Four Ways to Fund Your Independent Film

How are independent films funded? It’s a question that even the most experienced producers struggle to answer. While major studios fund their blockbusters with padded bank accounts, independent filmmakers must often rely on a fusion of more creative financing strategies.

Fortunately, with hundreds of indie films produced every year, there’s a clear road map that any filmmaker can follow when figuring out how to get independent film funding for their feature. In this post, we’ll explore the four most common ways that independent films get funding.

From locking in distribution agreements before cameras roll to courting equity investors and maximizing tax incentives, understanding how to combine funding from these various sources can make the difference between a fully funded project and one that never gets off the ground.

Let’s break it down.

Distribution agreements

It’s no secret that films only make money when people go to see them. Without an audience, your million dollar feature isn’t much more than an expensive home movie. The key to reaching an audience is distribution.

For independent films, signing on with distribution partners as early in the production process as possible is one of the best ways to unlock funding. Independent film distribution agreements can take many forms, but the three most important for financing are negative pickup deals, pre-sales, and production, financing, and distribution agreements, or PFD deals. 

Below, we’ll take a closer look at each of these three types of distribution deals, their benefits, and their potential drawbacks when it comes to financing an independent feature.

Negative pickup deals

Negative pickup deals are perhaps the most straightforward way to fully fund an independent feature. In a negative pickup deal, a distributor agrees to purchase the film for a fixed price paid upon completion of the movie.

Under this type of agreement a film essentially pre-sells its distribution rights on the strength of the project, its script, and attached talent. Films lucky enough to enter into a negative pickup deal typically have a recognizable star, known director, experienced writer—or better yet, all three—before striking the deal.

Since negative pickup deals don’t actually pay out until the distributor “picks up” the finished film’s “negatives,” filmmakers use these agreements as collateral to back a large loan from a lender.

That is to say, negative pickup deals don’t directly provide funding to produce a movie. Instead they provide a guarantee of future revenue which can be used to secure cash through other financiers.

Usually producers will negotiate a negative pickup purchase price that, at minimum, covers their film’s entire budget, allowing them to access enough capital to fully finance the feature. 

If the film runs over budget and costs more than the amount of the negative pickup loan, however, the filmmakers will have to find additional sources of revenue to finance the picture.

Additionally, if the film fails to meet the contractual requirements of the negative pickup deal, the distributor may refuse to pay, leaving the filmmaker on the hook for the loan. For this reason, many lenders require a completion bond to ensure the project is finished on time and on budget.

Negative pickup deals also fix the distribution sale price before the film is made, preventing producers from benefiting from distribution bidding wars should their finished film prove a hit at festivals.

For most filmmakers, these drawbacks are outweighed by the secure and comprehensive funding that a negative pickup deal can provide. While negative pickup deals have become less common in recent years, independent filmmakers lucky enough to land one can finance their features with relative ease.

Pre-sales

Financing an independent feature through distribution deals isn’t an all or nothing endeavor as negative pickup deals might suggest. Many films can secure distribution in markets across the globe through another type of distribution agreement known as pre-sales. 

With pre-sales, producers sell international distribution rights territory-by-territory, locking down distribution in as many markets as they can before beginning production. Each pre-sale contract comes with a minimum guarantee, the price the distributor will pay for the completed film upon delivery. 

While a negative pickup sale will cover all or most of a production’s budget, a pre-sales minimum guarantee covers just a portion. Productions can maximize their earnings by lining up pre-sales with as many international territories as possible.

For example, before inking a domestic distribution deal with Netflix, Richard Linklater’s Hit Man closed 15 separate pre-sale contracts, securing distribution in territories including Canada, Italy, Poland, Turkey, and the Middle East.

While the figures behind Hit Man’s pre-sale deals aren’t public, it’s likely that, in total, the minimum guarantees from these 15 pre-sale contracts comprised a significant portion of the film’s budget.

Just as with negative pickup deals, however, distributors only pay a pre-sale’s minimum guarantee upon delivery of the completed film. Producers must raise up-front production funding by using pre-sale contracts as collateral for pre-sale loans. 

