Commercial Loans and Fun Blog

What is a NAV Loan?

Written by George Blackburne | Fri, Jan 12, 2024

What is a NAV Loan?

A NAV loan, also known as a Net Asset Value loan, is a specialized type of loan that is based on the value of the assets in a fund's or individual's investment portfolio.  These assets might include mortgages, stocks, bonds, and equity interests in companies.

NAV loans allow fund sponsors (the guys who raised the money in the fund and manage it) and individual borrowers to leverage the value of their investments to obtain financing for various purposes.  

 

 

 

 

For funds, this might mean buying more assets for the fund or buying out investors or retiring partners.  For individuals, this might mean purchasing real estate, starting a business, or funding education expenses.

Unlike traditional loans that require collateral such as a house or a car, a NAV loan uses the borrower's investment portfolio as collateral. The lender assesses the value of the portfolio and provides a loan amount based on a percentage of that value. Obviously, the bigger and more successful the investment portfolio, the more the sponsor or borrower can borrow.

One of the key advantages of a NAV loan is that it allows borrowers to access funds without liquidating their investments. This can be particularly beneficial for individuals who want to maintain their investment positions or avoid incurring capital gains taxes. By using their investment portfolio as collateral, borrowers can continue to benefit from potential investment growth while still obtaining the financing they need.

 

 

 

 

Another advantage of NAV loans is that they often come with competitive interest rates. Lenders are more willing to offer favorable terms and rates due to the reduced risk associated with the collateral. Additionally, NAV loans typically have flexible repayment options, allowing borrowers to customize their repayment schedules based on their financial circumstances.

It is important to note that NAV loans are typically only offered to individuals with substantial investment portfolios. Lenders may have minimum requirements in terms of the value and composition of the portfolio. Additionally, borrowers should carefully consider the risks and potential drawbacks of using their investments as collateral, as market fluctuations can affect the value of the portfolio and impact the loan terms.

 

 

 

 

 

Who Makes NAV loans?  

NAV loans are typically offered by financial institutions, such as banks, credit unions, and specialized lending firms. These institutions have the expertise and resources to assess the value of investment portfolios and provide loans based on that assessment. They have dedicated teams that understand the intricacies of NAV loans and can guide borrowers through the process.

In addition to traditional financial institutions, there are also alternative lenders that offer NAV loans. These lenders might include private equity firms, hedge funds, or other investment firms that specialize in providing financing options to individuals and funds.

 

 

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