GP Financing, Why the Bank's Yes So Often Turns Into a No

What GP financing is

GP financing is credit provided to the general partner of a private markets firm rather than to its funds. It is used to fund the GP commitment to a new vehicle, bridge capital calls, meet co-investment obligations, provide management company working capital, accelerate carried interest ahead of realisations, and finance succession or partner buyouts. Security is typically taken over GP interests, carry entitlements and fund stakes. Facilities from specialist lenders range from $10 million to over $100 million, structured as cash pay or PIK over one to five years.

How most GPs try to raise it, and where it goes wrong

The default first call is the fund’s bank, and that is where the problems start. GP financing is not a core product for a bank. On its own economics it rarely clears the bank’s return hurdle, so the bank underwrites the relationship instead of the loan. In practice that produces three recurring failure modes.

The relationship toll

Most banks will simply not lend to a GP unless the management company moves its operating accounts, deposits and custody to them. If you are happy with your existing banking, the conversation is over before it starts. If you are not, you are re-papering your entire treasury function as the entry price for a loan.

The subscription line conflict

The second failure mode is the one nobody writes down. A bank offers the GP its financing as part of a package in which the fund takes its subscription line from the same bank, at pricing the fund would not accept in a clean competition. The GP gets its personal financing, the fund, which belongs to the LPs, pays the margin. However it is dressed up, the GP has accepted a worse deal for its investors in exchange for a better one for itself. That is a conflict of interest, it sits squarely against the fiduciary duty a GP owes its LPs, and it is increasingly the first question sophisticated LPACs ask when a manager proposes a new banking package.

The slow yes

The third failure mode is timing. The initial approval comes quickly, often within weeks, and then the deal dies of old age. Credit committee cycles, ancillary business negotiation and documentation stretch past six months, and GP needs are the most time sensitive in private markets. A capital call lands on a fixed date. Acquisition financing has a signing deadline. A management company cash flow gap is measured in payroll cycles. The bank never says no. The deadline just passes.

The specialist alternative

Specialist NAV lenders underwrite the GP facility on its own economics, secured against the GP’s actual assets, its fund interests, carry and stakes, with no banking relationship and nothing required at fund level. At Nodem Capital an indication of appetite and a term sheet come within days, and prepared borrowers fund inside a month. The fund keeps its subscription line wherever it prices best, which is exactly how a GP’s duty to its LPs says it should be.

For current lending criteria see our investment parameters page, and for worked examples see our case studies, including a $60 million facility for a mid-market buyout fund’s follow-on programme. GPs working against a deadline can also read our GP financing page.