NAV Loan (Net Asset Value Loan) / Fund Finance
A NAV loan is fund-level financing secured by the portfolio (NAV) rather than by LP commitments.
Allocator relevance: High — changes risk profile, can accelerate distributions, and introduces asset-backed leverage governance questions.
Expanded Definition
NAV loans are distinct from subscription lines: subscription lines are secured by uncalled commitments; NAV loans are secured by the value of underlying assets/cashflows. NAV loans can be used to bridge exits, fund follow-ons, provide liquidity for distributions, or manage timing mismatches. They can be value-creating when used conservatively, but they can also mask liquidity stress or increase downside if used to maintain optics.
Decision Authority & Governance
Governance focuses on: borrowing limits, permitted uses, covenant package, reporting frequency, lender controls, valuation/borrowing base mechanics, and LP consent thresholds under the LPA. Allocators expect clear disclosure of use of proceeds and repayment sources (asset sales, distributions, cashflow).
Common Misconceptions
- NAV loans are the same as subscription lines.
- NAV loans always signal distress.
- Leverage impact is immaterial.
Key Takeaways
- NAV loans introduce asset-backed leverage to the fund.
- Purpose and covenant discipline determine risk.
- Disclosure quality is a top institutional trust signal.