Field Examination
Definition
A field examination is a lender's on-site verification of a borrower's collateral and reported financial figures, carried out before funding and periodically through the life of an asset-based facility. Field examination lending practice exists because availability in an asset-based facility depends on the accuracy of the numbers a borrower reports, and a lender will not simply take those figures on trust. The examiner tests the reported balances against underlying records, checks the ageing of receivables, samples invoices for genuine, collectable trade debt, inspects inventory and reconciles it to the ledgers, and estimates what the collateral would realise on liquidation rather than at book value. The findings feed directly into eligibility decisions: which items are treated as collateral ineligibles, what advance rates and reserves apply, and how much the borrowing base ultimately supports. Where the exercise reveals weaker realisation than reported, the lender tightens availability. For intellectual property used as security the equivalent scrutiny is legal and commercial rather than a stock count. The lender expects an independent IP audit and confirmation that title is clean and unencumbered, that the chain of title from contractors and employees is properly documented, that registered rights remain in force with renewals paid, and that encumbrance and prior-charge searches at Companies House and the UK Intellectual Property Office come back clear. It also wants evidence of genuine commercial value and cash generation, because operating cash flow, not the collateral, is the primary repayment source. This matters to borrowers because a field examination can turn a promising headline valuation into a much smaller usable figure if defects surface late. A UK company preparing for an IP-backed facility should assume the examination will happen and prepare for it: assemble the audit, resolve any ownership gaps, keep renewals current, and have two to three years of statutory accounts, current management accounts and a supported cash-flow forecast ready to withstand review.
Complementary Terms
Concepts that frequently appear alongside Field Examination in practice.
A collateral audit is an independent examination that tests whether the assets a borrower pledges as security genuinely exist, are properly owned, and can be realised for the value claimed. It underpins asset-based lending, where the amount a borrower can draw depends on the reliability of reported collateral.
The borrowing base is the amount a lender will make available against a borrower's collateral, calculated as eligible collateral multiplied by its advance rate, less ineligibles and reserves. It is the central mechanic of asset-based lending: rather than fixing a loan amount up front, the facility flexes with the value of the underlying assets, so availability rises and falls as receivables, inventory and other collateral change.
Collateral ineligibles are items a lender excludes from the borrowing base because they fail its eligibility criteria, so they generate no borrowing availability. In an asset-based facility, availability is calculated by applying an advance rate to eligible collateral, then deducting collateral ineligibles and any reserves.
An advance rate is the percentage of an asset's assessed value that a lender will actually lend against, converting collateral quality into a realistic borrowing limit. It is the discipline at the heart of advance rate lending: the gap between the asset's value and the amount advanced is the lender's cushion against realisation shortfalls, disposal costs and the time it takes to sell on default.
An IP audit for lending is a structured, independent review of a business's intellectual property that establishes what rights it owns, whether title is clean and unencumbered, and whether those rights are enforceable and in force, so a lender can rely on them as collateral. An IP audit for lending is the evidentiary foundation on which any credit-standard IP valuation and security structure is built; without it, a lender cannot be confident that the assets it is advancing against genuinely belong to the borrower and are free of prior charges.
The chain of title for intellectual property is the documented, unbroken sequence of ownership records that traces an IP asset from its original creation through every transfer to its current owner. A clean chain of title ip is the first thing a lender verifies before lending against intellectual property, because it proves the borrower actually owns what it is offering as collateral and that the rights are unencumbered and enforceable.
Orderly liquidation value is the estimated proceeds an asset would realise if sold within a reasonable marketing period by a willing but compelled seller, rather than in a rushed distress sale. It sits between market value and forced sale value, and it is the premise a prudent lender leans on when sizing security against intangibles.
Debt serviceability is a lender's assessment of whether a borrower's operating cash flow can meet the principal and interest payments on a loan as they fall due. In IP-backed lending, debt serviceability matters because collateral is only ever the secondary, fallback repayment source; the primary source is the cash the business generates from trading.
Related FAQ
What is a field examination in asset-based lending?
A field examination is an on-site collateral audit where the lender tests the assets in your borrowing base — verifying reported figures and estimating liquidation value before and during the facility.
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