Media reports have it that only six applicants have successfully accessed N700 million of the N200 billion entertainment fund disbursed by the Nigerian Export Import Bank (NEXIM) for the entertainment industry. Yet the entertainment industry is in dire need of these funds as the industry especially the film sector is in coma. For the purpose of clarity, the objective of the fund is to stimulate the entertainment industry by funding of production, distribution infrastructure, acquisition of hi-tech production equipment and project refinancing.
Many practitioners have decried the conditions attached to the fund hence this attempt to demystify the process:
1. Change your orientation- It’s a loan not a grant.
Most applicants still consider the fund a grant. While a grant is non-repayable fund disbursed by the government or its agencies, corporation or foundation often for a specific project, a loan requires repayment, the meeting of certain conditions and here’s the best part – a security or collateral. A loan is generally provided at an interest. So, change the mind-set because if you view it as a loan it becomes easier to consider the terms.
2. Apply as a corporation – Don’t own one, affiliate with one.
The fund is available to only incorporate companies so if you only registered a business name or enterprise you may not be eligible. You need a memorandum and article of association, forms CAC2 and CAC7). The company must operate in the entertainment and creative industry. So that registration certificate of Alawada and Sons Limited your father registered in the 60’s to carry out the business of importation of Tokunbo vehicles will not apply.
Funding under the NEXIM bank facility only covers segments of the entertainment industry in the following categories: Music, Film, Television, Radio (Production and distribution) and also fashion segments. So, if you are in the fashion industry and you have been searching for funds for that fashion show, well, you’re welcome.
3. Meeting the conditions is not rocket science – Hire a consultant
Non-compliance of stipulated guidelines by the practitioners in the entertainment industry it has been observed is the greatest constraints to accessing the funds. However this does not have to be difficult if you are smart enough to hire a consultant. A firm of chartered accountants and tax practitioners will help you to prepare audited accounts, statement of cash flow, statement of affairs and project feasibility study/business plan. These documents give a picture of the financial state of the business so that NEXIM bank can determine whether it is a viable enterprise. But ensure you do not patronize quacks, it will haunt you when the tax people come calling. Also, the lenders know a statement of accounts prepared by professionals. Call me.
4. Collateral is not only the family house – Think outside the box
A major constraint to securing loans in this part of the world is our often skewed idea about what constitutes collateral. Usually a secured loan requires the borrower to pledge some assets, e.g., a car or a property. Unsecured loans are not secured against the borrower’s assets.
In the case of NEXIM bank, it is a secured loan hence you require an asset. But there are tangible assets such as a house or a car and intangible assets such as trademark or copyright. So, if you are looking to produce and distribute a film your collateral can include proprietary rights to your business or intellectual property right. Yep, the copyright to the screenplay, music score (soundtrack) can suffice if you pledge this to NEXIM bank. They will only need to secure it by a stipulated amount. How nifty is that? And don’t forget the distribution rights – so you need a lawyer to protect you. Check rule 3.
5. Work with structures – Corporations protect you
Incorporated entities have legal rights and liabilities that are distinct from its shareholders hence there’s the presence of a corporate veil that serves to shield its owners in times of adversities. Also corporations prefer to do business with corporations.
However, in the entertainment industry rather than corporations there are groups and associations mostly informal and lacking legal framework. This structure is defective and makes it difficult for other industries to engage the entertainment industry. Register your company.
6. Set up a disbursement chain
So NEXIM bank has finally agreed to dole out the cash to you (of course, you followed Rule 3) but you need a collection account hence your company’s current account should not be dormant or to be on the safe side, open a dedicated account for it. Loan proceeds too could be disbursed directly to your service providers/contractors against job completion certification hence it is important that you hire only registered service providers.
7. The best part of the loan is the interest – take advantage of it.
The total interest to be charged on any loan facility under the NEXIM bank scheme is in single digit. This means for loans with a maturity duration of 2 -1o years they shall not charge more than 9% interest rates. This is way too generous when you consider that currently banks lend at rates above 22% and in some instances up to 35% with conditions that for the lack of milder adjective we’ll leave at punitive.
There are charges associated with the loan, a processing fee of 1% flat on approved amount, annual management fee of 0.75% of outstanding loan amount payable at anniversary date of the facility drawdown on outstanding loan amount from time to time to cover project management and monitoring fees and legal fees charged to the account of the applicant for sundry legal filings and documentation.
8. Checklist – the tricky items
Most of appraisal requirements are relatively easy so let’s dwell on the tricky parts. Valuation report on collateral to be pledged – this could be land/building, equipment or intellectual property. When the physical asset is not available, you must be ready to produce a valuation report that will show how your intellectual property secures the loan. You must also produce past audited accounts and the most recent management account/statement of affairs and tax clearance. Confused? See Rule 3.
9. Have a sound business plan – It’s your best defense
If you’ve watched the popular series Dragon’s Den a Sony entertainment franchise where entrepreneurs pitch business ideas in order to secure investment finance from a panel of venture capitalists, then you’ll understand the importance of a business plan. To be effective, it should give a detailed history of the project, the ownership structure of the company, details of activity, marketing arrangement, cash-flow and profitability analysis.
10. Protect your investment
Now that you have understood the value of a corporation, secure yours. Take out insurance indemnity; pay relevant taxes usually with a tax consultant supporting you as they may best advise you on allowances due you. Most importantly, keep a record of every transaction and regularly have your accounts audited. And don’t use the loan proceeds to pay for your wedding. Trust me, your bride will not be happy if she learns she was married on a loan.