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

Producers and owners of Canadian content in the areas of film, television, and animation credits are not always aware that they have the ability to monetize or cash flow their Canadian tax credits in Canada. The three types of productions that we have referenced are provided with solid financing assistance from the federal and provincial governments in Canada. Your ability to monetize these tax credits, and turn them into cash flow at time of filing, (or in some cases before) can make or break the overall financing success of your venture. Successful results can be achieving by working with a credible, trusted and experienced finance partner for your tax credit financing in Canada. The financing of these tax credits creates, in effect premium additional cash flow to allow you to enhance your initial equity and debt and gap financing strategy. Let’s use a simple example wherein a Canadian produce in film, TV, or digital animation is financing a venture through equity and debt, and let’s say it’s a 50/50 proportionate relationship. The non equity portion of these ventures is often balanced with some sort of distribution agreements in Canada or elsewhere in the world. One strategy you could consider is to of course ensure prior to commencement and production that you qualify for and are eligible for the maximum amount of tax credits related to your venture. Let’s say our example consists of a 1 Million dollar independent film, and there is a 500k equity and debt component respectfully. In our example, if properly qualified and document the film owner, producer, etc can qualify for a tax credit that might easily come into the 200k-250k range. Is that the end of our example? Absolutely not – what we are saying is that you can immediately finance that claim, either at time of filing, or in some cases earlier, and utilize that cash flow for all sorts of purposes related to your venture / production.As Canadian production and content continues to play a hefty role in the producing of Films, direct to video, pay per view, and digital products the ability to finance these ventures is always a challenge. Very few of Canada’s banks and large financial institutions play a role in this type of financing; we therefore recommend to clients that they seek out the expertise of a credible, trusted and experienced advisor in this area. Maximizing your claim value and eligible cash flow are of course the rewards of working with the right party. Larger and well known studios require financing also, but the true challenge is for independent producers and their investors who have budgets that are often ten million dollars and under, sometimes quite significantly under that threshold we just referenced. The reality also is that the industry seems to be breaking all records in areas of growth and economic activity and new forms of content and distribution. The bottom line is that as demand increases and distribution structures improve the need for financing and tax credit financing in Canada is also increased.If a production can be properly pre-sold and distributed, and tax credit financing utilized as an integral role in initial production cost financing – well, that simply creates a perfect formula for financial success. To be successfully financing a production must have the proper amount of leverage, different exit and distribution strategies, and the proper utilization of tax credit and tax credit financing.Working with the proper parties can often achieve 50-75% immediate financing of your tax credits in Canada. The remainder is of course simply a buffer for the lender to allow for financing costs themselves, and any time lapses in the final approval and cheque from federal and provincial players that regulate the new generous tax credits. Tax credits are increasingly generous in Canada – just in the last year or so a number of enhancements have been made to the various programs at various levels of government. Take advantage of these credits, and further investigate monetizing those credits at time or filing of prior to maximize the cash flow and overall financing strategy of your film, TV, or animations projects.

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.

Article by Stan Prokop

Cash flowing and the monetization of your film tax credits in Canada can be a very large aspect or part of your overall production financing success in today’s challenging entertainment finance area.Whether your film is 100% Canadian, or a co – production you should be aware that your tax credits for Ontario film grants, B.C. film grants, ( those seem to be the most two popular provinces ) can be financed for cash flow and working capital. It is certainly not unusual that tax credit can be anywhere from 25-40% of your overall finance plan, and if that is not significant then we don’t know what is! Its that sort of cash flow and financing commitment that keeps your productions moving forward from a viewpoint of the equity and debt investors you need to engage to successfully finance a production, whether that be television, film, or of course the ever growing digital animation area. Those funds become an intrinsic part of what is generally known as the ‘soft money ‘component of your production. When you rationalize Canadian film tax credits into your overall production financing you can make a strong case that even if a movie or TV show is shot elsewhere than in Canada in certain instances it makes total sense to use Canadian cast members, and post production, all of which significantly contribute to your tax credit status. Everyone seems to agree to day that film, digital animation and TV financing is very much a ‘cobbling together ‘of resources which will end up funding your entire plan. The concept of co productions and co ventures seems to be a very strong part of what is happening now in independent film and TV financing. While film tax credits seems to be falling apart and in fact disappearing in many parts of the world the Canadian environment is very robust. Tax credits can be financing on a ‘when filed ‘basis, or, if your production has good credibility and financial reporting, financing can be provided on an accrual basis. Clients will often ask what the pre requisites are for tax credit financing in Canada. As different and unique as is the entertainment industry the reality is that you’re simply need some careful up front planning and documentation to ensure you can qualify and obtain financing for your tax credits. Generally that comes in the form of having pre sold some of your product in question ( a film, tv series, etc ) and having a financing plan in place that address the three components of debt, equity, and tax credits. Having a specific budget in place for your project, and having that budget validated with respect to which amounts will qualify for tax credits is critical. We can assure you that if your budgets haven’t been reviewed by a proper entertainment accountant then that will be a part of your financing term sheet with respect to requirements for the proposed financing. While some experience in having been approved on previous projects for tax credits is desired, it is not a 100% pre requisite – but when hasn’t experience ever not helped in business and in financing?Whether you view the financing of film tax credits as a mainstream or alternative strategy the reality is that this will make up a key component of your financing. Ultimately you have to be able to verify your numbers and provide some level of clarify around your eligibility for the tax credit. In Canada tax credits can be financed on a when certified and filed basis, or, even more attractively, on an accrual basis. Funds are reimbursed to you as you spend them, in effect doubling up on the cash flow and working capital requirements of your project.Speak to a trusted, credible, and experienced film tax credit financing advisor in Canada who can provide you with financing information that should allow you to complete you’re financing in the most cost effective manner to yourselves as owners of your productions.