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.
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.
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.
An asset-based lending reserve is an amount a lender withholds from the borrowing base to cover specific risks or contingencies, reducing the funds a borrower can draw. In an asset-based facility, availability is built up as eligible collateral multiplied by an advance rate, less collateral ineligibles, less reserves.
A borrowing base certificate is the periodic statement a borrower submits to its lender reporting the current value of eligible collateral, from which available borrowing capacity is calculated. It is the operational document that keeps an asset-based facility honest between formal reviews: the borrower lists receivables, inventory and any other qualifying collateral, applies the agreed advance rates, deducts ineligibles and reserves, and arrives at the availability figure the lender relies on to permit further drawings.
Net orderly liquidation value is the orderly liquidation value of an asset less the direct costs of realising it, giving the amount a lender would expect to net after a controlled disposal. It strips out disposal expenses such as agent and legal fees, marketing costs, storage, and any taxes or commissions, leaving the figure that would actually reach the secured creditor.
An overadvance is a drawing that exceeds the amount the borrowing base would normally support, so the borrower is advanced more than the eligible collateral, at applicable advance rates and net of ineligibles and reserves, would justify. In asset-based lending, availability is calculated from the collateral, and an overadvance temporarily breaks that link.
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.
Read full answer →Which UK banks lend against intellectual property?
NatWest was the first UK high-street bank to lend against IP, via its High Growth IP Loan. HSBC UK and HSBC Innovation Banking also assess IP, alongside specialist insurance-backed lenders.
Read full answer →Why does chain of title matter for an IP loan?
Chain of title matters because a lender can only take security over IP the borrower genuinely owns. Gaps, such as unassigned contractor or employee work, can void the collateral and stop the loan.
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