How To Bond a Film: A Definitive Guide to Completion Bonds

A completion bond is an important step to getting your independent film on the festival circuit and sold to distributors. You may have heard of the concept, but are still wondering: why do I need my film bonded?

We’ll go into detail about the entire process and explain how getting a completion bond is an essential part of closing on bank loans, shoring up distribution deals and getting your film in the can. We’ll also touch on protections for production shutdowns due to COVID-19, and how your bond company can help.

Why is a completion bond necessary to finish a film?

Most independent films require a completion bond to secure a film’s financial package. A bond is basically an insurance policy that a producer takes to financiers, lenders, and distributors as a guarantee that the film will be delivered on time and within budget – or their money back.

Lenders who are willing to write you a loan based on collateral such as pre-distribution sales, or by other means of debt financing, will almost always require a bond before any funds are released. Banks want to offset liability, and a bond company takes on that liability, providing a win-win situation for the lender and you, the producer.

Financiers find reassurance in a bond, as a guarantee the film will be completed or they’ll be compensated. Investors will feel far more secure and protected with their investment in your film when it is bonded.

To satisfy both lenders and late-entry financiers, the bond company will ask all current investors to put their committed money into an escrow account, which guarantees to the various lenders and financiers that the appropriate funds are available and ready to be released when all contracts close.

When is it time to get a bond company involved?

Involve a completion bond company as early as possible in your film. If production documents are complete, a financial package is materializing, and key crew members and talent commitments are secured, it’s time to approach a bond company that will help unlock cash from lenders and complete the project.

The sooner you can involve a bond company, the better. Bonding your film will provide you with expert guidance in preparing your film for production, post-production, and eventually delivery.

Your film bond company will even provide important and decisive resolve for any issues that may arise at any point during production and post-production.

You may be wondering; how long does it take to get a film bonded? That depends on a number of factors. Mainly the following:

How your finance package is structured and the how many interested parties there are
How complicated the various agreements are with distributors and financiers
How difficult the script is to achieve with its planned budget and schedule

The process can take as little as four weeks if you are extremely well organized and have a simplistic finance package. However, in most cases it is best to seek a bond well in advance, several months or a year before principal photography is set to begin.

How They Decide Whether to Take on Your Project

The completion bond company will decide whether they will take on your film project based on the supporting documents listed below, among a number of other elements. Namely, the practicality of your schedule and budget, time and money left for post-production, and the budget itself.

The minimum budget threshold that can practically be bonded hovers around $3.5 million and can go past $70 million for the biggest independent films.

But how do they know what your budget will really be? This is why it’s important to provide a detailed and accurate image of what your production will look like, through vetted documentation and appropriate conversation.

“The project has to be practical,” says Fred Milstein, CEO of Media Guarantors. “In other words, we have to see a script, a budget and a schedule that will work. We don’t want to see a lot of daylight between what our expectations are, based on our production experience, and what the producers have presented to us.”

Documents you need to prepare when applying for a completion bond for your film

Preparation is key when applying for a completion bond. Having the necessary documents in order will ensure that the bonding process can move forward smoothly. This can expedite the release of cash from lenders and sufficiently prepare you for principal photography. Here are some of the documents you can expect to need:

Production Documents

Final Script
Final Production Budget
Cash Flow Report (Through to Delivery)
Pre-production Cost Report
Shooting Schedule
Day out of Day Report
Post Production Schedule
Cast and Crew Sheets
Vendors List
Resumes for: Producers, Director, Line Producer, UPM, 1^st AD, Production Accountant, DP, Production Designer, Stunt Coordinator, Special Effects Coordinator, Visual Effects Supervisor, Visual Effects Producer, Editor, Post Supervisor
Budget Breakdowns for Art Department, Construction, Set Dressing, Props, Wardrobe, Extras, Stunts, SFX, VFX
List of Cover Sets
Major Location/Studio Contracts/Agreements
Equipment Contracts/Agreements
Special Effects Contracts/Agreements
Visual Effects Contracts/Agreements
Union Agreements
Sound and Film Lab Agreements
Music Agreements

