Why does a NAV loan cost so much more than a capital call line?

Why does a NAV loan cost so much more than a capital call line?

The most common objection we hear is a version of this. "Our subscription line is 200 over. Why is your NAV facility 650?" It is a fair question. The answer is not that one lender is cheap and the other expensive. The two products are secured on different things and sized against different risks, and within NAV lending itself no two loans are the same. A fund-level facility on a diversified buyout book and a holding company loan for a family office with concentrated venture exposure can be several hundred basis points apart, and most published pricing data comes from the first of those.

What a subscription line lends against

A capital call facility is secured primarily on the fund's right to call, receive and enforce uncalled commitments from its investors, plus the account the proceeds land in. The lender's main risk is investor commitment risk, assessed through investor eligibility rules and concentration limits, rather than portfolio risk. Facilities often run for a year or two, with Haynes Boone reporting an average tenor of about 19 months on its own documented deals in early 2025, and each drawing is cleaned down from the next capital call (Haynes Boone, Fund Finance Insights, April 2025).

Banks dominate this product because the loss history is close to zero, the tenor is short, and the facility sits inside a wider relationship that earns deposits, FX and advisory fees. Capital treatment helps at the margin, although the picture is more nuanced than it looks. Under the US agencies' March 2026 proposals, corporate exposures would generally carry a 95% risk weight under the standardised approach, with a conditional 65% weight for qualifying investment-grade corporate borrowers under the separate expanded approach for the largest banks, and these remain proposals rather than final rules (Simpson Thacher, CLS Blue Sky Blog). Haynes Boone's tracking shows sub line margins rose about 25% in 2023 and then moved about 1% in the first half of 2024, which is the behaviour of a commoditised product (Haynes Boone, July 2024).

What a NAV loan lends against

A NAV loan is secured on the portfolio. Recovery depends on private company equity or fund interests that rarely trade, are marked by someone other than the lender, and usually cannot be sold quickly at the reported mark. The security package in a US deal typically includes a pledge over a holding company, an assignment of the economic rights in the underlying interests, and a control agreement over the distribution account under UCC §9-104, which lets the lender direct the account without further consent from the borrower (UCC §9-104). The lender cannot call capital from anyone. After a default it can usually enforce by selling the pledged interests, but transfer restrictions, GP consents and cure periods make that slow. In the ordinary course, if the portfolio underperforms, the lender waits.

That risk is held by banks in some cases and by private credit funds and specialists in most, and the non-bank lenders answer to investors who expect returns in the low to mid teens. Rede Partners' 2025 lender survey puts target margins over the base rate in a 4% to 7% range, with weighted averages of about 5.2% for secured and 6.6% for recourse-light structures (Rede Partners, NAV Financing Market Report 2025). Travers Smith's July 2023 guide gave 400 to 700 basis points as typical, with arrangement fees of 1% to 2% of commitments and commitment fees of 1% to 2% on undrawn amounts (Travers Smith, Talking Secondaries Part 5). The margin is not the lender's return. Upfront fees, any original issue discount, the base rate and the lender's own funding costs sit between the two.

Where the money goes

In our experience the margin pays for four things. The lender's cost of capital. An illiquidity premium, because the lender cannot sell the collateral to rebalance and cannot force the borrower to. Underwriting, which for a concentrated book is closer to a private equity underwrite of each company than a credit review. And the cost of committed capital. A non-bank lender that commits $30m has to have the funding capacity ready, which is why undrawn fees exist and why many lenders, ourselves included, prefer term loans drawn in one or two tranches. Delayed-draw and revolving NAV structures do exist, but a revolver drawn in small amounts over years is priced up or declined by most lenders in our market.

Why the range is so wide

Travers Smith's guide gives 15% to 30% as typical day-one LTV, with a covenant ceiling around 25% to 35%, depending on asset quality and diversification (Travers Smith, Talking Secondaries Part 5). Within that, the variables are diversification, maturity, leverage and the quality of the marks. A large buyout fund with thirty cash-generating companies and audited valuations, borrowing 10% to 15% of NAV, is at the low-risk end and may be rateable. A family office holding twelve venture funds of 2022 to 2025 vintage with no distributions yet is not. Secondary buyers price venture at a discount to reported NAV, and lenders use that discount to set haircuts, which tends to push LTV down and the margin up. Structure matters as much as collateral. Recourse to the sponsor, a cash sweep, a shorter term or a pledge of the asset being bought all move the price.

There is also a middle ground. Hybrid facilities lend against a mix of uncalled commitments and NAV, and suit funds coming out of their investment period with some undrawn capital left.

Who gets the very low rates

In our experience there are two routes to a NAV facility priced anywhere near a sub line. Scale and quality, where a multi-billion buyout fund borrowing 10% of NAV against a mature, diversified book attracts bank capital. Or relationship, where a family with substantial assets at a private bank gets a thin margin because the bank is pricing the whole relationship and usually wants recourse beyond the pledged assets. A $150m fund or a $300m family office without that leverage will generally find that the specialist NAV market is the market.

What LPs and regulators see

For fund-level borrowers, ILPA's July 2024 guidance recommends disclosing the rationale and key terms of any NAV facility to all LPs, including rate, base and spread, initial LTV, drawings, repayment, collateral and covenants, and seeking LPAC consent where the LPA is silent or where proceeds fund distributions. It is non-binding and aimed at private equity funds (ILPA, NAV-Based Facilities Guidance). Separately, large US private equity advisers already report fund-level financing to the SEC on Form PF, which is confidential regulator reporting rather than LP disclosure, and the February 2024 amendments that expand it now have a compliance date of 1 July 2027 (SEC Release IA-6992).

The short version

A sub line is a loan against commitments to pay, held mostly by banks at low loss rates inside a wider relationship. A NAV loan is a loan against illiquid assets the lender cannot easily sell, held mostly by investors who need double-digit returns. Risk, funding and structure explain most of the gap. Margin, fees, recourse and covenants are still negotiable, and what a borrower controls is where in the NAV range it sits, which comes down to diversification, maturity, LTV, structure and how cleanly the collateral can be pledged.