Gap Loan: Overview
A gap loan is a bridge financing product that fills the “gap” between secured financing—such as equity commitments, tax credits, and presales—and the full production budget. Lenders assess unsold rights or remaining tax incentives as collateral, advancing funds at higher interest rates and fees to cover remaining costs. These loans typically mature upon closing of additional financing or commencement of distribution.
Gap lenders conduct rigorous due diligence on distribution agreements, credit ratings of presale buyers, and enforceability of tax incentive receipts. The loan size is often limited to a percentage of the “gap” value and is underwritten on a non‑recourse basis to the film itself.
Role in Film Financing
Gap loans enable production to commence on schedule without waiting for every financing tranche to close. Producers use them to secure locations, retain cast, and maintain vendor relationships. Upon presale closings or tax credit approvals, gap loans are repaid, and any excess proceeds flow into the equity waterfall.
Because of their risk profile, gap loans carry covenant structures and repayment triggers tied to distribution milestones—ensuring lenders are repaid as soon as additional funds materialize.