Legal Documents

Financing Agreements
Distribution Agreements
Principal Cast Contracts
Director’s Agreement (with standard suspension and termination clauses)
Individual Producer’s Agreement
Bank Loan documents & Term Sheet
Other Material Agreements, if any (i.e. Co-Production Agreements, Deferments)
Evidence of Insurance for any insurance and details of Insurance coverage must include where applicable: Liability limits acceptable.
Chain of Title Documents
Certificate of Incorporation/Organization bearing filing number from Secretary of State or relevant government authority
Certificate of Good Standing of recent date (if available)
UCC Lien searches (if available)
Copyright Report and Title Report (if available)
Name and contact information of production legal counsel

Many of these documents may need to be signed by certain key personnel, be sure to ask your completion bond company for their official list and any specific requirements they have for each document.

6 steps a completion bond company will take to prepare your film

Once all of the appropriate documents are organized and submitted for review, your bond partner will get an in-depth understanding of your project. They will work with you to make sure everything that needs to be done before production is taken care of, by doing the following:

1. Risk Assessment

For the protection of all parties involved in the film, the bond company will review and approve the script, budget, schedule, key crew members, cast, financial package, business plan, key agreements, and the necessary production insurance.

The amount of risk in your project must provide a positive assessment for the bond company, and therefore any reinsurer that may be involved, before they commit to taking on the project.

If they do take on your project, the completion bond company will use the risk assessment to reinsure the project in parcel amounts to several reinsurers, covering financiers, individual investors, lenders, and loan interest and fees within a specific time frame.

They will also purchase an insurance policy to underwrite the bond itself. If a project must be abandoned, this can lead to an insurance claim which recoups lenders and financiers to the amount covered in the policy.

Bond reinsurers generally won’t allow claims related to the following exemptions:

Chain of title issues
MPA ratings
Artistic/subjective quality
Insolvent distributor

2. Agreement Negotiations and Personnel Approvals

An evaluation of distribution agreements is key for the film bond company to formulate a proper delivery date. They will also negotiate distributor agreements to remove any parameters pertaining to the release of funds based on artistic quality standards, key talent requirements, and MPA rating requirements.

Your bonding partner will need to evaluate most of your key personnel and approve them before production begins. Commonly they will pay closest attention to and vet your production accountant, producers, director, line producer, art director and anyone that has a large controlling interest in how the budget is spent.

A “right to assignment” clause should be maintained in each of their contracts, thus allowing the bond company to remove or swap out a crew member that may be causing the production harm. This also allows the producer to remain in good graces with the crew, while allowing the bond company to take the blame for a firing – which they are willing to do to keep production on schedule and within budget.

Talent stop dates are of particular interest to bond companies, and they won’t proceed without sufficient breathing room. Due to the increasingly busy schedules of talent thanks to the streaming boom, paired with the precarious nature of the COVID-19 pandemic, a production can easily lose days or weeks. This effectively creates a scheduling nightmare without the proper stop dates.

The bond company will pay close attention to contractual stop dates for talent and will not close unless there is enough time to pad a production in the event of unforeseen scheduling conflicts.

3. Overview of Collateral Package and Approaching Lenders

A review of the overall financing package will include a thorough look at domestic and foreign distribution pre-sales agreements and the loans taken against them, financier contributions expected to be put in escrow, any mezzanine loans or gap loans, and tax incentives applications.

Lenders will not close on any loans until you have a bond partner to guarantee the production. Once the bond company approves all of the appropriate documentation and communicates with the various stakeholders (including banks and financiers or a corporation that financiers are a party to) they will help close on all of the financing and see to the release of funds to the production.

Be sure to note, the bond will not guarantee tax incentives; the lender that gives the movie cash against tax credits maintains full liability. What the bond company does guarantee is that in the event of a takeover, there will be no change of location that would have an effect on the tax credit.

