You are a young, creative indie producer with yet another surefire script. You are plotting tactics for a trip to the bank.

To complete your fiscal mission successfully, rules of engagement decree that you get right down to business and that you do not ask the banker for a development loan. Not, that is, unless you just want to start a potentially invaluable relationship with an embarrassing round of mutual head-scratching.

Save time

Before you tackle the interim finance portion of the multistage production budget, save yourself a little time and dignity by listening to the generous advice of one-of-a-kind Canadian banker Robert Morrice, Toronto-based senior manager, film finance at the Royal Bank of Canada.

So, down to business. What does it take?

At the top, says Morrice, are bankable licences and a fully financed budget, at least for the cash portion. Second, he says, the bank requires a detailed shooting budget and a detailed cash-flow statement based on realistic scheduling. And, you’ll need a completion bond (likely from Film Finances Canada or Motion Picture Guarantors) and comprehensive and e&o insurance.

Says the banker: ‘The insurer must be recognized by the bank, and in both instances (completion bonding and insurance) two companies in Canada (Film Finances Canada or Motion Picture Guarantors) have the lion’s share of the market.

‘Next, we need a filmography. In other words, who is the producer? We are interested in his or her longevity and general business position. We take comfort in this, as does the guarantor.’

Interim production loans at the Royal are normally in the form of ‘revolving reducing loans,’ says Morrice.

Based on a tight repayment schedule, the producer borrows what he or she needs, and as payments come in, the amount that can subsequently be borrowed is reduced correspondingly.

One-year term

‘The bank tends not to go more than two years, and production loans are typically paid off within one year,’ he says. ‘For tv series, it might be longer, but with (feature) film it’s payment on delivery, or within six months.’

Morrice says requests for development money for projects from smaller companies are still the most common producer inquiries handled by the bank. However, he says producers should know that speculative, high-risk development funding is more properly sourced from a distributor and/or broadcaster.

‘The important thing to know,’ says Morrice, ‘is that we are probably the last party they should be talking to (about development loans). We want to discourage them. We have to have a way out (of the loan).’

In terms of deferrals, Morrice says ‘each project is different. The biggest thing we do, particularly for the smaller producer, is interim financing loans for both film and tv.’

‘Viable project’

If a production budget is fully financed – including a deferred producer fee portion of, for instance, several hundred thousand dollars through valid presales – and if the project has a completion bond, then Morrice says it becomes ‘a viable project in the bank’s eyes.’

The bank, and other parties, will ask for formal deferrals in any case, he says, and may proceed if the guarantor agrees the film or series can be produced with the cash in hand.

The bank will want to see a detailed cash flow chart of weekly projections prior to principal photography, and then on a monthly basis, he says.

‘The bank also needs a detailed copy of the shooting budget, and a statement of deferral costs and/or overhead recoveries. In other words, it lets the bank know the producer has a certain margin, or comfort zone, even if producers are sometimes reluctant to show it (because) they think the bank will ask them to defer it,’ says Morrice, adding cash flow is closely monitored by the bank and should reflect the final shooting budget.

On the subject of unconverted, negotiable papers in the form of distribution contracts and foreign presales, Morrice says the Royal Bank’s film financing unit intends to expand its accredited international buyers’ list from the current 150 to 300 worldwide by the end of this year.

The need to validate a bigger back end, and the closely related matter of enhanced Canadian banking expertise in the film and tv sector, has been invoked as the primary motive behind Telefilm Canada’s new $25 million loan program. Morrice says his department fully supports the Canadian Heritage and Telefilm initiative and is working closely with the federal agency as it moves towards the program’s Jan. 1, 1995 launch.

‘We are strongly in this business,’ says Morrice. ‘We want to increase the number of people we recognize as bankable around the world.’ Film and television market dates on Morrice’s 1994 calendar include the American Film Market, mip-tv, mipcom and mip-Asia.

Morrice says the Royal’s commitment to the Canadian film and tv production is here to stay, but the entire industry has a role in guaranteeing the future.

‘Look, the support is very real, but there has to be a way out to repay the loan and build a stronger unit for the bank,’ he says. ‘The opportunities are indeed greater, and they are also more volatile.’

In addition to his duties as senior manager, film finance, Morrice was recently handed a broader national mandate as the Royal’s market manager, entertainment software, a growing $100 billion a year worldwide, business, with film as a major component.

And while in many regards the Canadian industry is still in its formative stages, Morrice expresses a genuine, personal sense of pride in the accomplishments of those half dozen or so Canadian producers who have gained the public confidence of Canadian investors in the past nine months.

Says Morrice: ‘We take great delight that these people have been recognized for the value we have always known was there. The bank takes the position that the producer should produce the best program possible,’ and not lose time and money on currency issues, a potential black hole for producer profits.

To avoid the pitfall of currency risk, Morrice says the bank insures the risk by quantifying and hedging it on behalf of the producer. ‘Any movement between two different currencies can affect producers’ profits very quickly,’ he warns. ‘It’s the same thing for interest rates. (Our) loans are floating-rate loans insured against increases.’

In the case of the Royal, Canadian producers can access a wide range of services, including payment services and electronic banking products at some 1,600 branches coast to coast. Morrice points out electronic banking products are invaluable at audit time for popular industry programs such as the sogic-administered Quebec refundable production tax credit, or the Ontario Film Development Corporation-administered ofip tax-rebate program.

The Royal also offers a receivables package where the bank provides financing against longer term receivables such as broadcast or exhibition licences. Clearly, he says, producers with libraries have a wider range of banking services.