Independent Film And Movie Financing Via Tax Credits in Canada

It certainly might look like somewhere in Hollywood, but the reality is that much film, and television projects are produced and filmed in Hollywood North, a.k.a Canada.

The Canadian government at both the federal and provincial levels has moved to significantly enhance the generosity around tax credits. Business owners of film, television, and yes animation also can utilize these tax credits to form an integral part of their overall project financing strategy.

A very significant portion of your project expenses can be recovered via the appropriate use of tax credits. Moreover, you can finance these claim prior to, or at the time of filing. This generates working capital and cash flow for the current project, and in many cases we speak to clients who intend to use these funds for their next project.

It can be very realistically stated the may projects in film, TV, and digital animation in fact could perhaps not be funded or completed without the effective use of tax credits. When you can ‘ monetize ‘ or ‘ cash flow ‘ those credits now you have just taken advantage of a powerful overall project financing strategy! As a result all areas of Canadian entertainment in our three aforementioned market segments continue to generate box office revenue in Canada. What was a new and innovative strategy in years past now becomes a priority ‘ job 1 ‘ in the financing of almost every project.

Entertainment projects in film, TV and animation clearly ‘ follow the money ‘ and that money has been followed to Canada in a number of different provinces – primarily Ontario and B.C., but in other provinces also.

While there is great pressure in many of the U.S. states to reduce, or in some cases eliminate tax credit incentives Canada has in fact increased incentives in every area – the government has essentially based its case that there is a huge economic windfall to Canada by virtue of the tax incentives offered. The term ‘ domino theory ‘ might well be mentioned, because the way the Canadian government sees it additional revenue comes into Canada in the form of hotels, food, carpentry, etc

So how are these tax credits financed? In any business your probably are ahead of the game when you work with an expert, and certainly tax credit finance is no different. We recommend to clients they work with a trusted, credible and experienced advisor in this area. When you project is well documented in the form of a project finance plan, and has solid Canadian content in key areas such as Director, Writer, Performers, Art, Music or Animation you have a very significant ability to enhance your total claim for the credit. (Other key areas of your total project are of course: Equity contribution via owners or investors, foreign pre sales, etc)

Your eligible tax credits can be financed as soon as they are filed – if you have a strong mgmt team – i.e. a good entertainment accountant, lawyer, etc, your credits can even be financed before you file them. That’s a total cash flow strategy that provides valuable cash flow and working capital to you project.

Let’s look at a quick example – let’s assume your production is budgeted at 1.04 Million dollars, and your labour component is 571k. Your labour to production ratio is 54%. Using Ontario as a current example the tax credit on this project would come in at 45% of your labour budget – That nets you 257,000.00$ in capital.If you finance your claim you could receive a significant portion of those funds almost immediately.

Utilize the services of a film financing expert to investigate the financing of your tax credits. Prepare a solid project finance plan and let the cash flow from monetizing your credits enhance the viability of your project.

Franchisors As A Source Of Financing

Although not considered a traditional source of financing for franchisees, many franchisors provide financing. During the current recession many franchisors are finding ways to offer a financial boost to new franchisees. Here is some timely information pertaining to franchisor financing.

The first step in identifying whether a franchisor provides financing is to review the Franchise Disclosure Document (FDD) and in particular Item 10. This section of the FDD deals with franchisor financing. Another approach is to simply ask the franchise sales person if the franchisor provides financing.

Following are examples of financing that franchisors provide:

Debt Financing

A significant number of franchisors provide financing either directly or through third parties. In the many cases this financing is for equipment packages or real estate for the franchise location. There are franchisors that will hold the prime lease and develop the location. The franchisee will then sign a sub-lease with the franchisor that includes the basic rent plus leasehold improvements. This arrangement unburdens the franchisee from having to obtain the additional working capital for purchasing the land and/or developing the site.

Another example of franchisor financing is for the equipment package that could be leased from the franchisor directly or from a leasing company that the franchisor works with. Once again leasing the equipment is a source of funding for the franchisee.

In the majority of cases, these types of arrangements are usually found in franchises that require a substantial investment, such as upwards of three hundred thousand dollars. Most often found in the restaurant or hospitality industries.

Franchisors Financing the Purchase of the Franchise

There are franchisor’s that provide direct financing through the use of a promissory note. The note and its terms must be disclosed in the Franchise Disclosure Document. The note may be used to finance a portion of the franchise fee or starting inventory that is purchased from the franchisor.

A more recent practice by franchisors to emerge during the recent economic recession has been to discount the initial franchise fee. This approach appears to be increasing in popularity as franchisors are looking to assist individuals purchase their franchise.

In the event a franchisor doesn’t provide financing on a direct basis they may be able to assist their franchisees in obtaining 3rd party financing.

