What is a field examination: the periodic on-site diligence a secured lender performs at a borrower's premises to test whether the reported collateral, mainly receivables and inventory, is real, correctly stated and eligible
A field examination, often shortened to field exam, is the lender's own on-site review of the assets and records behind a secured loan. A field examiner, employed by the lender or by a firm acting for it, spends one or more days at the borrower's premises testing the receivables ledger, the inventory records and the systems that produce the borrowing base certificate. The output is a report that says whether the collateral reporting can be trusted, and where it cannot.
It matters because an asset-based facility runs on self-reported numbers. The borrowing base certificate is signed by the borrower; the field exam is where the lender checks it against reality. The term is American and standard in US asset-based lending. In the UK receivables finance market the same visit is usually called an audit or a survey; the content is close to identical.
How a field examination works
- Scope and timing. New facilities get a pre-funding exam; existing ones are examined on a cycle, commonly once to four times a year depending on risk, with the right to go in more often when something changes.
- Receivables testing. The examiner traces a sample of invoices to shipping documents and proof of delivery, tests cash application, reviews agings, checks for related-party sales, credit memos and dilution, and confirms the ineligibles are being excluded as the agreement requires.
- Inventory testing. Test counts against the perpetual records, cost testing against purchase invoices, a look at slow-moving and obsolete stock, and reconciliation of the inventory report to the general ledger.
- Books and systems. Does the system that produces the borrowing base certificate actually tie to the ledger, and are the controls around it real.
- The report. Findings, exceptions, recommended reserves or eligibility changes, and a view on whether advance rates still fit the collateral quality.
Field examination versus collateral inspection
The two overlap and are not the same job. The field exam is primarily a books-and-records exercise: it tests whether the reported numbers are right. A collateral inspection is primarily a physical exercise: it confirms specific assets exist, match their identifiers and are where the file says. A field exam usually includes some physical observation, such as inventory test counts and a spot check of the warehouse, and on equipment-heavy deals the two are often done together. A lender that does one and assumes it covered the other has a gap.
Field examination example: dilution nobody reported
An examiner visits a wholesaler whose borrowing base shows 2,400,000 of eligible receivables. Invoice tracing is clean, but cash application testing shows customers routinely taking deductions for returns and promotional allowances that the company books weeks late. Measured dilution is 9 percent against the 4 percent assumed when the facility was priced. The exam report recommends a dilution reserve, which cuts availability by roughly 120,000, and quarterly re-testing. Nothing was fabricated and nobody lied; the reporting simply flattered the collateral, and only on-site testing could show by how much.
What a field examination does not do, and the mistakes people make
It is not an audit of the financial statements. The examiner tests collateral, not GAAP compliance, and issues findings for the lender, not an opinion for the public.
It is not an appraisal. Inventory and equipment values for advance-rate purposes come from appraisers; the examiner tests existence, recording and eligibility.
It does not prove title. Whether the collateral is unencumbered and the lender's claim ranks first is answered by lien and registry searches, not by anything found in the warehouse.
The common mistakes: stretching the exam cycle on a quiet account until the account is no longer quiet; announcing exams so far ahead that records can be dressed; sampling the same large debtors every visit while problems grow in the tail; treating a clean exam as permanent rather than as a snapshot; and skipping the physical walk entirely, so the books reconcile beautifully to stock nobody has seen.
Where the field exam report goes
To the portfolio manager and credit team, into the loan file against that review date. Its findings adjust reserves, eligibility and sometimes advance rates, and feed the next inspection report cycle. Read in sequence they form the diligence history of the facility, part of the audit trail a workout team will later rely on.
Between exams, where a lender wants eyes on the physical collateral without a trip, Venta Capture, a product of VentaVid, is one way to collect it. The borrower's staff receive a secure link and follow guided steps in the mobile browser with no app: the warehouse, the racking, the identifier plates, the stock the last exam flagged. What is recorded in the session arrives timestamped, located and digitally sealed on a case, giving the examiner a documented view of the site between visits. It supplements the on-site testing of books and records; it does not replace it. See Venta Capture.
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