INVESTOR PROTECTION PROGRAM
1:1 LOANS
One of the primary functions of a film producer or project owner is to raise the capital to produce the project. But while raising capital, have you ever had it happen that investors were incredibly excited during the concept stage.... only to find that when it came time to actually write a check they suddenly had tremendous doubts about the viability of the project?
Or as a Project Investor, have you been pitched projects that seemed "can't miss", but when you take a second look you have an uneasy feeling about parting with your capital?
FundingNet's "Investor Protection Program” has been designed to bridge this gap between Project Owners Project Investors. We accomplish this by making sure that the Investor's money is fully protected at all times, while simultaneously financing 100% of the Project budget using our own funds. Through this program FundingNet shoulders 100% of the Risk, so all stakeholding parties can rest easy and get to work on the project.
FundingNet has two versions of the Investor Protection Program - one for loans where the client's initial funds are under $10M, and a much more exciting version where the client's initial funds are in excess of $10M.
SAFEGUARD YOUR CAPITAL
Through the “Investor Protection Program”, the Investor is able to keep his funds under his own custodial care, while FundingNet finances the Project at a 1-1 Ratio.
If, for example, the Investor was committed to infuse $5M into the Project, his funds would always be safely parked on the sidelines, fully Bonded and earning interest, and FundingNet would provide the project a matching $5M until such time as the Investor is ready to "swap us out".
For loans where the amount being protected is less than $10M, the investor's funds will be required to remain in safekeeping until the loan is repaid or otherwise settled (to a maximum time requirement of 60 months). For loans where the amount being protected is $10M or more, there are options to be able to allow the investor to move their funds back to their original position in 60-360 days (depending on the risk profile of the project).
SECURING YOUR FUNDS:
For projects over $10M, there are a number options of how to position funds in safekeeping. Please see the "Multiples Program" tab above where there is a full explanation of this process (under "Financial Safekeeping" on that page).
If your project is under $10M, the same options are available EXCEPT the SBLC option. Our bankers are currently not able to process SBLCs or BGs of less than $10M, so that is the only option listed above that can only be used for projects $10M or higher.
Regardless of which Safekeeping Option that you exercise, your capital will always be fully guaranteed at all times, and earning a 5% annual return (which is applied to the outstanding balance of the loan)
SECURING OF QUALIFYING CAPITAL
All funds in this program are held under coverage of a Performance Bond (except for funds held in a lawyer's escrow), which will pay the project's initial funder a 5% per year interest rate for the entire time that the funds remain Bonded. The Custodial Bank involved (determined by which of the Safekeeping Options is being used) will provide a “custodial guarantee” on the value of the initial funds amount for the full time that the funds are in place and Bonded. The interest to be paid (as well as the initial amount) is further guaranteed by the bond itself. All specific information and disclosures about the bond must come from the Bond Group and their bank(s) - as a company that is not a seller of securities, FundingNet cannot provide that information.
If you are using a lawyer's escrow for safekeeping, the 5% coupon rate provided by the registered security is not available. However, so that the client does not have to forfeit that return, FundingNet will often offer to rebate the same value annually (5% of the value of the initial funds) to the amount of principal outstanding.
PLEASE NOTE. The Investor Protection Program is NOT an investment program. The "investors" funds ("QC" - qualifying capital) will be held either in the Trust account of the borrower/investor's lawyer, or with a Lawyer that we can refer to them. The "QC" is fully protected not only by virtue of it being overseen by the regulators and auditors who police Lawyer's Trust accounts, but also through the use of a "non-depletion account" at a Tier 1 Bank. This ensures that the depositor maintains full control over these funds at all times, and that they can only move back to their account of origin.
FundingNet / FilmCabbage has NO INVOLVEMENT with the safekeeping of the "QC" whatsoever. FundingNet's benefit for this program is SOLELY the additional lending we are able to provide to projects when they utilize the program.
We are committed to providing the absolute best protectionary features that we can assemble, to provide you with unparalleled peace of mind.
INTEREST RATE
For a 1:1 loan, the interest rate you will be charged is the rate of SOFR + 1.25% for loans under $100M, and SOFR + 0.75% for loans over $100M. The SOFR rate used is the current rate at the time of close of your loan contract. The current SOFR rate is found at the link below:
1:1 LENDING, UNDER $10M in INITIAL FUNDS
This version of the program is for clients who have raised a minimum of $4M USD, but less than $10M. For clients participating with less than $10M there may be some timing challenges (as we need to submit smaller deals together in order to achieve a total of $10M being submitted), but usually these timing challenges are minimal.
