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# Using a NAV Facility to Fund LP Distributions: LPAC Consent, Disclosure and Lender Terms
- URL: https://blog.financely.io/using-a-nav-facility-to-fund-lp-distributions-lpac-consent-and-lender-terms/
- Published: 2026-11-10T14:08:44.000Z
- Updated: 2026-11-10T14:08:44.000Z
- Description: A GP guide to funding LP distributions with a NAV facility, covering LPAC consent, ILPA disclosure expectations and lender terms.
- Author: Financely Debt Advisors
- Tags: Fund Finance, NAV Lending

Exit markets do not always cooperate with fund timelines. When realisations slow, LPs still want distributions, and GPs look for ways to return capital without selling good assets at the wrong time. A NAV facility, borrowed against the value of the portfolio, can fund a distribution. It can also damage LP relationships if it is done without the right governance. This guide explains how GPs approach a NAV-funded distribution: what the LPAC will expect, what lenders will require, and how to present the case.

## What a NAV-funded distribution is

A NAV facility is a loan to the fund, or to a vehicle holding its investments, secured on the portfolio. When proceeds are used to make a distribution, LPs receive cash now, and the fund repays the loan later from realisations. The economics are simple: the fund pays interest to bring forward cash. The governance is not. LPs are receiving their own money back, financed with leverage at fund level, and the cost of that leverage reduces future returns.

For how NAV facilities work in general, see [how NAV financing works for private credit funds](https://blog.financely.io/how-nav-financing-works-for-private-credit-funds/) and [private equity NAV loans against portfolio investments](https://blog.financely.io/private-equity-nav-loans-against-portfolio-investments/).

## What ILPA guidance says

The Institutional Limited Partners Association published [NAV-Based Facilities: Guidance for Limited Partners and General Partners](https://ilpa.org/wp-content/uploads/2024/07/ILPA-Guidance-on-NAV-Facilities-2024.pdf?ref=blog.financely.io) in 2024\. Its recommendations matter because many institutional LPs use them as the yardstick. In summary:

- Unless the LPA explicitly permits a NAV facility, or the GP has prior consent, GPs should seek LPAC consent before implementing one, regardless of use of proceeds.
- GPs should engage the LPAC for consent when the intended use is a distribution, regardless of LPA language.
- Disclosure to the LPAC should cover the rationale and use of proceeds, alternatives considered, size, structure and controls, key economic terms to the extent lender restrictions allow, and any additional obligations on LPs, such as whether distributions are recallable. See [Part 3 of the guidance](https://ilpa.org/wp-content/uploads/2024/11/Part-III-Nav-Based-Facilities-Guidance.pdf?ref=blog.financely.io).
- Future LPAs should define NAV-based facilities and set limits on their use.

GPs who treat this as a box-ticking exercise tend to find the LPAC asks harder questions. GPs who bring a clear rationale and full information tend to get faster, cleaner decisions.

## Building the LPAC pack

A strong LPAC presentation answers the questions LPs will ask before they ask them:

1. **Why now?** What is the exit environment, what realisations are expected and when, and why a distribution is in LPs' interest at this point.
2. **What else was considered?** Company-level financing, partial sales, a continuation vehicle, a secondary sale of fund interests, or simply waiting.
3. **How big, and how controlled?** Facility size, amount drawn for the distribution, loan-to-value at closing, covenant headroom and repayment mechanics.
4. **What does it cost?** The effect on net returns over a reasonable range of outcomes, and how it will be reported. Where lender confidentiality limits disclosure of specific terms, explain what can and cannot be shared.
5. **What does it mean for LPs?** Whether the distribution is recallable, whether LPs have any new obligations, and how cross-collateralisation affects the portfolio.
6. **Conflicts.** Any effect on carried interest or GP economics, and how conflicts are managed.

## What NAV lenders look at

Lenders underwrite the collateral, not the purpose, but the purpose affects the repayment profile. Expect focus on:

- **Portfolio diversification.** Number and size of positions, sector mix and largest exposures. See [NAV loan concentration limits and single-asset exposure](https://blog.financely.io/nav-loan-concentration-limits-and-single-asset-exposure/).
- **Valuation quality.** The valuation policy, audit history and how marks compare with realised exits.
- **Loan-to-value and cures.** The maximum LTV, step-ups, cure periods and what happens if valuations fall.
- **Cash sweep.** The share of realisation proceeds that must repay the facility, and whether it increases over time.
- **Interest structure.** Cash pay, payment in kind or a mix. See [what PIK means in NAV lending](https://blog.financely.io/what-is-pik-in-nav-lending/).
- **Structure and security.** Borrower entity, security over holding vehicles, transfer restrictions and portfolio company debt.

