In our continuing efforts to continually improve our lending program, FundingNet and FilmCabbage are excited to announce an update to our process for clients participating in our 4-1 Lending Program. This is our program where, if you have already raised at least 20% of the funds needed to finance your project, we can lend you the remaining 80% to complete it.
Previously, your project's initial funds could be brought into the program in two ways - via a deposit into escrow with our appointed law firm, or (if the funds were substantial enough) by issuing an appropriate bank instrument (SBLC or Bank Guarantee) from a top tier bank. Those initial funds (or bank instruments) would be held through the drawdown of our loan funds before being released back to the account of origin once the loan was fully disbursed. Our new process, effective immediately, is quicker, more streamlined and always leaves you (the borrower) in possession and in total control of your own initial capital.
** Please note - the process outlined below is for deals where the client's initial funds amount to $10M USD or more.
Rather than move your initial funds out of your control and into a lawyer's escrow, you (the borrower) will instead simply leave your funds in your own bank account (as long as it is an appropriate top-tier bank in an acceptable banking jurisdiction). If you require assistance to set up such an account, our banking compliance people can help you. You would now simply need to leave your initial funds in that account, completely undepleted and unencumbered, throughout the banking compliance period and until our loan funds are fully disbursed (usually across 9-10 monthly tranches).
You always maintain full, unconditional control of your funds, in your own bank account. The only requirement is that one of our banking compliance officers will need to be added to the account, in a read only capacity. This is required so that when we submit the file to the banking compliance process it will show our compliance officer as being named on the account, and it also provides that officer access to confirm the contents of the account at their discretion. It is important to note that our officer will never have any control of the account or the contents. They will only be able to view.
In some banking jurisdictions this is very simple, as they allow “read only access” to client bank accounts. In other jurisdictions it is a bit more of a process, as they do not allow that type of addition and our banking officer would need to be added as a “signatory”. You keep the same level of security though, as in those cases you will have your bank change account accesses so that any movement of funds require multiple signatories. This ensures that our officer can never have any ability to cause the movement of funds. This is a fairly straightforward change/setup, and your own banker will confirm the security of the account and the contents.
Please note. The client's initial funds must remain undepleted and unencumbered throughout the full compliance and drawdown periods. If any funds are moved out of the account or used to collateralize any other deal or bank instrument during that time, it will cause an immediate Event of Default and result in the termination of the loan and repayment will immediately be due. Upon issuance of the last tranche of our loan (so that all loan funds are fully disbursed) your initial funds are again fully available to be used to complete the project, or dispositioned as required by the client.
Loans where the initial funds (the client's 20%) are less than $10M will still need to be placed into a lawyer's escrow, under full escrow agreements and covered by the law firm's escrow insurance. However if smaller deals would like to take advantage of the $10M+ ability to leave funds in their own account, we recommend working with other filmmakers to pool projects into a slate so that their cumulative initial funds are in excess of $10M. They can create a common account with all of their initial amounts in it, and if they are $10M+ the funds remain in that account to generate all of the loans for the various projects. FundingNet is able to set up each project's loan separately (even though their funds are pooled in a common account) so that each project remains separately collateralized and projects that make money are not obligated to use their profits to make up for any projects that lose money.
Any questions? We are happy to provide more details, just click the “Contact Us” link above.