Although the film industry grew by 1% between 2015 and 2020, this growth rate paints a misleading picture. During this period, fewer people have watched movies at theaters and instead opted for more affordable at-home streaming and rental services. This has only accelerated during the COVID-19 global pandemic, as some studios have opted for direct to home releases and skipped the movie theater altogether, a disruptive change that may permanently alter how moviegoers see new releases.
Movie production itself has altered as well, with extensive health and safety precautions making sets more difficult to navigate. As filming continues during the pandemic, actors and set professionals alike are subject to extensive testing and modified procedures that could shut down at a moment’s notice. These changes are expected to stick around in the months ahead.
If any of the above changes have affected your bottom line, small business loans for filmmakers can help you close your revenue gap. Below, learn all about your low-cost funding options.
Funding challenges and opportunities for filmmakers
Some financial challenges you might face as a filmmaker aren’t entirely unique to the film industry. For example, as numerous sectors lose revenue due to the COVID-19 pandemic, more small business owners may find themselves struggling to obtain funding, as lenders often decline applications from borrowers in struggling sectors. Additionally, lenders may hesitate to approve small business owners in all industries – film included – who are relatively new or have minimal business ownership experience.
On the other hand, some lenders may find it beneficial to approve filmmakers for small business loans. From March to July 2020 as the COVID-19 pandemic first accelerated, streaming service use in the U.S. increased 12% compared to the same period in 2019. As such, filmmakers with plans to release their work on streaming services may have easier routes to profit, thus incentivizing lenders to approve them. To find out for yourself whether you might be approved for small business loans for filmmakers, consider looking into the following types of funding.
Funding options for filmmakers
Filmmakers can turn to the SBA or non-government sources for small business funding. Each small business loan for filmmakers has its own unique rates and periods, but you can get a general sense of what to expect with the below guidelines.
The SBA 7(a) loan program
Many, if not most, small business funding experts recommend low-cost SBA 7(a) loans above all other types of small business loans for filmmakers. That’s because SBA 7(a) loans have low monthly payments, low rates, and long terms, all of which are highly favorable for filmmakers. You can use SBA 7(a) loans to:
- Obtain Working Capital – Working capital is perhaps the most meaningful indicator of your film company’s health. You can calculate your working capital by deducting your current liabilities from your current assets or determining how much cash your company has immediately available. Negative working capital indicates a need to grow your assets, and to do so, you can use your SBA 7(a) loan toward new equipment purchases, or employee hires.
- Consolidate Your Debts – You can use SBA 7(a) debt consolidation loans to refinance all your current small business loans. This means not just short-term business loans but also merchant cash advances, daily or weekly payment loans, and high-interest business loans.
- Purchase Commercial Real Estate – If you’re looking to open a second studio or office space for your film company, you can use your SBA 7(a) loan proceeds to cover owner-occupied commercial real estate purchases. You can also refinance your current commercial real estate mortgages with your SBA 7(a) loan.
Advantages of SBA 7(a) loans for filmmakers
Lending experts near-unanimously view SBA 7(a) loans as the “gold standard” for small business funding. SBA 7(a) loans are so highly regarded due to their:
- Affordable monthly payments
- 10-year terms (25 years for commercial real estate loans)
- Lack of prepayment penalties
- Low rates
- Wide use of funds
- Availability in all 50 states
Requirements for filmmakers to apply for SBA 7(a) loans
You and your film company must meet all the below requirements to apply for SBA 7(a) loans:
- You must be a U.S. citizen or lawful permanent resident
- Your film company must be based in the U.S.
- You must be at least 21 years old
- Your film company must be at least two years old
- You must have no bankruptcies or foreclosures in the last three years
- Your personal credit score must be at least 650
- Your film company must not have any recent settlements, tax liens, or outstanding charge-offs
- You and your company must be on-schedule with all government-related loan repayments
Some lenders may impose certain extra requirements that others lack. For example, whereas some loan providers require potential borrowers to present business plans, SmartBiz Loans does not.
How to apply for an SBA 7(a) loan for filmmakers
Step 1: Confirm that you and your film company are eligible to apply for SBA 7(a) loans as per the above requirements. Learn more via the SmartBiz Loans guide to SBA Loan Requirements for Existing Businesses.
Step 2: Gather all required paperwork and consider seeking assistance from your bookkeeper, accountant, or another financial expert. Visit the SmartBiz Loans Guide to SBA Loans for more information.