## Illustrative example

**Illustrative example only:** a buyout fund in its harvest period has a diversified portfolio and slower exits than planned. LPs have received less than they expected at this stage. The GP proposes a modest NAV facility, with a conservative loan-to-value, a cash sweep that steps up over time and a clear expectation that realisations will repay it. The LPAC pack explains the alternatives considered, the effect on net returns in several exit scenarios and that the distribution is not recallable. The LPAC approves with a cap on the facility size. The same proposal, presented without alternatives or return effects, would have been much harder to approve.

## Reporting after closing

LPs will expect ongoing reporting on the facility: balance, LTV, covenant compliance and the effect on performance. ILPA's earlier [guidance on subscription line disclosures](https://ilpa.org/wp-content/uploads/2020/06/ILPA-Guidance-on-Disclosures-Related-to-Subscription-Lines-of-Credit%5F2020%5FFINAL.pdf?ref=blog.financely.io) shows the kind of standardised reporting LPs value, such as reporting performance with and without the facility. Applying the same discipline to a NAV facility builds trust for the next fundraise.

## Mistakes to avoid

- Relying on general borrowing language in the LPA without engaging the LPAC.
- Presenting the distribution as free money rather than as borrowed cash with a cost.
- Choosing a lender on headline cost alone, without testing LTV mechanics and sweep terms in a downside.
- Underestimating the time needed for lender diligence and LPAC review.

## A realistic timeline

Run the lender process and the LPAC process in parallel, not in sequence. A practical order is: confirm the LPA position with fund counsel, prepare the portfolio data and a short rationale, sound out a small number of lenders to understand sizing and structure, then take a well-formed proposal to the LPAC with indicative terms in hand. LPAC members will want time to review and may ask for a meeting without the GP present. Lender diligence on a diversified portfolio usually covers valuations, the largest positions and the legal structure of holding vehicles. Building in time for both avoids the situation where a GP has agreed terms with a lender but cannot proceed because LP consent is not yet in place.

## How Financely helps

Financely advises GPs on whether a NAV facility is the right tool, structures the facility, prepares the lender package and supporting LPAC materials, and runs the process with banks, private credit funds and insurance capital. Financely is an advisor and arranger and does not lend or hold fund assets. For the full fund finance service, see [fund finance and NAV lending advisory](https://www.financely-group.com/fund-finance-for-gps-nav-gp-lines-request-term-sheet?ref=blog.financely.io). Where an existing facility is maturing, see [NAV loan refinancing](https://www.financely-group.com/nav-loan-refinancing-advisor-replace-a-maturing-nav-facility?ref=blog.financely.io).

## Frequently Asked Questions

### Do we need LPAC consent to use a NAV facility for a distribution?

Check the LPA first. ILPA guidance recommends engaging the LPAC for consent whenever the intended use of a NAV facility is a distribution, regardless of LPA language, and seeking consent for any NAV facility where the LPA does not explicitly permit one.

### Will LPs see a NAV-funded distribution as a return of capital?

LPs will ask whether the distribution is recallable, how it affects reported performance and what the borrowing costs the fund over time. Clear disclosure of those points is central to the consent process.

### How do NAV lenders size a facility used for distributions?

On the value and diversification of the portfolio, with a loan-to-value test and cash sweep mechanics. Using proceeds for distributions does not change the collateral analysis, but lenders do look at how quickly the facility is expected to be repaid from realisations.

### What alternatives should a GP consider?

Portfolio company level financing, partial realisations, a continuation vehicle or a secondary sale of fund interests. ILPA guidance asks GPs to explain the alternatives considered.

### Does Financely provide NAV facilities?

No. Financely is an advisor and arranger. It structures the facility, prepares lender and LPAC materials and runs the process with banks and private lenders, which make the credit decisions.

## Next Step

If you are preparing a financing like this, send a short summary of the transaction, the numbers and the timetable. [Request a free estimate](https://www.financely-group.com/requestaquote?ref=blog.financely.io). If you are ready to begin work straight away, you can also [start your engagement](https://www.financely.io/start-your-engagement?ref=blog.financely.io).

*Financely acts as an advisor and arranger, not a lender, issuer or guarantor, and does not hold client funds. Financing is subject to lender appetite, due diligence, compliance approval and documentation. This article is general information, not legal, tax or accounting advice.*