Nestled between senior bank debt and equity, a gap loan commands higher interest for higher risk. Raindance defines it as “a specialty lending arrangement whereby a bank will lend the difference between production finance raised and the minimum expected from sales...usually not exceeding fifteen percent of the budget.”

Collateral usually comprises negative-pickup contracts, remaining foreign rights, and the completion bond. Lenders also insist on a sales-agent forecast to validate those numbers, refusing projects with inflated comps or weak cast attachments.

Rates hover around a secured overnight financing rate (SOFR) of 10% with a 2-3% closing fee, and many lenders negotiate a small backend kicker if the film over-performs. Cash-flow cover ratios are pivotal. Stress-tests based on Streaming Valuation can demonstrate that even if PVOD under-delivers by 25%, projected SVOD and licensing income will still amortise the gap within two years, satisfying downside scenarios.

Once funded, covenants bite: Monthly cost reports, bond compliance, and blocked “sales corridor” accounts that funnel new territory advances straight to the lender until the loan is retired. Breaching these terms can trigger a completion-bond takeover and penalty interest, so producers monitor covenants as closely as dailies.

Foreign-exchange swings can erode coverage if a euro-denominated loan is repaid from dollar receivables, prompting many producers to hedge or structure multi-currency waterfalls.

After principal, interest, and fees are cleared, the gap lender falls out of the recoupment waterfall, allowing equity to start earning - a proof point that gap money accelerates production without permanently eroding profit share.