensure that, at bare minimum, they know the film will in fact be completed and in the event that it is not, they will have their investment returned to them.
Who is Named on the Film Completion Bond?
A film completion bond is initiated between multiple parties involved in the production of an independent film. Generally a three-party contract.
The completion bond is going to name the film production company, film financiers, and the completion guarantor. As the primary parties who are involved in the agreement.
The financiers become the loss payees or beneficiaries for the completion bond. But, what does all of this mean?
What are the Benefits of a Film Completion Bond for Investors?
Investors benefit from film completion bonds in a number of ways. When a producer can show a completion bond for the film that an investor is considering.
They are proving transparency and showing that they have thought ahead about the potential for any hurdles or concerns that an investor might have with a production.
The investor named on a completion bond will also have the following benefits:
- Guarantee that the film will be delivered on time.
- Guarantee that the film will be delivered on budget.
- Money back insurance coverage for investors should the production fail to be completed on-time, on-budget. Or for other reasons the investment is returned.
- Lower default rate on loans made to film productions.
Additional Funding
Investors that have the security of a completion bond feel that the project is better vetted and safer for them to consider their investment for.
This is huge for the producer, too. As the likelihood of an investor putting money towards a production that is backed by a completion bond is increased.
Thus, some film producers will use completion bond guarantees as a means of generating additional funding and trust from investors.
Benefits of Completion Bonds for Producers
As a film producer, the greatest benefit of a film completion bond is the fact that investors feel more inclined to invest in a project that is protected by a completion guarantee.
Additionally, independent film completion bonds also offer the benefit of helping producers to build trust among investors. While proving to investors that they are committed to finalizing a film production.
Film completion bonds make the process of acquiring investments a bit easier for producers. While adding an additional level of risk deterrent that makes the ease of transaction between investor and producer more prominent.
A Solid Structure
When an independent film completion bond is issued, the guarantor is saying that there is a high likelihood that the film will be completed both on-time and on-budget.
This essentially gives investors the idea that a film production project is well organized and a solid functioning business.
Likewise, if a producer has trouble securing a film completion bond. It screams to financiers that the production is not sound and that there are heightened risks that should be recognized before any consideration in investing.
Understanding the Completion Bond Process
Acquiring an independent film completion bond will provide protection for investors that are interested in putting up funds for a film. By providing a delivery guarantee, budget-guarantee, peace of mind that the production will be taken-over if required.
And that any loan excess costs that may be incurred will be covered. Should there be no completion, or should the film not be delivered as agreed. The completion bond will repay the film’s financiers in full.
Thus mitigating any risk associated with them investing into a project that does not get produced.
Acquiring a completion bond will require the following steps:
- The filmmaker must approach the broker to request the completion bond.
- The broker will request production documents and will review to ensure the script, budget, schedule, finance plan and details regarding key cast and crew members are in order and of sound mind.
- Upon checking documentation, the underwriting process begins in which the insurance coverage package is put together. The completion bond is issued at this time.
- Once the completion bond has been issued, the guarantor will monitor the production. To ensure that timelines for production are being met. The film is remaining on budget, and that there are no concerns arising.
- When the production has been finalized, delivery is initiated and upon successful delivery within the predisposed timeframe and on-budget, the completion bond comes to a close.
What if the Project is Going Over Budget?
The independent film completion bond guarantees that a production will be completed on-time and on-budget. So, what happens if during the monitoring of the production there is evidence to show that the project is going to go over budget?
The completion guarantor has the right to make a decision regarding the project budget. If they see that a project is likely to go over budget they can either provide additional funds. To ensure the completion and delivery of the bonded film or they can abandon the production.
In Summation
If the film is abandoned by the guarantor, the guarantor will repay spent investment funds as outlined in the original guarantee. Thus, the guarantor will typically cover over-budget expenses to a degree but the goal is to catch any risks ahead of time and mitigate them.
As you can see, an independent film completion bond protects the investment that is provided for the financing of your film production and mitigates many of the risks associated with the process.
This is why your investor is likely to ask for a film completion bond. In exchange for their investment into your project. It’s not foolproof, but it does provide added protection for the investor.