4. Building a Budget and the Cost of a Completion Bond

Often a producer may take a deal at face value while the true cash amount of a deal that can actually be used for a budget is a little more complicated and a little less than expected.

The completion bond company will evaluate all of the deals you’ve closed and build an all-encompassing financial plan which takes into account financing costs, closing costs, lender fees, and interest rates over the course of the expected repayment period.

Since funds are released on delivery of the film, many lenders will even delay payments until the film is finished, taking full repayment of the principal and accrued interest at that time.

With the typical market rate of a 2% fee plus a contingency, the bond company also takes their cut of the deals before money hits your budget.

A contingency is much like a deductible that you put up before production starts. In the range of 7.5-8% of the budget, the contingency is money put aside in the event of a budget overage. With the approval of the bond company, a producer can request funds to be released from the contingency to cover unforeseen expenses.

Contingency funds allow for some breathing room for the production and for the bond partner. As the film bond takes on the liability to see the film through to delivery, they will advance funds out of their own accounts to complete your project should the production use all of the contingency.

Once all of these costs are accounted for, you will arrive at the amount available to you for the budget. This budget must still be sufficient and of a practical amount to complete the project.

5. Production Insurance Review

There are a number of insurance policies the producer will have to secure outside of the bond that the completion bond partner will require before bonding.

This will include a review of policies covering production and auto accidents, the cast, personnel, digital or film print malfunctions, fire, theft, weather, flooding, earthquake, and anything else that needs to be properly insured.

Ask your completion bond partner in advance if they require any additional or specific policies or coverages. In these instances, and more, the bond company will not take on liability and they will see to it that you cover any possible liability that can be insured.

Also, the bond company will need documented proof that they are listed as “additional insured” on each policy.

Media Guarantors, for example, has exclusive access to COVID-19 insurance that can cover your production in the event of a COVID-19 related illness that will pay out premiums for missed days or weeks, and delayed production.

6. When Liability Starts

Finally, when all of these elements come together and you are ready to begin making your film, the completion bond company will set out parameters for when their liability starts and ends.

Typically, film bond liability begins when the finance package is complete and has been perfected, the bond fee has been paid and the contingency funded, all accident and production insurance is in place, all personnel have been vetted and approved, all pre-sale distribution agreements have been settled and signed, and when principal photography begins.

Bond liability ends when the film is delivered, funds are unlocked from distribution deals, and lenders are paid back.

It is the producer’s responsibility to repay the bank, that took state tax credits or a rebate as collateral, when the issuing state finally releases funds or you sell those credits on the open market for cash.

Need tax credit assistance? Reach out here.

What role does the bond partner play during principal photography?

As a representative of the financiers and lenders, a completion bond company will monitor production closely to ensure it is on schedule, staying within budget, and key crew members are operating effectively. They can also resolve any unforeseen issues with great efficiency, working with producers to get back on track.

The bond company acts basically as another production manager, each company taking their own approach to on-set procedures. Be sure to come to an understanding about set visits before filming begins.

But, make no mistake, the bond company wields a decent amount of power to guide production to success. It’s their job to provide their production expertise to put investors at ease and provide you and your production with its knowledge and resources.

Having a bond is particularly helpful when the production runs into any issues or if an accident occurs. Because of their relationship with lenders and their nearly limitless liability, they are dedicated and motivated to seeing that production continues as smoothly as possible and that the film is delivered as contractually obligated.

This can include handling insurance claims, budget overages, personnel replacement, and more.

“We want to be treated as a production partner and as a resource. If there’s a problem, we’ll work with you to resolve it,” says Milstein of Media Guarantors. “The earlier we spot an issue, the earlier we can deal with it collectively, and the better off everybody is.”

Due Diligence and Guarantor Status

On a daily basis the completion bond company will require call sheets and daily production reports. On a weekly basis, they will require cash flow reports and cost reports.

