Subscription Lines and NAV Facilities: What You're Actually Signing Up For
Two very different types of fund-level borrowing get lumped together as 'fund finance.' Here's what a GP is actually agreeing to with each, and what to negotiate before signing.
A portfolio company needs a bridge before its next round closes. Your LPs haven't wired the capital call yet — by the time every side letter's notice period runs and the wire clears, it's ten business days out — and the company can't wait ten days. Someone on your team says the words "let's just draw the line." You sign the drawdown notice without reading past the first page, because that's what everyone does. It's worth reading past the first page, because "the line" can mean two very different things, and only one of them is secured against something you actually control.
Fund finance gets talked about as a single category, but a subscription line and a NAV facility put a completely different kind of risk on your desk as GP. One borrows against your LPs. The other borrows against your portfolio. That difference matters more than whatever rate is printed on the term sheet.
Two structures, two different lenders' worries
A subscription line is secured against your fund's uncalled capital commitments — the promises your LPs have made but not yet funded. The lender's underwriting is about the LP base, not your portfolio: investor identity and standing, how enforceable the capital call mechanic actually is, and whether call proceeds are structured to flow straight to loan repayment. From your side of the table, drawing the line is fast and doesn't touch a single portfolio company; you're borrowing against a promise you already hold, then calling capital later to clear it, typically inside months rather than years.
A NAV facility is a different animal. It's secured against the value of what you've already invested in, and the loan-to-value ratio sits well below what a subscription line allows — typically 10–30% of portfolio value, against 60–90% of commitments for a sub line — precisely because the lender is now taking portfolio risk instead of LP risk. You reach for a NAV facility once uncalled capital has mostly been called and deployed, and you need liquidity for a follow-on, a bridge, or fund-level working capital without going back to LPs.
The covenant that actually changes your Friday afternoons
Read a subscription line and the covenants mostly protect the lender's claim on the calls — nothing that reaches into how you run the portfolio. Read a NAV facility and the covenants start reaching into decisions you'd otherwise make alone: a minimum NAV covenant, restrictions on transferring or encumbering specific holdings, sometimes a cap on any further leverage elsewhere in the structure.
The mechanism that should actually worry a GP isn't the interest rate. It's what a portfolio markdown does to the loan-to-value ratio. If the collateral's value falls, the same loan amount represents a larger share of a smaller number — and if that pushes you past the covenant, the facility can trigger a mandatory paydown, tighter lender oversight of distributions, or, in a worse case, pressure to sell a holding you had no intention of selling yet. None of that requires a default in the ordinary sense. It only requires the market moving.
What actually gets negotiated, and when
The leverage a borrower has over these terms is almost entirely front-loaded. Once the facility is signed, a lender has very little reason to soften a covenant it wanted in the first place — the negotiating window is the term sheet, not the workout conversation eighteen months later. A few things worth pushing on before you sign, not after:
- Headroom on the minimum NAV covenant, sized against a genuine stress case for the portfolio — not the base case in the deck.
- Cure periods and cure mechanics if a covenant is breached: how long you actually have, and what remedies exist short of forced action.
- Which holdings are actually pledged, and whether selling one requires lender consent even outside a breach.
- Whether reporting to the lender is quarterly or something tighter that quietly becomes a second oversight channel alongside your LPs.
A GP's shorthand
| Dimension | Subscription line | NAV facility |
|---|---|---|
| Secured against | Uncalled LP commitments | Portfolio value |
| Typical loan-to-value | 60–90% of commitments | 10–30% of NAV |
| Used for | Bridging a call, moving fast on a deal | Follow-ons, working capital once capital is mostly called |
| What moves it | LPs still owe the commitment regardless of markets | A markdown alone can breach the covenant |
| Who feels the covenant | The lender, mostly | The GP, directly, in decisions over specific holdings |
Where an outside seat helps
Reading a facility agreement for what it actually constrains — rather than what the summary memo says — is exactly the kind of judgment call that benefits from someone who has sat on the other side of a table like this before: not to do the deal for you, but to ask the questions a lender's covenants are designed not to invite. That's the kind of board-level involvement we take on — understanding what a facility actually locks you into, before you sign it, not after.
If you're weighing a facility and want a second, no-obligation read of what its covenants actually lock in, that's a conversation worth having before you sign. Talk to us — we don't lend, and we won't do the deal for you; we help you see clearly what you're agreeing to.
Frequently asked questions
Is a subscription line the same as a capital call?
No. A capital call is your right to ask LPs for money under the LPA. A subscription line is a loan against that unfunded right, used to bridge the timing gap between deciding to invest and the capital actually landing.
Can a fund have both a subscription line and a NAV facility at once?
Yes, in principle. A subscription line typically runs down as commitments deplete, while a NAV facility tends to arrive later in a fund's life, once there's a portfolio worth lending against. A fund with a mature portfolio and some unspent commitments left could run both, provided each lender's collateral doesn't overlap with the other's.
What actually triggers a covenant breach on a NAV facility?
Most commonly a fall in the value of the pledged portfolio that pushes the loan-to-value ratio above the agreed ceiling — a mark-to-market event, not a missed payment.
Does drawing a subscription line change what LPs see in their capital account statements?
It changes timing more than substance. Capital calls get netted against, or temporarily replaced by, facility draws for a period, and LPs typically see this reflected in fund-level financing disclosures rather than in their own commitment terms.
Who actually reviews a facility term sheet before a GP signs?
In many funds it's fund counsel and whoever runs finance, reviewing enforceability. Increasingly a board member or outside advisor is also asked to read the covenants specifically for what they lock in operationally — a different question from whether the document is legally sound.
