Nicol Wistreich is the co-writer of The Film Finance Handbook: How To Fund Your Film. Who better to guide you through the minefield of movie financing? Nic writes here about where to find the finances for an independent UK feature...

Unless you're heir to a minor fortune or - like Jan Dunn, with festival hit Gypo, or Christopher Nolan with his first feature Following - are prepared to shoot on the lowest possible budget while maxing your credit cards, you're going to need to pull together funding from a number of sources.

Multi-Party Financing - which is how almost all independent features are funded – involves the subtle art of balancing the needs and investment of a range of different backers, unlike studio or single-party finance. Each backer has different needs and objectives, and will usually come in at different points in the financing process. The main sources of finance are detailed below.

Traditionally this means investment that doesn't need to be recouped, or at least not as aggressively as a normal investor. It includes areas such as tax incentives and public funds.

The main national sources of public money for feature films are the UK Film Council's New Cinema and Premiere Funds. The Premiere Fund, run by Sally Caplan, supports work with commercial potential and has £8m a year to invest up to 35% of a film's budget. The New Cinema Fund, run by Lenny Crooks and focused on new talent and innovative or risky projects, has funded 50 films with 15-50% of their budget. In addition, like most screen agencies in the UK, the Film Council supports script development, distribution and short film production.

The three national screen agencies and some regional English screen agencies offer feature film investment to support films shot in the region or produced by local companies. Scottish Screen has £1.5m a year for investing in features that have "a benefit for Scotland", while the new Film Agency for Wales is committed to investing in two-three low budget features a year. Northern Ireland Film & TV Commission will put in up to £600,000, or 35% of projects that have a "strong cultural relevance" to the area.

Elsewhere in the UK, the North West Vision + Media's Merseyside Production Fund offers up to £250,000 and 25% for local productions. Screen West Midlands offers the lesser of £300,000 and 25%. For the East Midlands, EM Media invests £250,000 and up to 50% of costs. Screen Yorkshire's Production Fund puts in up to £250,000 but no more than 5% of budget, with greater investments through Warp Films. Warp is a commercial entity co-funded with EM Media, the Film Council, Optimum Releasing and FilmFour and fully finances digital features with budgets typically between £400,000 and £800,000. Also providing 100% funding is the new Film London £100,000-a-feature Microwave, which is backed by the BBC and Skillset.

Screen East's Content Investment Fund is similar to a conventional private film financier, with £2m available until 2008 for 10-40% of budget in return for a share of profits and copyright.

The other main form of soft money is tax incentives, created by governments to encourage the production of local films by offering usually 10-20% of the budget as a tax rebate or credit. The main incentive in the UK is the new 20% tax relief. The system is quite complicated (it takes up 14 pages in the Film Finance Handbook) but in short, for films under £20m intended for theatrical release that qualify (meet sufficient 'cultural criteria' to be classified British) up to 20% of production costs spent in the UK is available (16% for films over £20m). As the money is paid to the producer on completion of the film, once the cost of borrowing the incentive at the start of production and legal fees are included, the amount is closer to 15-17%.

An equity investor effectively buys part of the film, and will get their investment recouped, a share in the profits, and often some of the copyright as well. Such an investor will normally take 50-60% of profits, proportional to how much of the budget they put in (ie 25-30% if they provide half of the budget). Equity investors can range from a number of individuals to a single institutional investor acting on behalf of a fund. Coupled with tax incentives, such private financiers often put up over half the budget, and have backed many recent hits, from Hot Fuzz to The Constant Gardener and even studio titles such as The Da Vinci Code. They include Aurelius, Baker Street, Ingenius Film & TV, Invicta Capital, Scotts Atlantic, Movision, Prescience Film Finance and Scion Films.

The Enterprise Investment Scheme (EIS) provides tax relief to smaller investors and is often used on lower budget features with a number of smaller investors. Investors in a qualifying film can deduct an amount equal to 20% of the investment from their tax bill – with the costs of setting up the required Public Limited Company and managing the share offering between £30,000 and £60,000.

The rights to distribute a film in a territory (ie North America or France) and/or platform (ie theatrical, DVD or TV) may be sold to a distributor ahead of the film's completion. A distributor, after figuring out how much they think the film will earn ('sales estimates') will then offer a 'minimum guarantee' which is a lump sum that can fund production. However, this money is rarely provided until the film is complete and delivered at a sufficient quality, so a producer may need to get a bank to loan against the distribution contract in a process known as discounting.

To get the bank's agreement, in turn, the producer will typically need to appoint a completion bond company who, in return for up to 10% of the budget, will guarantee – by taking over the production if necessary - that the film is completed on time to a sufficient standard.

Gap financing, sometimes known as bank finance, is the final piece of the jigsaw. Supposing a budget has been put together with 25% from a screen agency, 15% from tax relief, 30% from private investors and 20% from presales - the remaining 10% is something a bank may provide. Banks take the safest position, coming in last, and recouping their money before anyone else. On top of this they typically charge a gap fee of 8-9%, as well as base rate interest, and the producer will normally need to cover the legal costs of the deal. However, they will not take any equity in the project.

There's arguably as many ways to raise a budget as there are films to be made, ranging from the self sacrificing (Robert Rodriguez underwent medical tests to raise the budget for El Mariachi) to the bizarre - Rocliffe Films raised the budget (and considerable press interest) to their short No Deposit, No Return - pictured at the top of the page - by soliciting contributions from sperm donors.

Here are some other, less drastic, ways of seeking alternate film financing...

Co-productions bring together the resources, skills and, sometimes, cash of two or more producers. Where this takes place across a number of countries it's possible for the film to access soft money (public grants and tax incentives) in each territory, if both countries have co-production treaties with each other. The UK has co-production treaties with most of Europe (through the European Convention) as well as Australia, Canada, India, New Zealand and South Africa.

A common practice where fees and costs are deferred until the film begins to make money are a common way to reduce the budget. They form part of the finance plan in so far as they are recouped at the same time everyone else is getting paid at the end of the film. While horror stories abound about producers and directors not getting their deferred fee back even when a film makes a sizable profit, the system allows producers to hire A-list actors and directors at far below their normal rate.

Sponsorship - where a company invests in return for logo exposure outside of the film - and product placement, where a company puts money in return for exposure of their product within the film, is increasingly common, especially with the rise of free online video. Director Rankin's Lives Of The Saints was funded with £1m from an Italian jeans company who asked that the characters in the film wear their clothes.

This cutting edge method raises finance from hundreds of thousands of micro-investors, who often put in no more than the cost of a DVD, and who may get a screen credit or copy of the film in return. onedotzero founder Matt Hanson's Swarm Of Angels is raising £1m from 50,000 'angels', while in the US producer Jim Gilliam raised almost $300,000 from 3,000 individuals to fund Robert Greenwald's Iraq For Sale after sending out a number of emails.

The third edition of The Film Finance Handbook: How To Fund Your Film is out now, priced £24.99.

Nicol Wistreich | Published 12 July 07

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