Gap Loan

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Suppose you are selling raffle tickets door to door, and you have already sold enough tickets on nine out of ten streets to know you are close to your goal. You have not knocked on the tenth street yet, but based on how well the other nine went, you are pretty confident it will sell about the same. A friend offers to lend you the last bit of money you need right now, trusting that the tenth street will come through.

A gap loan works on that same kind of confidence. It is a loan made based on the expectation of future sales of a movie's distribution rights in one or more territories that have not actually been sold yet. If a producer has already locked in enough presales and Minimum Guarantees to cover most of the budget, but a few territories are still unsold, a gap lender will bridge that last remaining gap, betting that those unsold territories will eventually sell for at least that much. That shortfall itself, the difference between the full Budget and everything already lined up through signed deals, is simply called the gap.

Why lenders are willing to take the risk

Gap lenders are not just guessing. They usually look closely at how similar movies performed in those same unsold territories to judge whether their bet is a safe one. It is a riskier loan than one made against an already signed contract, which is part of why gap loans usually cost more than a loan made using a normal Advance Rate against a signed deal.

Fun facts

• Gap financing is what lets a movie start production even when a small handful of territories around the world have not found a distributor yet.
• If the unsold territories end up selling for less than expected, the gap lender can end up taking a real loss on their bet.
• A Financier willing to offer gap loans needs to be comfortable with more risk than one who only lends against contracts that are already fully signed.