First Financial Coach

Article by Stan Prokop

Film, television, and digital multimedia financings are always a challenge to Canadian based productions, but recent trends in the industry allow for a number of new and aggressive ways to finance your ongoing productions. For many participants the playing field is somewhat complex, as it is a mixture of industry, government and private sector financing that ultimately bring financing and cash flow to the success of your work. No one seems to be disputing the tremendous growth in the industry, particulary in Canadas major entertainment centres of Toronto, Vancouver, and Montreal.

Canadian content is king when it comes to financing strategies. As the industry if financed on a much larger scale in the U.S. there is always a challenge for Canadian productions in all entertainment sectors to find both short term working capital and significant long term capital and equity. The support the industry is getting from both provincial and federal sectors continues to be quite overwhelming.

The financing of tax credits in film, tv, and digital media, either through the Scientific Research and Experimental Development program, of the various other supported programs is one of the strongest ways to achieve interim working capital and help to balance your debt/ equity investments in any particular production. The good news is, that with the experience of a trusted and credible financing advisor in this area even accrual financing can be applied to these sorts of tax credits. That only means one thing of course – getting your funds immediately, and not waiting for the ultimate tax credit refund under the particular program under which your production is domiciled.

We are often asked if Canadian chartered banks play a role in these types of financing, and the answer is – yes, but very selectively. We have met and worked with specialized personnel from the banks in the area, and they clearly are ‘ boutique functions ‘ of the bank as a whole. Naturally though access to funds themselves is not a problem, as Canadian banks continue to be a world leader in liquidity, tier one capital levels, and access to funds.

So how do entertainment entrepreneurs access this capital. We simply believe that you must seek and search out experienced, trusted and credible advisors in this area. Financial people tend to be somewhat unable to predict ‘ hits and misses ‘ in the entertainment and media sector, we’ll let the creative type do that, but if there is access to financing available through areas such as tax credit financing, gap financing, accrual financing, etc its safe to say lets let the financial people handle that!

In our experience tax credit financing tend to be a minimum of 200k+ and up in Canada, and can of course go into the millions of dollars, so access to capital and who you are working with is very important. Naturally since out tax credit system and the financing of those credits infers a ‘ Canadian content ‘ ‘Canadian Equity ‘ requirement the additional pressure of having to finance just in Canada by virtue of the tax restrictions places just a bit more challenge of financing.

When does tax credit financing work best – In our opinion its when current programs are maximized and monetized simply from a timing perspective, accessing your capital now, not at some later point in time.

Your ability to discount now that future receivable or revenue stream is one of the greatest tools you have in financing prodcutons and content from a debt perspective. Actually its not even really debt, because you are simply monetizing or discounting an asset such as a tax credit receivable. You are raising cash flows against current receivables.

In Canada there is several billion dollars of tax credits awarded annually to the industry, so the ability to monetize these prior to final approval and audit, subject of coruse to your certification eligilbility, is one of your greatest assets from a financing and cash flow perspective.

Article by Stan Prokop

We read very recently that critics of film tax credit financing in the U.S. ( This was in Philadelphia ) felt strongly that the benefits of tax credit financing were negligible and did in fact not stimulate economic growth or tax revenue.We certainly don’t intent to weigh in on U.S. politics, but it seems very clear that the Canadian governments, both federal and provincial still strongly feel that the economic benefits of the recent tax credit increases over the last year or two in fact do bring in some cases a multiple of 5-10 times in financial benefits to the government. The bottom line is that film, television and digital animation credits in Canada are some of the most generous in the world, and these credits play an integral part in the financing of many productions in our aforementioned 3 key entertainment areas. In order to stay on top of film TV and digital animation financing it is necessary to understand key elements of tax credit financing in the Canadian environment. Financing of a production can be a daunting, frustrating, and complex journey. Ultimately you want to also ensure you have access to an experienced, credible and trusted financing advisor in this specialized area of finance.Two key strategies are most commonly used in tax credit financing – essentially the actual financing of a tax credit when it is certified and in fact filed, and, equally,or perhaps more popular, the financing of tax credits now on the assumption they will be certified and eligible for government financing. This 2nd process we have describe here could be called ‘accrual tax credit financing ‘.As a producer, director, or owner of a project (Perhaps you are all three?!) you want to ensure you interpret the different tax credits properly – that will allow you to maximize the financing you are eligible for.Most commonly use also want to set up a separate legal entity for each project, one that allows you to maintain specific and separate legal and financial records for that project.As unpopular it might be to focus on areas such as payment of taxes, keeping filings up to date, etc you must ultimately attend to these key issues as they are intrinsic to the proper financing of a tax credit. The financing of a tax credit is clearly one of the most innovative methods in which you can generate valuable cash flow and working capital for your production. In many cases other parts of your debt and equity financing will always come back to your ability to both generate tax credits, and even moreso, finance them in a timely and economical fashion. When you utilize a film finance tax strategy you are in effect helping to reduce part of the complexity of the film financing process. We can’t keep forgetting that our advice also refers to television and digital animation credits also. Monetizing your film tax credits demonstrates your ability to ensure you are exploring the latest trend in entertainment finance – While equity and banking credit are more challenging to obtain then ever the tax credit finance strategy clearly creates a win for all parties. It monetizes a great source of financing, and the fact that you are not giving up expensive equity or taking on additional leverage debt clearly makes for a positive financing strategy. No payments are made on tax credit financings, and your advance is ultimately set off against final receipt of government funds, which can be sometime in the future.