What is a NAV loan, and what does it mean for portfolio companies?

A NAV loan in plain language

A NAV loan (net asset value loan) is borrowing by a private equity fund, secured by the value of investments the fund already owns. The borrower is the fund or a holding vehicle it controls, not any portfolio company, and the lender looks to the portfolio as a whole for repayment.

NAV loans are a later-life tool. Early in a fund's life, when most capital is still uncalled, funds borrow on subscription lines secured by LPs' commitments. Once capital is invested and those commitments run down, the portfolio itself is the main asset a lender can rely on. Lenders include banks and specialist private credit funds, and terms vary widely from one facility to the next.

How does a NAV facility work?

1. Borrower. The fund, or a special purpose vehicle that holds the fund's portfolio interests, signs the facility.
2. Collateral. The lender usually takes a pledge over the equity of the holding companies that own the portfolio, over the accounts where distributions land, or both. Portfolio companies themselves typically do not guarantee the loan.
3. Loan-to-value test. The facility is sized against reported NAV, and a loan-to-value covenant is retested as valuations move.
4. Cash sweep. Distributions from portfolio companies often flow to the lender first, with a larger share swept if the loan-to-value ratio rises.
5. Repayment. The loan is repaid from exits, recapitalizations or other distributions over its term.

How does a NAV loan compare with other sources of cash?

Why does cross-collateralization matter to your strongest companies?

One facility is sized against the whole pool, so a markdown at one weak company can push the loan-to-value ratio up for everyone. When that happens, sweeps take a bigger share of distributions, and the fastest cure may be to sell or recapitalize a strong company earlier than its own plan suggests.

The strong company does not owe the debt, but its cash is effectively spoken for. Its CEO may be asked for a distribution, which then runs into the company's own credit agreement; the page on restricted payments and dividends to the sponsor covers that step. Sponsor-appointed directors can find the fund's needs and the company's interests pulling apart, which is why fiduciary duties of a sponsor-appointed director are worth reviewing before any such request.

How is a NAV loan different from a dividend recap?

A dividend recap puts new debt on one company's balance sheet and distributes the proceeds. The risk stays with that company: higher interest cost, tighter covenants and less room for a bad quarter.

A NAV loan leaves company balance sheets untouched but spreads the dependency across the portfolio. Fund CFOs weigh interest cost at the fund level against leverage at the company level; operating partners feel the difference in whose cash gets called on, and when.

What do NAV loans mean for DPI?

DPI (distributions to paid-in capital) measures cash returned to LPs as a multiple of the capital they have paid in. Distributing NAV loan proceeds raises DPI, but with borrowed money that future exits must repay, so LPs often ask whether a distribution came from a realization or from a borrowing.

The pressure behind that question is real. Bain's Global Private Equity Report 2026 reports that distributions as a share of NAV have been below 15% for four years, with about 32,000 unsold companies worth $3.8 trillion still in sponsor portfolios. The guide on how LPs evaluate a PE firm's operating partner model shows how that pressure reaches operating teams.

Where does unlevered company-level cash fit?

Some portfolio companies hold an asset that can produce cash without new debt: years of operational records. Through SourceX, a qualifying US company can license those records to AI labs and data buyers for one all-in price, paid once, typically within about 60 days of invoicing once the buyer selects the data. The company keeps ownership, the data is licensed rather than sold, and nothing is binding until the company agrees price and terms and signs.

Be precise about what this is. It is one-time cash at the company level, not a fund liquidity tool, and it depends on qualification, rights and buyer demand. The starting point is a company with 50+ full-time employees at peak (contractors excluded), several years of documented operations and records across many systems; who qualifies lists the rest, and the guide to assessing portfolio company data opportunities shows how a sponsor screens.

For a fund CFO or operating partner, the referral role is narrow: you make the introduction, and SourceX and the company do the work. Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company, payable only after the buyer pays and SourceX receives its fee. No reward is guaranteed, and any fee connected to a portfolio company should be checked against the LPA first.

Limits and open questions

• NAV facility terms are private and vary; read the facility agreement itself, not a summary of it.
• Some LPAs limit fund-level borrowing or reserve it for LP or advisory committee consent; see what an LPAC is.
• License proceeds land at the company, and whether they can move up to the fund depends on the company's credit agreement, board and solvency.

This is general information, not legal, tax or financial advice.

Next step

If a company in your portfolio has deep records and needs cash without more leverage, register as a partner and introduce it, or read the approach for private equity operating partners first.