(originally published 01/24/20)

On the wholesale side of our business (where we lend money to retail lenders for them to mark up and re-lend) the FundingNet program has historically only dealt with very large loans - minimum amounts of $80M USD.  When we created the "direct-to-the-end-borrower" version of the program (of which FilmCabbage is a part) we were initially able to set it up to do loans as small as $4M USD, and process those loans exactly the same as the larger ones. However since the program hadn't really been seeing a lot of activity for these smaller loans, in the fall of 2019 the program was reined in to only be able to submit for the banking compliance process a minimum of $20M in loans.  This doesn't mean we can no longer do the smaller loans, but now there is a different process we have to follow to fund them.  That process is to submit small loans only as part of a "group" of loans, where their cumulative total can break through that minimum threshold. For instance, if you need a $4M loan (where your initial funds are the minimum $1M), we can provide the loan but it must be submitted to compliance at the same time as other loans that will total a minimum of $20M in loans.  That could mean submitting 5 different loans of $4M together, or a $4M loan with another loan of $16M.  Or, if we have any $20M loans ready to submit we can submit any/all small deals with it as the total loan amount is already larger than $20M.  This process doesn't tie the small loan together in any way to the other loans, but they simply must be submitted to compliance at the same time to achieve that minimum $20M in loans for all submissions. As a result, sometimes there could be a bit of a time lag in getting smaller deals through the 60 day compliance process.  The compliance period itself will always be around 60 days, but if we don't have a lot of loans to submit at the time when a small one is ready, it might take a few extra days to a few extra weeks to accumulate additional loans to submit that one with. This post is written so that any potential borrowers are aware that the $20M loan requirement is in place and that smaller loans might experience a minor slowdown before they start the 60 day compliance period.  Any loan of $20M or more can be submitted by itself so there will never be any lag there - but smaller deals may see a slightly longer processing time.

(originally published 09/10/19)

Caution is the watchword when it comes to film lending programs. There are always plenty of con artists out there looking for new ways to defraud film investors. Most recently, the president of WeatherVane Productions, another film producer and a former Wells Fargo employee were indicted on charges of fraud and money laundering after years of operation.  See the Justice Department release here:

https://www.justice.gov/usao-sdfl/pr/film-producers-former-banker-charged-movie-financing-fraud-scheme-0? fbclid=IwAR2vWkooM6R-FNU1m3m_N7XLD__jkkJTJL9AQDqB8l6RtbHwnwQGHlN9Sj4

Remembering these people are considered innocent until proven otherwise in court, the indictment alleges that the accused would partner with investors to “match funds” – the production would provide 50% of the money required, and the accused would provide the other half. What they allegedly did instead was build a pyramid scheme where money coming in for new projects was used to fund existing loans, with large amounts going to the accused to finance their lifestyle; like all pyramid schemes it was only a matter of time before it collapsed on itself. The co-accused former bank employee's role was to provide false banking information to investor inquiries that their funds were still in place and safe.

I am posting article this today to describe how the FilmCabbage program is different from the WeatherVane program and others like it in very key ways, in particular relating to the security of the client/investor's funds. During TIFF I've had several people mention the Weathervane case, so I feel it is important to spell these differences out.

First, FilmCabbage takes no partnership or ownership position in the projects we fund. The investor's funds are always their own, and ONLY their own. While they sit in the 3rd party law firm's escrow they can't be leveraged, used to collateralize any additional loans or credit lines, or anything else. Those funds simply sit idle in that account until they are returned to the account of origin. It would appear that WeatherVane was counting on profits from the movies they actually made to help keep their scheme going – alternately FilmCabbage charges interest-only on top of principal, and have no claim on the profits of projects we fund.

Secondly are the organizations FilmCabbage partners with to make our program possible. We work closely with Price Waterhouse (who do our risk assessments and provide the loan custodian in every deal), HSBC Head Office in the UK, only top tier, easily vetted law firms to hold funds in escrow, and Brinks and G4S to provide financial guarantees for the client's funds. In all elements of the FilmCabbage process related to our client's funds, for their peace of mind we partner only with the largest and most respected institutions and service providers in the industry.

But the most important point of differentiation is the pillar of additional security FilmCabbage builds around all client funds. The indictment against WeatherVane states that they used falsified “Performance Bonds” to secure investor money. What FilmCabbage does instead is provide unquestionable, fully verifiable security that cannot be falsified. We have specially developed agreements in place with Brinks, G4S, Ferrari Group and Malca-Amit where they provide an unconditional guarantee of client's funds in full at all times. This guarantee remains in full effect until those initial funds are returned from the escrow to the account of origin.

Additionally, since our clients work directly with their fiduciary law firm and the safekeeping companies in setting up this security, they have every opportunity to vet all documents ahead of execution, so they can be confirmed with lawyers, bankers, or anyone else they desire. FilmCabbage clients can also receive confirmation of their funds and/or the SKR any time that they require.