To the production’s benefit, each pre-sale contract backs a separate pre-sale loan, reducing the overall financial risk for the borrower should one pre-sale agreement fall through before delivery of the final film.

So how can you go about getting pre-sales to fund your independent feature? Most typically, filmmakers hire a sales agent, a dedicated film financing professional who helps broker deals with distributors.

The sales agent then pitches the feature to many, many international distributors at a film market like Cannes or the American Film Market, or another major film event like the Toronto Film Festival. If everything goes well, the sales agent and the film will walk away with several pre-sale contracts in hand.

Be warned, the films most likely to land pre-sale agreements typically have recognizable talent or strong international appeal, as evidenced by Hit Man which had Linklater attached to direct and Glen Powell to star before selling internationally. Pre-sale agreements can be difficult to obtain for first time indie filmmakers.

Another drawback to pre-sales is limited creative freedom. To ensure marketability in their given territory, international distributors may demand specific casting or creative choices. For filmmakers wishing to retain total creative control over their feature, this can be a nonstarter.

Like negative pickups, pre-sales also lock in how much the distributor will pay for a film before that film is made, preventing filmmakers from taking advantage of lucrative bidding wars later on.

To avoid this, some producers enter into a specific type of pre-sale known as a backstop deal. Backstops provide filmmakers the option of finding a higher bidder once their film is complete. If another distributor is willing to buy the film for a higher price, the filmmakers then pay a kill fee to the original distributor.

Should your film be lucky enough to secure multiple pre-sales, you’ll want an experienced entertainment lawyer onboard to help with the complexity of managing all those separate distribution contracts.

And while your film’s total pre-sales may not fully cover its entire budget, they will allow you to access a significant chunk of funding to begin production. 

Production, financing, and distribution deal

The third and final distribution agreement we should talk about is the production, financing, and distribution deal, known as a PFD deal for short.

Unlike negative pickup deals and pre-sales, which require producers to secure up-front funding through loans, a PFD deal can provide direct production funding from the outset. 

Under a PFD deal, a distributor, production company, or studio commits to financing a film in exchange for full distribution rights and, in some cases, a controlling interest in the project’s financial returns. 

These deals are often struck with independent studios, streaming platforms, or well-funded production companies that have the resources to fully back a film.

While PFD deals eliminate much of the uncertainty associated with independent film financing, they come with trade-offs. Filmmakers often sacrifice creative control, as financiers and distributors may have final say over casting, script changes, or even the film’s release strategy. 

Additionally, while these deals provide financial stability, they can limit the potential upside for filmmakers—since the distributor is assuming the bulk of the financial risk, they also take a significant share of the film’s revenue.

However, for producers looking to secure a guaranteed release and avoid the logistical headache of piecing together funding, a well-negotiated PFD deal can be one of the most efficient ways to bring an independent feature to life.

If you’re really lucky, your independent feature will get a PFD deal, a negative pickup, or enough pre-sales to fully cover the cost of production. More likely than not, however, you won’t be able to fund an independent film through distribution agreements alone.

You’ll need funding from other sources, like…

Equity investment

Outside of distribution, the cornerstone of independent film finance is equity investment.

With equity investment, investors contribute money to finance a film in exchange for a share of the film's future profits. Just like some investors buy shares of a company on the stock market, equity investors in film buy a share in your movie so they can reap the financial rewards when it becomes a hit.

Equity investors can be virtually anyone or any organization that has the capital to invest in a movie and the desire to do so. Some of the most common investors for feature films are friends and family of the filmmakers, high-net-worth individuals, and institutional investors like hedge funds and private equity firms.

If you’re funding your first independent feature, it’s likely you’ll rely on investment from people who fall into one of the first two categories—friends and family or high-net-worth individuals.

Institutional investors tend to be more risk-averse, but they can still play a crucial role in financing independent films, especially those from established filmmakers with production company backing. Hedge funds, for example, engage in slate financing, where they invest in a collection of films rather than a single project, spreading their risk across multiple productions.

A famous example of equity financing is Eva Longoria’s investment in the first John Wick film. When the project’s original gap financing fell through (we’ll talk about gap financing in just a bit), Longoria stepped in to cover the shortfall with a $6 million equity investment.