Using this information, a trend can be established which they can use to determine the trajectory of a production. If the film is moving along smoothly, there won’t be much hassle.

On the other hand, if the film runs into issues, a bond representative will step in to determine what might be holding up production and will work to resolve the issue.

If there are major problems that continue to go unabated and an uncooperative producer or key crew member who refuses to take advice or make changes, a takeover may ensue.

What Triggers a Takeover by the Bond Company?

Even though they are exceptionally rare, and completion bond companies do not want to take over a film, there are two key types of takeovers you should be aware of, the soft takeover and a hard takeover.

A soft takeover is the most common form, and involves the seizing of administrative controls. Bank accounts, budget, and schedule may come under their constant purview. Some personnel changes may also take place, to reduce ineffective work output or obstructive behavior.

Occasionally a producer will be asked to step aside or a production accountant will be replaced. A creative crew member could also be swapped out for a more efficient employee.

This method is employed to avoid encroaching entirely on the wellbeing of the set and to avoid any negative press that a takeover could generate for the project which could in turn effect potential revenues.

Hard takeovers are incredibly rare, but in certain situations they are used as a last resort effort to complete a project. In order to avoid foreclosure on an entire film, the completion bond company has the right to totally lock out a producer and any obstructive crew members. They will then take on all of the producer’s responsibilities with “irrevocable power of attorney” to complete and deliver the film.

The bond company takes on near full liability and therefore responsibility for the project. When a producer signs for a film bond, the bond company will ensure they have the legal power to take control of the project if need be. It is their mandate to make good on their promise of delivering the film to distributors on time to recoup financiers and lenders.

“The key is to help the producer make a good film, not take it over,” says Milstein. “Believe me, it’s not in our interest to make movies. It’s the last thing we want to do.”

If all else fails, the film may fall into foreclosure. Insurance claims will be made and premiums will be paid out to pay back as much money to banks and investors as possible.

How does the bonding partner help plan delivery and recoupment on a film production?

At the beginning of the bonding process, a practical delivery schedule will be planned out based on delivery deadlines already negotiated with distributors. Another 90 to 120 days leeway prior to those deadlines will be added to provide time to resolve any unexpected issues that may arise.

Once your production is finally complete, it will be packaged and sent to distributors whom producers pre-sold distribution rights to – whether that be to a foreign distributor or a streamer with a negative pickup deal.

When these distributors receive the final film, the agreed upon cash is released. Based on the structure of your financial package, production lenders and financiers will be paid back their initial investment.

Financiers with a piece of the pie hold out hope the film will be a huge success, and pay out dividends for years to come. Lenders are happy to recoup their loan plus the accrued interest you and the bond company planned out perfectly to repay.

With a bond partner in tow and a sound financial plan, your film can and will get made free of financial liability by the time it shows on the big screen.

Need financing or a completion bond? We’ll hook you up.

What protections can my film bond provide for the COVID-19 pandemic?

Most completion bonds do not include any COVID-19 coverage. In that case, you will still have to purchase a separate insurance policy to cover COVID-19 related production shutdowns. It is extremely important to do so, since a shutdown of a few days or even a week can wreak havoc on your schedule and eat into your carefully planned budget.

Having a policy to rely on in these instances is important, and bond companies may even require it for your production.

Media Guarantors is in a unique position here; as a bond servicer that is also a licensed insurer, they insure their own bonds. Their bond is the insurance, all in one. This fact allows the company to offer COVID-19 shutdown coverage at a 4-5% rate as a standard feature of their completion bond.

Reach out to media guarantors directly here.

Whichever path you decide to take, it is important to get the proper COVID-19 coverage for the safety of your crew members and for the health of your budgetary goals.

Bonding your film helps get it made

Without a doubt, bonding your next indie feature is the most important step you can take to ensure it gets made.

Not only do most lenders require it for the sake of offsetting liability, a film bond servicer proves to be an invaluable partner to any production. They help maintain a producer’s promises, make good on deals and loans, and help get you to that well deserved premiere.