Other Franchisor Financing Options

There are some franchisors willing to provide a form of financing on a limited basis to an individual with impressive credentials. Having operated several franchise companies I’ve encountered a number of franchise candidates with the talent, experience and desire for a particular franchise who didn’t have access to the required capital. In certain instances I found a way to accommodate their financial needs. One of the tools we used included funding part of the franchise fee. I later included this feature in our franchise disclosure document. Had some of these individuals not impressed me and my management team with their credentials we would not assisted them. If you present yourself as a strong candidate to the franchisor but with limited funding you may be pleasantly surprised by the response of the franchisor.

Franchisors who seek funding for their new franchise may be able to obtain financing from the franchisor. Be sure to check the FDD under Item 10 and compare the cost to franchisor financing to other sources.

Financing Your Small Business

If there is any logical reason as to why your business fails then it is either because of poor financing or another reason could be loopholes in the way you manage or plan your operations. It has been observed that people might pay attention to planning and managing but it is the financing which they ignore. this is something which you do not have to do because financing is something which you do not do once. In fact you keep on doing it throughout your business life whether you are expanding or modernizing or even purchasing stationary for your business. What you need to understand is how to utilize your capital in a better way. One wrong decision can lead to the downfall of your business.

First thing you need to analyze is whether you want to get financial help from outside resources in the form of loans. If you really are out of capital and you believe your business is in dire need of expansion or upgrading then you should decide whether you should delay the operations or whether you should step into external financing.

If you believe that getting external financing is something you cannot survive without then you need to understand the types of finances that exist.

Equity Financing: equity financing is when you sell your shares and get cash in return. It’s like selling half of your business rights in profit. You can attain equity financing from a variety of resources ranging from venture capitalists to even private investors. And the best about equity financing is that it will not seem act as a loan towards you until and unless your partner decides to draw his investment out.

Debt Financing: under debt financing you get a loan with a guarantee that you will pay back the money. The guarantee can be in the form of collateral i.e. handing over your property, inventory or equipment papers to the lenders till you do not pay the entire amount. If you are unable to pay the lender has full right over your collateral assets.

These are the basic two kind of finances that you get in the market. Now lets discuss the sources from where you can attain the loan.

The first and the foremost place you need to consider while thinking about external financing is family or friends. If the amount of capital that you need is small and you believe can be fulfilled by your personal resources then you should go for them.

The second best option you have is to consult US Small Business Administration for debt financing. SBA does not finance anybody but arranges for lenders according to your needs. No matter which market sector you belong to SBA will always help you.

SRED Credits – How to Finance Your Claim For Immediate Cash Flow

Canadian business owners and financial manager who file for SRED credits are often not aware that these claims can be financed in order to generate working capital and cash flow out of the claim. They are even more surprised to hear that it is actually possible under most conditions to obtain financing even prior to financing the claim.

What could be a better working capital and cash flow strategy than getting immediate cash flow for a government grant that is non repayable? We frankly can think of no other risk free way to bring valuable cash funds into your company if you are utilizing this great government programme.

Let’s establish some bedrock around what we are talking about. The programmes formal name of course is the Scientific Research and Experimental Development aka ‘(SR&ED) ‘program that is funded by the federal and provincial governments. Each SRED claim has a federal and provincial portion, and, combined, they provided you with a non- repayable tax credit for a significant amount of the funds you spend on qualifying R&D and business processes.

Many clients we work with have their claims prepared on a contingency basis – that simply is letting someone else, known as a SRED consultant, prepare you claim and letting them absorb all ( yes all ) of the cost of that claim. When you finance a SRED claim you can actually arrange to have the SRED consultant paid at the same time also.

SRED claims continue to be on the rise in Canada, and when you couple the filing of those claims with a somewhat challenging financial environment for business financing you have a perfect storm, so to speak, for the consideration of financing your claim.

The financing of SRED claims is the ultimate ’boutique ‘financing business in Canada. We urge clients to work with a business financing advisor who can ensure they are receivable maximum funds and market rates, terms and structures for the amount of the claim.

Clients want to know how ‘complex ‘a SRED financing is. The reality is that you should view a SRED tax credit financing in exactly the same manner as any business financing, other than to understand perhaps that the main collateral on the SRED loan is really the claim itself. We use the word ‘SRED loan ‘but in reality the SRED financing brings no debt to the balance sheet – you are simply monetizing your claim for cash flow and working capital now.

The essence of the entire process can be simply described under the following process

- SRED financing application

- due diligence

- legal/documentation

- Funding!!

It’s as simple as that, and we advise most clients the entire process can be completed within a few weeks, which is standard for most business financings anyways.

You would only want to consider SRED financing if in fact you don’t want to way from 1-12 months, (sometimes longer) for your grant cheque from the government. As a Canadian business that is growing you probably have much better uses of those funds now, including reducing payables, investing in even more r&d, acquiring new business assets, etc.

Consider SRED tax credit financing as one more toolkits you have in your overall business strategy. Work with an expert and maximize the amount of your return and the overall most effective use of that essentially free cash flow and working capital.