John Wick went on to become a franchise-spawning hit, and Longoria has since earned back more than double her investment. While not every investor will see that kind of return, such success stories help attract private investors to independent film financing.

Of course, some filmmakers will also consider investing their own money in their projects. This is generally discouraged. As an independent producer, you’ll invest enormous amounts of time and effort into your film, perhaps without taking a salary until it’s sold or released. There’s no need to compound the pain by taking on additional financial risk.

Still, many independent filmmakers do decide to invest their own money into a project to get it off the ground, to varying success. George Miller self-funded the first Mad Max to the tune of $350,000. Tommy Wiseau miraculously recouped the millions he spent making The Room. For every self-financing horror story there is also a tale of triumph.

How to win over equity investors

Regardless of who invests in your film, before approaching equity investors you will want to ensure your project is as compelling as possible.

Prepare a great pitch deck, have an undeniable script, and whenever possible, attach a well-known star, director, and/or writer. Most importantly, you should present investors with a thorough and well-articulated financing plan.

Your financing plan should break down the film’s budget, explain how you plan to raise funds, and ultimately, how your feature might earn back investment through revenue.

You’ll also find it easier to land investors if you’ve already signed distribution deals. Distribution and equity aren’t mutually exclusive methods of financing a feature, but instead often work in tandem.

Investors are far more likely to commit funds to a film that already has pre-sales in place, as distribution guarantees revenue. Without distribution secured, equity investors face greater financial risk, and may demand a larger share of the film’s profits in exchange.

This risk/reward trade-off is fundamental to equity investing. If a film makes money, its equity investors share in the film’s profits indefinitely. Conversely, equity investors assume the burden of financial loss if the film does not perform as expected.

Hopefully for everyone involved, the film will be a financial success. After all, equity financing isn’t just about securing money for one film—it’s about building relationships with investors who may want to fund future projects. 

Filmmakers who keep their investors happy, communicate transparently, and deliver on expectations are far more likely to secure financing for their next project.

To that end, many independent filmmakers choose to diversify their funding beyond equity investment and distribution deals to give their project its best chance at success. In order to do this, they often rely on debt financing.

Debt financing

Using debt to finance a film works a lot like using debt to finance any other large expense. 

With debt financing, filmmakers borrow money from a lender under an agreement to repay it later with interest. Unlike equity investors, lenders do not retain a stake in the film. Your financial commitment to a lender ends once you fully repay the loan.

There are many different types of loans filmmakers can use to finance a feature, and you can find a detailed explanation of each in this guide to film debt financing. Here, we’ll cover the basics.

Film loans with the lowest interest rates rely on collateral, an item of value that the lender keeps if the borrower can’t repay the loan. If you have a distribution deal in place, that contract can be used as collateral to borrow funds.

For example, we’ve discussed how distributors only pay a pre-sale’s minimum guarantee upon delivery of the completed film. However filmmakers can use a pre-sale contract to take out a pre-sale loan and borrow a portion (never all) of the minimum guarantee up front to fund production.

Another common form of debt financing is gap financing, which covers the shortfall between a film’s budget and its secured funding. Unlike pre-sale loans, gap loans are not backed by collateral. Instead, they rely on the projected value of unsold distribution rights as determined by a credible sales agent.

This means that gap loans are inherently higher risk than pre-sale loans, and consequently will usually carry higher interest rates. Still many filmmakers rely on them to close gaps in their film’s financing.

Risk is the main drawback to debt financing. While equity investors simply lose their investment if a film does not generate revenue, lenders must be repaid regardless of a film’s revenue, or lack of it.

To mitigate risk, lenders often require completion bonds, which ensure that the film will be finished on time and within budget. These guarantees can make debt financing more accessible but also add additional costs to the production.

Fortunately, our fourth and final method of independent film funding can dramatically reduce a feature’s overall cost. We’re talking about…

Production incentives

Films have the capacity to change the way we think and live. Since the medium’s inception, people have harnessed filmmaking’s power to positively transform society.

That might sound a bit heady for an article about funding indie movies, but production incentives, our final source of independent film funding, are meant to do just this: improve society by incentivizing moviemaking.