EXAMPLE
If a project has a $5M USD budget and the producers have raised (either themselves, or through investors) the full $5M, they can assume all risk and finance the project in full with the raised funds. However, if the project fails to generate the expected returns, the $5M they have put into the project is fully at risk of loss. By bringing that $5M to FundingNet's Investor Protection Program, their funds are held in safekeeping and remain free of the risk of the project and earning a guaranteed rate of 5% per year (proceeds applied to the loan's outstanding balance). We then lend the production the equal amount of $5M, which they will use to produce the project. The initial funds remain in place until the loan is settled, but the funds in safekeeping are always earning and always safe. If the project fails to generate sufficient returns, FundingNet's loan funds are the only ones at risk. If the production cannot repay the loan the initial funder's money may be required to remain in the bond for a longer period of time (to a maximum of 60 months, if the project cannot repay ANY of the loan), but they will always eventually be able to go back to the initial funder.
1:1 LENDING, $10M or MORE IN INITIAL FUNDS
Any project with a budget of $10M USD or more, and they have raised the full budgetary requirement themselves or through an investor, they can come to our program in much the same way. We will arrange for them to speak to the Bond Group to bond their funds where they will be pledged to the same bond with the same coupon rate (or the borrower will have their funds held in escrow with their own attorney). We will lend the project the equal amount to fully fund the production, and assume all of the risk ourselves.
HOWEVER, if the initial funder does NOT want to leave their funds in place until the loan is settled, in this version of the program they can receive their money back in roughly 365 days. Final length of time the funds must remain in place will depend on the risk profile of the project. But when the "up to" 365 day period has ended, FundingNet will basically "buy out" the account where the initial funds are housed, and replace their $10M (or whatever the amount of initial funds is) in cash. The project has their loan to fully finance the production, and the initial funder has seen their initial funds repaid in a much shorter timeframe, always within a year.
This is an exciting opportunity for productions because they now have the ability to tell potential investors that not only can they participate in the project without any risk, they can also see their principal repaid in only a year, with the project fully financed.
Now this is where it gets REALLY exciting.....
Once the initial funds are back with the initial funder, they can now use those initial funds to do the SAME THING AGAIN, and generate another loan of the same size for ANOTHER production. For companies operating the entertainment industry, this is an incredible offer as it gives them a chance to produce as many similary budgeted films as they want, while only raising funds one time.
EXAMPLE
If a production company has 5 films they wish to produce, each with a budget of $10M, they have a total requirement of $50M for the full slate. If they were using our regular Multiples Program they would need to raise $16.67M to get a 3X multiple, and receive their required $50M in loan funds. Their $16.67M would be required to remain in place until the loan is fully settled (which can be up to 60 months).
With this version of the Investor Protection Program, they only need to raise $10M (enough to do the first production) and then "cycle" it over and over and be able to finance all 5 films in the slate. The production would apply for a 1:1 loan and post their $10M in safekeeping (as described in the Multiples Program page). After "up to 365 days" (actual number of days tbd when the project applies for their loan) FundingNet would "buy out" the investor's bank account (where the initial funds are housed) - we wire the initial funder a "replacement" $10M and they would sign the original account over to us. FundingNet is now responsible for keeping those initial funds in place until the loan is settled. As a result, in addition to assuming all risk for the project, it is now FundingNet (not the project's initial funder) that has their $10M tied up for up to 60 months; not only did we assume the risk, we also assumed all lost opportunity cost of having those funds tied up. The initial funder has their $10M back, and the project is fully funded through our loan.
THEN the initial funder can take the same $10M we sent them..... and do it over again to finance ANOTHER $10M film in the slate. Then do it again and again until all of the films in the slate have been fully financed through our loans. And as well as the projects having their required $50M in loans to fund their films, the funder still has the initial $10M they started with potentially before any of the projects have even been completed.
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Safety Against Default
i) When the Investor/Financier provides capital for the Project, this capital must remain on deposit and securely Bonded until the Project Owner(s) fully repays the Loan (unless the loan is set up to extract the investor in up to 365 days).
ii) Our structure is truly unique in the sense that you can never lose your qualifying capital - even in the instance of a Default where either the project or repayments go bad, our Program ensures that you will always receive 100% of your funds back..
iii) Instead of encumbering your funds, we simply require your deposit to remain in place for a prescribed period of time that is calculated as a function of “what value can be realized from the project at time of default, versus how much of the loan is still outstanding.”
If a major default occurs, and in order to protect your deposit and mitigate our own risk, we simply require that the deposit remain in place for an additional period (maximum 60 months). This number cannot be determined until point (iii) is determined. Note however, that during this timeframe, and in spite of the fact the deal is in “default,” the depositor will still be earning 5%/year on their deposit.
PEACE OF MIND
Regardless of which direction the Investor/Financier wishes to choose, they can be assured that their funds were never placed at risk in the field, that those funds always earned a superior rate of return while literally being “parked” on the sidelines, and they were given many different options throughout the deal in order to make their experience safe and comforting.
The FundingNet Investor Protection Program is truly one of a kind and it will surely make “Capital Raising” a far more productive endeavour for Project Owners because we have removed the inherent dangers from a playing field that is fraught with risk.
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