What is a field examination in asset-based lending?

Full Explanation

A field examination is the on-site collateral audit a lender carries out to verify the assets underpinning an asset-based lending facility. Rather than relying on your management accounts at face value, an examiner samples and tests the collateral you report — receivables, inventory, equipment and any pledged intellectual property — to confirm it genuinely exists, belongs to you, and could be realised. The exercise both validates the current borrowing base and estimates what the collateral would fetch in a liquidation, which is what protects the lender if you default. On receivables, the examiner checks ageing, concentrations, credit notes and dilution, and confirms which balances are genuinely eligible versus ineligible. On inventory, they test cost and condition and reconcile to a net orderly liquidation value. On plant and equipment, they consider orderly liquidation value rather than book value. Where IP forms part of the security, its value is assessed case by case against an independent valuation. The examiner also confirms the lender's charge is properly perfected — in the UK, registered at Companies House within 21 days under section 859A of the Companies Act 2006, and noted at the UK IPO for intellectual property. A charge not registered in time is void against a liquidator or administrator, so this check matters. Field examinations happen before drawdown to set opening advance rates and reserves, and then periodically through the life of the facility — often quarterly or half-yearly, more frequently if the lender has concerns. Findings can move the numbers: an examiner may reduce advance rates, raise a reserve, or reclassify collateral as ineligible if dilution or disputes emerge. In stressed facilities, the cadence of examinations typically increases. The practical preparation is straightforward. Keep clean, reconciled sub-ledgers for debtors, creditors and stock; hold your asset registers and IP renewal records to hand; and be ready to evidence chain of title for any pledged intellectual property. The tidier your collateral records, the smoother the examination and the more availability you are likely to retain.

Related Glossary Terms

Related Questions