Production incentives are funds awarded to film productions in order to create jobs, drive economic growth, promote a cause, or champion unique perspectives. They include everything from government tax credits to private film grants

Over the last few decades, production incentives have become a fundamental part of independent film financing. If your feature qualifies for a production incentive, you might be able to save a significant chunk of change.

Tax incentives

Tax incentives are a specific type of production incentive provided by national and state governments. These tax breaks offset production costs for projects that film in a particular region. They are meant to boost local economies and create high-paying film jobs by encouraging film production spending.

Tax incentives usually come in the form of refundable tax credits, transferable tax credits, or tax rebates, all of which return a portion of a project’s local spending after production concludes in the region. You can find a helpful breakdown of each type of tax incentive here.

Because the funds from tax incentives are only awarded after production, filmmakers often take out a loan against their anticipated tax incentive award to fund production. These loans are known as tax incentive loans, and they are a collateralized form of film debt that work much like a pre-sale loan.

Tax incentive loans can provide valuable liquidity to help fund a feature, but they typically do not cover the full incentive amount. As with any film loan, a tax incentive loan’s associated costs, including interest, attorney fees, origination fees, and the cost of the completion bond must all be factored in.

In general, a feature film might expect to receive back 20%–40% of their qualified production spend through a tax incentive. Ryan Broussard, an expert on tax incentives and Wrapbook’s VP of Sales and Production Incentives estimates that on average, film tax incentives account for one quarter of a qualified film’s budget.

If your independent film can qualify for a tax incentive, they are a great way to save money on production.

To explore all the tax incentives available in the United States, check out Wrapbook’s Production Incentive Center. Every program is unique, and this comprehensive resource provides clear and detailed information about how your production can qualify and how much you can save with each incentive.

Film grants

In addition to tax credits, filmmakers can also secure funding through film grants provided by various government and nonprofit organizations. 

Film grants usually provide productions with a direct cash payment, making them particularly attractive for independent filmmakers. Like tax incentives, film grants don’t require repayment.

Grants can range from small stipends for emerging filmmakers to large-scale government programs designed to incentivize production in a specific city or state. 

Some grants prioritize projects with cultural or social significance, while others support filmmakers from underrepresented backgrounds. They often have very specific eligibility requirements, so you will want to carefully research any film grant before applying to determine if your feature can qualify.

How do you know which type of funding is best for your project?

The best way to finance an independent feature is through a combination of funding from all four of the sources above.

An established producer working on a really compelling project might be able to secure the film’s entire budget through a negative pickup, PFD deal, or a single institutional investor. Most independent filmmakers, however, will have to creatively piece together funding for their feature from multiple sources. 

They might, for example, secure a handful of pre-sales, bring on individual equity investors, qualify for a tax credit, and then take out loans to put money into their production’s bank account before cameras roll.

We also haven’t spent any time discussing crowdfunding and product placement, two other potential sources of funding for independent features. 

Crowdfunding can be a powerful way to raise money for an independent film, but many filmmakers also struggle to reach their funding goal on platforms like Kickstarter. To set your project up for success, you’ll want to realistically assess your funding needs and carefully plan your crowdfunding campaign before you begin raising money . 

As for production placement, you might be able to cover a portion of your film’s budget with a carefully negotiated deal, but more often than not these arrangements demand more from independent filmmakers than they return. You could be better served seeking in-kind contributions, like free equipment rentals and locations in exchange for credit.

No matter where you ultimately find funding for your feature, it’s crucial you consider all options when building out your financing plan early on. Successful financing plans include multiple sources of funding, and successful filmmakers understand the financial principles underlying film funding so they can speak knowledgeably with investors.

Wrapping up

Funding an independent feature film can feel like assembling a beautiful, complicated puzzle—but it’s achievable once you learn how to leverage distribution agreements, equity investment, debt financing, and production incentives to raise money.

Now that you know more about how to get funding for an independent film, it’s time to dive deeper into the world of film finance. Learn which loans might be right for your film with Wrapbook’s guide to debt financing. Or, explore how you can maximize your production budget with tax incentives through the Production Incentive Center.

No matter where your film finance journey takes you next, go with confidence with Wrapbook as your entertainment payroll and accounting partner.