Everything You Need to Know About NAV Loans in Private Equity

In today’s private equity landscape, one financing tool has been gaining major momentum: the NAV loan. It gives fund managers access to capital without selling assets—an alternative to traditional structures.

So, what makes NAV loans unique?

Unlike:

• LBO Debt: secured by one company’s balance sheet, or
• Subscription Lines: backed by LPs’ unfunded commitments,

A NAV (Net Asset Value) Loan is debt taken out by the fund itself, collateralized by the diversified value of its portfolio. NAV loans don’t replace other financing methods; instead, they complement them—often used later in a fund’s life once the portfolio has matured.

Why Funds Use NAV Loans

1. Strategic Flexibility Through Fresh Capital
   NAV loans give funds additional capital for key initiatives, such as:
   • Fueling Growth: follow-on investments or bolt-on acquisitions for top performers.
   • Seizing Opportunities: pursuing new deals even when most capital is already deployed.
   • Holding Companies Longer: extending ownership of assets without a forced sale.
2. Enhancing Investor Returns
   Beyond Strategy, NAV loans can help shape performance metrics.
   • Faster Distributions: proceeds can be used to return capital to LPs sooner, directly improving/inflating IRR (Internal Rate of Return) and DPI (Distributed to Paid-In Capital)
   • Strengthening Fundraising: higher IRR and DPI give GPs a stronger story when raising their next fund.

Specialized lenders, such as @17Capital, have made NAV financing a growing part of the private markets ecosystem.

For LPs, the key is understanding when and how NAV loans are used within a fund’s strategy. NAV loans ability to increase GP performance metrics (and performance fees) may create a misalignment of interest.