A subscription line, also called a capital call facility or sub-line, is a loan to a fund that is secured mainly on its investors’ uncalled capital commitments. A NAV facility is secured on the value of the fund’s own assets. The first usually suits a fund early in its life, and the second becomes more relevant as capital is deployed.
What is a subscription line facility?
A subscription line facility is a loan to a fund, underwritten mainly on the strength of its investors’ commitments to provide capital [2]. Dechert describes it as bridging the gap between making investments and receiving capital contributions from investors [1]. The fund borrows from a lender, typically a bank, and uses the credit to make investments without frequent capital calls [1].
These facilities are usually set up as revolving credit facilities, which can be repaid periodically and redrawn when a new investment is made [1]. Dechert described the sub-line market as well developed and estimated it at US$900 billion globally in August 2024 [1].
What security does a lender take?
The lender is secured on the fund’s right to call capital from investors, not on the fund’s investments. Mayer Brown lists four main parts of the collateral package [2]:
- Capital call rights. The fund, through its general partner (GP), pledges the right to issue capital calls for uncalled commitments, so the lender can step in and issue calls if the fund defaults.
- Capital contributions. The lender is also secured on the money investors pay in response to those calls.
- The collateral account. The bank account that receives investor contributions is pledged, so the lender controls the funds once deposited.
- Enforcement rights. The GP’s authority to enforce investor payment obligations, including remedies if an investor defaults.
What do lenders check before lending?
Lenders check the quality of the investor base and the documents that make the commitments enforceable. The amount a fund can borrow, known as the borrowing base, depends on the lender’s assessment of how creditworthy the investors are [1]. Mayer Brown says lenders often review audited financial statements, credit ratings and historical funding performance [2].
They also read the limited partnership agreement (LPA), the subscription agreements and any side letters. Side letters can limit an investor’s liability, set conditions for funding or give withdrawal rights, any of which may affect the value of the collateral [2]. Dechert stresses that it is vital to ensure the fund’s documents permit both the facility and the security it requires, and to amend them where possible if they do not [1].
How is a NAV facility different?
A NAV facility is a loan based on the value of the fund’s portfolio, so it is secured on the assets the fund holds rather than on investor commitments [1]. Dechert notes that the term is used widely and can mean different things to different people. The security package often includes account security and rights over the fund’s interests in the entities that hold the investments, such as pledges over shares or partnership interests [1].
The lender can be a bank or a non-bank lender, such as a private credit NAV lending fund [1]. Because the loan depends on portfolio value, accurate and regular valuation of the fund’s assets, and the ability to dispute a valuation, are key lender considerations [1]. Our article on NAV lending in Europe looks at this market in more detail.
| Subscription line | NAV facility | |
|---|---|---|
| Main security | Uncalled investor commitments and the account that receives contributions [1] | The assets held by the fund [1] |
| What sets the borrowing base | The lender’s view of the investors’ creditworthiness [1] | The value of the fund’s assets, so valuation matters [1] |
| Typical stage | Early in a fund’s life, while it has significant uncalled capital [1] | Can become a better choice as capital is deployed [1] |
| Lender | Typically a bank [1] | A bank or a non-bank lender [1] |
| Market | Well developed; terms are generally predictable [1] | Less established and more fact-specific [1] |
Why do managers use subscription lines?
Managers use them to act quickly and to delay calling capital. The Institutional Limited Partners Association (ILPA) says delaying capital calls gives the manager more flexibility to execute deals and shortens the J-curve, which can raise the fund’s reported internal rate of return (IRR) early in its life [3]. From an investor’s side, ILPA notes that the lines help smooth cash flows and ease the administrative burden of responding to capital calls [3].
ILPA also observed that these lines have moved beyond a short-term bridge. They are now used more broadly to manage a fund’s cash, with repayment terms often running beyond 90 days [3].
What concerns do investors raise?
The main concerns are about alignment of interests and about how much risk builds up across many funds. ILPA’s June 2017 paper lists these [3]:
- Comparability of performance. Not every fund uses a line, so reported returns can be distorted and funds become harder to compare.
- Clawback. A shorter J-curve could let a GP earn carried interest where returns without the line would not have met the preferred return, which may lead to clawback issues later.
- Expenses. The fund pays an upfront fee and interest. These costs can cancel out any gain to IRR if a deal performs poorly, and they reduce the investor’s multiple on invested capital.
- Tax. Longer maturities can create unrelated business taxable income (UBTI) exposure for tax-exempt investors.
- Liquidity risk. Many investors are not fully aware of their combined exposure through these facilities, and a market event could trigger simultaneous capital calls across several lines.
- Legal risk. The terms may give the lender excessive discretion, limit transfers, or imply joint and several liability if another investor defaults.
What does ILPA recommend?
ILPA recommends clearer limits and more disclosure, so that the use of credit lines benefits investors [3]. Its recommendations include:
- Managers disclose the balance and percentage of outstanding uncalled capital, the days each draw has been outstanding, how the proceeds are used, net IRR with and without the facility, the facility terms, and its costs, in quarterly reports.
- Managers avoid using the facilities to cover distributions ahead of a portfolio company exit.
- Investors in advisory committees consider adding credit line use to the agenda.
- Partnership agreements set reasonable thresholds, such as a maximum percentage of uncalled capital. ILPA gives 15–25% as an example.
- Investors ask prospective managers for levered and unlevered IRRs during due diligence.
The paper dates from June 2017. Check ILPA’s current guidance before relying on it for a specific fund.
For the legal side of structuring a fund, see our guide to European private credit fund structures. Our article on the private credit secondary market covers another route to liquidity for fund interests.
Where can you discuss fund finance?
Lenders, LPs, banks and advisers meet at Private Credit Days Europe, our conference in London on 18–19 November 2026. The event page has the agenda, ticket types and current prices.
Written by the DD Talks editorial team. Reviewed 8 November 2026. This article is general information and is not investment, legal or financial advice.
Sources
- Dechert LLP, Back to Basics: Key Differences Between Sub-lines and NAV Facilities, 31 August 2024
- Mayer Brown, Subscription Credit Facilities: Understanding the Collateral, 15 April 2025
- ILPA, Subscription Lines of Credit and Alignment of Interests: Considerations and Best Practices for Limited and General Partners, June 2017
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