Private equity is a game of long-term value creation, but even the most patient strategies need short-term liquidity. That’s where NAV lending for private equity comes in.
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14 Jul 2025
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In this article, we’ll break down what NAV lending is, how it works, when to use it, and why it’s becoming a strategic pillar for modern PE fund managers. Whether you’re navigating market turbulence or pursuing follow-on investments, NAV lending offers capital without needing to immediately call on LPs.
NAV lending allows private equity firms to borrow against the net asset value of a fund’s portfolio, rather than relying on unfunded commitments from limited partners (LPs). In short, you don’t need to panic over how do capital calls work when you have NAV lending.
Unlike subscription lines of credit, which are secured by LP capital commitments and used early in the investment cycle, NAV loans are post-investment-stage tools. They’re secured by the actual portfolio companies already owned by the fund.
In a typical NAV lending deal, the fund pledges ownership interests in one or more portfolio assets as collateral. Lenders — from banks to private credit funds — assess the value of these holdings and structure a loan based on factors like asset liquidity, fund performance, and market conditions.
NAV lending structures vary, but here’s a general outline of the process:
NAV loans can be structured as revolving lines of credit or term loans, depending on the fund’s liquidity needs and repayment strategy.
The appeal of NAV lending in private equity lies in its flexibility. Here are some common scenarios:
NAV lending allows GPs to unlock value from existing assets without dilution, delay, or disrupting LP expectations.
It’s a financing option that aligns with the PE ethos: invest wisely, manage smartly, and exit strategically.
Like all forms of leverage, NAV lending isn’t without risks. Key considerations include:
Proper structuring, transparency, and portfolio discipline are essential to managing these risks.
Both tools have their place in fund strategy. The question is not either/or – it’s how they complement each other across the fund lifecycle.
Feature | NAV Lending | Subscription Line of Credit |
Stage of Use | Post-investment | Pre-investment |
Collateral | Portfolio NAV | LP capital commitments |
Common Use Cases | Recaps, follow-ons, liquidity | Bridging capital calls |
Lenders | Private credit, banks | Commercial banks |
Risk Profile | Portfolio performance-dependent | Commitment default risk |
There’s no one-size-fits-all NAV loan. Some common structures include:
Some lenders even offer hybrid models with preferred equity-like features, combining debt benefits with capital flexibility.
NAV lending directly affects fund metrics like Internal Rate of Return (IRR) and Distributions to Paid-In Capital (DPI). Used strategically, it can:
However, misuse or lack of clarity can lead to LP concerns. Transparency is key, especially around how proceeds are used and how debt impacts fund valuation.
NAV lending works best when:
In these situations, NAV lending offers a smart alternative to conventional strategies.
The NAV lending space is evolving fast. Here’s what’s on the horizon:
NAV lending is no longer just a niche solution – it’s fast becoming a core part of payment solutions private equity firms rely on. Done with discipline, transparency, and the right partners, NAV lending can be a powerful tool that supports portfolio growth, enhances returns, and strengthens relationships with LPs.
NAV lending allows private equity firms to borrow against the value of their existing portfolio investments, providing flexible post-investment capital.
Subscription lines are backed by LP commitments and used pre-investment; NAV lending is backed by portfolio value and used post-investment.
NAV loans are typically offered by private credit funds, specialty finance firms, and select institutional banks with PE experience.
While historically used by large funds, smaller funds are increasingly using NAV loans for liquidity and extension strategies.
Terms vary but often include LTV ratios of 20–50%, floating interest rates, and repayment linked to distributions or exits.
It can. If used strategically, it may improve IRR or delay DPI realization, depending on how funds deploy and repay the capital.
Preqin. (2023). NAV-based financing in private equity: A growing trend in fund-level liquidity solutions. Retrieved from https://www.preqin.com
Ernst & Young Global Limited. (2022). Private equity CFO survey: Strengthening the foundation. https://www.ey.com/en_gl/private-equity/how-private-equity-cfos-are-responding-to-economic-challenges
PitchBook. (2023). NAV lending and other fund finance structures: A private equity guide. Retrieved from https://pitchbook.com/news/articles/nav-lending-private-equity-fund-finance-guide
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