In any deals where funds are escrowed using a banking instrument (a SBLC or Bank Guarantee) the language of the instrument needs to adhere closely to the ICC/UCP 600 international banking standard, but FilmCabbage ENCOURAGES them to have their bank add a stipulation that the instrument must be returned in full value and without encumbrance. Your own bankers will confirm that this completely guarantees the safety of the money backing the instrument.

FilmCabbage uses these security methods to provide unconditional, independently verifiable security for the funds of each and every client at all times. And since we have no upfront fees, and no fees of any kind until after the borrower is receiving funding from us, every client has the ability to abandon the process at any time if they ever feel that there is any risk, and never be out a single cent.

On a considerably more personal note, I detest the fact that I felt compelled to write this piece. Fraudsters make it incredibly difficult for legitimate lenders to establish trust in the film industry. So that FilmCabbage clients do not need to worry about such issues with our program, our processes are designed to fully confirm everything pertaining to the security of client funds throughout the entire process. FilmCabbage and FundingNet mitigate all financial risk so our clients can always be completely assured their films will be successfully funded.

Cliff Endicott, President - FilmCabbage, a Division of FundingNet

(originally published 08/21/19)

Guaranteed investments like Treasury Bonds are always very low yield - no risk usually means very low return.  Locking in your money for years can get you a few more basis points, but in general an annual ROI of 2% is a high return for a guaranteed security. Movies are an entirely different matter.  Investors in film have the opportunity to make a lot of money by providing equity capital to a production.... or they could lose every single cent.  That's why finding equity investors for a film is always challenging - the chance they could lose all of their capital is just too great. BUT..... what if you could invite potential investors to your film and tell them that their investment is completely guaranteed?  That they are 100% iron-clad guaranteed to receive their full principal, plus a 10% premium, within a year..... AND receive a share of backend profits?  That their worst-case scenario would be a minimum guaranteed return of their principal plus 10% - but if it's a runaway success they could add millions on the backend. Would that be an easier sell?  Because that is exactly what FilmCabbage makes possible. Suppose you have a movie with a $10M budget which we have approved for financing.  To receive our loan you need to have the initial funds that make the whole thing happen, which is a minimum of 20% of the budget ($2M).  With that, we lend you 4 times that amount to cover 80% ($8M) of the budget, and with your initial 20% the full budget is covered.  But under this scenario those initial funds must be spent into the project to complete it, and the investor won't see a return until the movie is released and generating revenue.  If it isn't successful, they may never see their money back at all. So instead, rather than have your investor put up 20% of the budget, you would have them put up 25% ($2.5M) instead.  That way our 4 times multiple of those initial funds will cover the entire budget ($10M).  The investor's $2.5M would simply sit idle as the loan loss reserve while our loan funds are spent into the film to complete it, after which the investor funds would simply be returned to them.  Their money wouldn't be spent into the film, and is never at any risk.  The entire time it sits idle, it is fully covered by multiple levels of guarantees;  Brinks or G4S will have a 100% guarantee on it in the form of their SKR (safekeeping receipt – see our “Financial Safekeeping” page for those details), and additionally it is fully insured through the professional insurance of the law firm will hold it in escrow.  Their money is clearly and verifiably fully guaranteed to be returned to them, in full. Since that principal is fully guaranteed to be repaid, all the filmmaker would need to do is pay them their 10% premium as part of the financing cost of the film - by building that financing cost into the budget, FilmCabbage will even lend you the money to pay their premium with.  As a result, within a year the investor has already received their minimum return - 100% of their principal plus a 10% bonus.  As an additional incentive to use their money to trigger your loan, you'd offer them a share of the backend profits that could potentially double or triple their investment.... but their WORST CASE scenario will always be a ROI of 10%. By structuring your loan deal in this manner, FilmCabbage covers the entire cost of the production and shoulders all the financial risk, leaving your investor a completely no-risk position – they are guaranteed to be fully repaid with interest, and retain a share of the backend.  They quite literally have a 100% guarantee of their money - just as though it were a Treasury Bill - only with 5 times the ROI of other guaranteed investments. Have questions on how to make it happen?  Contact us today!

All content herein is for informational purposes only, and any such information should not be construed as legal, tax, investment, financial, or other advice. Nothing contained on this site constitutes a solicitation, recommendation, endorsement, or offer by FundingNet or FilmCabbage, or any third party service provider to buy or sell any securities or other financial instruments in this or in in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.  All content on this site is information of a general nature and does not address the circumstances of any particular individual or entity. Nothing on the site constitutes professional and/or financial advice, nor does any information on the site constitute a comprehensive or complete statement of the matters discussed or the law relating thereto. FundingNet and FilmCabbage is not a fiduciary by virtue of any person’s use of or access to the site or content. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other content on the site before making any decisions based on such information or other content. In exchange for using the site, you agree not to hold FundingNet or FilmCabbage, its affiliates or any third party service provider liable for any possible claim for damages arising from any decision you make based on information or other content made available to you through the site.

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