(originally published 08/02/19)
When we launched FilmCabbage back in the spring of 2018, it's clear that we made some naive assumptions – our program offers tremendous benefits to filmmakers with basically no risk, so we assumed developing partnerships and funding movies would be pretty straightforward. But what we didn't consider carefully enough at that time is that most filmmakers don't understand the financial security measures used in high finance very well, and as a result were very reluctant to move forward.
In our lending program all funds sit in a 3rd party escrow until they are “drawn down” into the project. That goes for our 80% as well as our borrower's initial 20%. This is necessary for two reasons: (1) So that funds are disbursed only as required by the project's costs, and (2) To ensure that the borrower's initial funds remain completely “idle”; that they are never depleted or encumbered until after our 80% loan funds are disbursed. The borrower's initial 20% sit in the Trust/Escrow account of a recognized US law firm, but we always also put in place an additional financial guarantee to insure the safety and security of those funds. This is done at our cost and only for the peace of mind of the borrower.
In our long history of wholesale lending, the additional guarantee we used was a simple surety bond – the party holding the funds in escrow would already have surety policies covering any amounts they held in escrow, and the borrower was simply added as a “rider” to that policy. This offered a full insurance-based guarantee of the safety of their funds. In the wholesale space, everyone understands surety bonds and are very comfortable with them – but we found that filmmakers don't really know much about sureties, and they didn't like that coverage.
So we instead developed a new method to secure their 20% before it went to the escrow – a Financial Guarantee Bond. Under this method, a “guarantor” (in this case, a multi-billion dollar investment trust) would set aside from their own trust assets an amount equal to the borrower's 20%, which was moved into a separate escrow account naming our borrower as the beneficiary. They then formed a contract with the borrower called a “Financial Guarantee”; this stated that if for any reason their funds were not returned from the escrow, the Guarantor would replenish those funds from the amount they had set aside. But.... the Investment Trust company we made these arrangements with is a private company and their financial statements are not publicly available, so there was limited due diligence that our clients could do on them. So with few exceptions, filmmakers didn't like that coverage either....
As a result we have now developed a process that offers an inarguable, iron-clad guarantee that any clients can be completely comfortable with. When the borrower's 20% goes to the escrow, it is fully and independently guaranteed by Brinks, G4S, Ferrari Group or Malca-Amit, the largest asset security/safekeeping companies in the world. In exactly the same manner as when they pick up cash from a bank in an armoured car, these companies assume "care and control" of the borrower's funds and issue them a SKR (SafeKeeping Receipt). This is a contract where they (the safekeeping company) assume full liability for that money and fully guarantee its safe return. This guarantee remains in place throughout the entire loan process – the borrower's funds are fully guaranteed until they are returned, in full. The SKR is set up before any money has to be moved anywhere, so all documentation regarding the security of the borrower's money is fully vetted and approved in advance. Our clients can always be 100% certain they are completely secure and guaranteed at all times before they pay any fees or escrow any funds.
Brinks and G4S are the two largest world class Security Houses on the planet (with Ferrari and Malac-Amit being smaller but equally trusted), and their entire business and reputation is based on their ability to safeguard any and all assets put under their protection. With this agreement and process in place, we can state authoritatively that we have in place the most iron clad guarantee possible for the security of client's initial 20% funds.
One last thought.... even the most cursory examination into these companies and the SKRs (Safekeeping Receipts) they use to secure assets will show that any greater security and financial guarantee for our clients is quite literally impossible. Any potential FilmCabbage client who will doubt this security need not apply. We have established these partnerships at great expense and effort, and since there is no more comprehensive or easily verifiable guarantee possible, we can't waste any further time on clients that doubt their reputation or ability to deliver on their guarantees.