Most investment funds don’t keep large amounts of cash lying around. Capital comes in waves, and the timing rarely lines up perfectly with when a fund needs to make an investment, pay expenses, or return money to investors.
That’s where fund finance comes in. It gives fund managers flexible access to credit that matches their specific needs—whether they’re waiting on capital calls, smoothing portfolio liquidity, or closing a deal quickly.
In this guide, we’ll explain what fund finance is, how it works, the most common types of facilities, and what makes it different from other forms of credit.
Why fund finance exists
Fund managers — whether in private equity, venture capital, real estate, or credit — don’t always have cash on hand when they need it. Their investors (limited partners or LPs) commit capital upfront, but that capital gets “called” over time. Meanwhile, fund managers often need to:
- Move quickly on investment opportunities
- Cover short-term costs or fees
- Align capital flows across a portfolio
- Manage timing gaps between buying and selling assets
Fund finance gives managers flexible access to credit that fits these situations. Instead of calling capital from investors every time they need cash, they can draw from a fund finance facility and repay it once capital is called or a transaction is complete.
The most common types of fund finance
1. Subscription line (or capital call line)
What it is:
A line of credit backed by the fund’s uncalled capital commitments from its limited partners. These are typically short-term, revolving facilities.
Who uses it:
Mostly private equity, venture capital, and real estate funds in early to mid-life stages.
Why it matters:
Subscription lines allow fund managers to act quickly on investments without waiting for capital calls to be processed. They also reduce the number of capital calls to LPs, which can improve internal efficiency and relationships.
2. NAV loan (net asset value loan)
What it is:
A credit facility secured by the value of the fund’s existing portfolio of assets. Instead of relying on uncalled capital, this loan is backed by the fund’s current investments.
Who uses it:
Mature funds with fully deployed capital, secondary funds, or those looking for liquidity without selling assets.
Why it matters:
NAV loans are useful when funds need flexibility after capital has been deployed. They can help smooth distributions, support follow-on investments, or handle fund-level obligations during downturns.
3. Hybrid facilities
What it is:
A blend of subscription line and NAV loan features — backed by both uncalled capital and the underlying investments.
Who uses it:
Funds transitioning from early to late stages, or those with mixed asset structures.
Why it matters:
Hybrid facilities offer more borrowing flexibility and can help funds maintain liquidity across more complex capital structures.
4. Management company and GP lines
What it is:
Credit extended to the fund’s management company or general partner (GP) — not the fund itself — typically to cover operational expenses or co-investment obligations.
Who uses it:
Fund managers who need to bridge costs, cover expenses, or meet GP commitments.
Why it matters:
These lines support the operational side of fund management, ensuring managers can meet obligations without affecting fund performance.
Fund finance vs. corporate lending: What’s the difference?
On the surface, fund finance can look a lot like traditional corporate lending. But there are a few important differences.
- Who borrows: In fund finance, the borrower is typically a fund entity (like a GP or SPV), while in corporate lending, it’s an operating company.
- What backs the loan: Fund finance loans are backed by LP capital commitments, fund NAV, or future cash flows. Corporate loans are backed by revenues, receivables, or physical assets.
- Purpose: Fund finance helps manage timing gaps and investment liquidity. Corporate lending supports day-to-day operations and growth.
- Structure: Fund finance facilities include subscription lines, NAV loans, and hybrids. Corporate loans often include term loans, revolvers, or working capital lines.
- Covenants: Fund finance covenants relate to capital calls, asset coverage, or investment thresholds. Corporate covenants focus on revenue, EBITDA, and leverage ratios.
- Key risks: Fund finance risks include timing mismatches or asset revaluations. Corporate lending risks focus on market downturns and operating cash flow.
The biggest distinction is mindset: fund finance is built for timing and structure, not operations. It helps funds align inflows and outflows—without changing the investment strategy itself.
How fund finance facilities are structured
Most fund finance facilities are revolving lines of credit — meaning the fund can borrow, repay, and re-borrow up to a set limit. But beyond that, terms can vary widely based on the fund’s strategy, stage, and lender preferences.
Key components include:
- Borrowing base: The amount the fund is allowed to borrow, often based on a percentage of uncalled capital (for subscription lines) or portfolio value (for NAV loans).
- Advance rate: The percentage of the borrowing base the lender will extend (e.g. 60–90%).
- Covenants: Financial and operational rules the fund must follow — such as minimum asset values, notice periods for capital calls, or limits on distributions.
- Collateral: This can include uncalled capital commitments, fund assets, or rights to cash flows, depending on the loan type.
- Maturity and renewal: Most facilities are short- to medium-term, often one to three years, with potential extensions.
Who provides fund finance?
Fund finance is offered by a range of lenders, including:
- Large commercial banks with fund finance or structured lending teams
- Specialty lenders and private credit funds focused on the asset class
- Syndicated groups, where multiple banks or lenders participate in a single facility
Lenders assess the creditworthiness of the fund not by traditional income or revenue, but by the quality of its LP base (in subscription lines) or the stability of its asset portfolio (in NAV loans). Relationships, track record, and fund structure all play a role.
What makes fund finance different
While fund finance shares some similarities with corporate lending, there are several unique characteristics that set it apart:
- The borrower is a fund, not an operating company
The underwriting focuses on the fund’s capital structure, LPs, and investments, not products or sales. - The collateral is often indirect
Instead of receivables or equipment, fund finance loans are backed by LP commitments or portfolio NAV. - The needs are cyclical
Fund finance usage often tracks fundraising, investing, and exit cycles — meaning a facility could be heavily used one quarter and dormant the next. - The structures are bespoke
Lender terms vary widely by fund type, jurisdiction, and strategy, requiring custom documentation and tracking.
Why fund finance is growing
In recent years, the fund finance market has grown significantly. There are a few key reasons for this:
- Growth in private capital markets
As private equity, venture capital, and private credit markets grow, so does the need for tools that support fund operations. - Increased sophistication of fund managers
More GPs now use fund-level financing as part of their liquidity and risk management strategy. - More creative use cases
NAV loans and hybrid facilities are being used to support continuation funds, secondaries, and complex transactions. - Institutional demand for efficient operations
LPs expect fund managers to operate with discipline, and credit lines can help reduce administrative friction.
Operational complexity behind the scenes
Despite its benefits, fund finance isn’t always easy to manage. Each lender has different reporting requirements. Credit agreements contain bespoke terms that affect how much can be borrowed and when. Deliverables — like borrowing base certificates, financial statements, and compliance reports — often live in PDFs, spreadsheets, and emails.
Without a strong operational system, teams can struggle with:
- Tracking deadlines across multiple facilities
- Interpreting complex advance rate or eligibility logic
- Calculating interest and fees accurately
- Preparing audit-ready reports across lenders
As funds grow, many turn to software platforms to help manage these challenges and reduce the risks of human error or institutional knowledge loss.
A growing ecosystem
Fund finance gives investment funds a flexible way to manage timing gaps, smooth operations, and support long-term strategy — without relying solely on capital calls. Whether it's a fast-moving subscription line or a structured NAV facility, the goal is the same: more control over liquidity and operations.
As the private capital ecosystem continues to expand, fund finance will likely play a larger role — not just as a short-term solution, but as a core part of how funds manage complexity, risk, and growth.
