Soft Money

Financing with Fewer Strings Attached

In the complex world of film financing, capital is broadly divided into two categories: ‘hard money’ and ‘soft money.’ Hard money is what most people think of as traditional investment—equity from private investors or loans from banks—and it expects a return. It sits at the top of the recoupment waterfall, meaning it must be paid back first from any revenue the film generates.

Soft money, on the other hand, is capital that is essentially ‘free’ in that it does not have to be recouped from the film’s profits. It is a form of subsidy provided by governments to incentivize film production within their jurisdictions. By reducing the total amount of high-risk hard money a producer needs to raise, soft money makes a project significantly more viable and attractive to private investors.

The Primary Forms of Soft Money

Soft money is the primary driver of ‘runaway production,’ where films are shot in specific locations purely to access these financial benefits. The main types are:

• Tax Credits & Incentives: This is the most common form. A government offers a tax credit based on a percentage of the production’s qualified expenditures in that region (e.g., local labor, equipment rental). These credits can be:
  • Refundable: The government sends the production a direct cash payment.
  • Transferable: The production can sell the tax credit (usually at a discount) to another company that needs to offset its own tax liability in that state or country.
  • Non-refundable: The credit can only be used to offset the production company’s own tax bill, which is less useful for single-purpose film entities.
• Rebates: Similar to a refundable tax credit, this is a direct cash grant paid back to the production after an audit of its local spending.
• Government Grants: These are funds provided by national or regional film bodies, often to support films of cultural significance, first-time directors, or co-productions that align with their cultural mandate.

A typical independent film budget is a patchwork of these sources. A producer might shoot in Georgia to access its 30% tax incentive, secure a grant from a European film fund for post-production, and use that total soft money to cover 40% of the budget, making the remaining 60% a much less risky proposition for their equity investors.