Step 3: Choose a lender based on the following considerations:
Availability
All lenders, even those with self-explanatory loan terms, should be easy to reach. If your lender doesn’t assign you a representative who is regularly available via phone or email, consider looking for loans elsewhere. The representative assigned to you should also be deeply familiar with your application, the film industry, and your film company.
Reviews
Search for your lender on TrustPilot, Google, and Consumer Affairs to see their customer reviews. These reviews can inform you whether the lender will adequately suit your film company. Check that you’re reading reviews by actual borrowers, and see whether you can spot other filmmakers in the crowd – their experience may be most relevant to yours.
Fees
Your loan will likely include interest fees and repayment, but excessive additional fees can be a red flag. If you spot numerous extra fees, consider a different lender. You should also confirm that all your loan fees are due before your loan’s funding and during your loan’s lifetime.
Transparency
Look for explicitly stated APRs and interest rates in your loan terms. If you don’t see these figures clearly stated, your lender might be unwilling to fully detail your loan terms, thus potentially hiding provisions that could prevent a loan from meeting your needs.
Obvious loan terms
In addition to clearly outlined annual interest rates and APRs, your loan should have fine print that’s easy to understand. Complex fine print may hide unfavorable loan costs and payment schedules, so don’t hesitate to ask potential lenders about collateral requirements, payment amounts and frequency, prepayment penalties, and total loan amounts. If your lender gives vague or unhelpful answers, you may want to choose a different loan provider.
The SBA 504 loan program
Through the SBA 504 loan program, small businesses can obtain low-cost modernization or expansion funding. You can use SBA 504 loan proceeds toward upgrading your equipment, opening new locations for your film company, or hiring new employees.
SBA 504 loans are especially helpful if your film company meets the public policy goals of your local community development corporation (CDC). In this case, your SBA 504 loan and CDC may together cover as much as 90% of your modernization or expansion costs (at most 50% from your SBA 504 loan and at most 40% from your CDC). Your only immediate out-of-pocket costs are the remainder of the project.
The SBA microloan program
If your company is a very small business (a.k.a. microbusiness) under the SBA’s definition, you may qualify for the SBA Microloan Program. Microloans do not exceed $50,000, and you can use them to cover all business costs except commercial real estate purchases and debt payments.
Non-SBA loans and other funding options
Although SBA loans are often your wisest choice when it comes to small business loans for filmmakers, other options exist as well. With these options often come larger payments, higher rates, and shorter terms. These options include:
Bank term loans
Bank term loans offer funding with the same rapid speed as SBA loans, so they may work well for you if you don’t qualify for SBA loans. Both loan types permit working capital purchases or debt refinancing, though their prepayment penalties, rates, loan amounts, and repayment terms differ. Ask your lender for full clarity regarding these provisions.
Business lines of credit
Through business lines of credit, you obtain a loan with a maximum amount proportional to your credit score, though usually lower than typical bank term loan amounts. Another difference between business lines of credit and bank term loans: Only the latter requires that you use all your funds. With business lines of credit, it’s often smarter not to use all your funds since you only pay interest on money that you actually spend.
You can access your business line of credit as frequently or infrequently as you want until its funds run out. This isn’t the only reason that you may prefer business lines of credit for your film company – they also rarely have the collateral requirements found with other loans. Learn more about business lines of credit via the SmartBiz Loans blog Small Business Lines of Credit Pros and Cons.
Business lines of credit resemble business credit cards but are not quite the same. Although both funding options offer revolving lines of credit, only business credit cards can be reused after you max them out and repay your loans. Additionally, business lines of credit lack the spending rewards sometimes found with business credit cards. Read more via the SmartBiz Loans blog Finding the Right Credit Card for Your Small Business.
Merchant cash advances
If your film company takes credit or debit card payments, you can likely apply for merchant cash advance (MCA) funding. Through MCAs, a card provider loans you money that you repay by setting aside a small portion of all card transactions and incrementally sending this money to the provider. Traditional installment-based payment plans are also available.
The convenience of MCAs can hide the challenges associated with their extremely high APRs. To learn more, read the SmartBiz Loans blog What You Need to Know About an MCA.
Why Choose SmartBiz Loans?
Need funding to rebuild your business? Don’t waste time going from bank-to-bank filling out multiple applications. SmartBiz helps you find the best financing for your unique needs whether that’s an SBA loan, Bank Term loan, or other financing. About 90% of qualified applications we refer to banks are funded and our financial professionals are on hand to answer your questions. Discover if you’re pre-qualified here without impacting your credit scores** and read the SmartBiz 5-star customer service reviews on TrustPilot.
