Meaning
Physical inspections of collateral confirm the existence and quality of assets used to secure a business loan. During field exam verification, an auditor visits the borrower’s site to count inventory and review accounts receivable ledgers. This process protects the lender from fraud or reporting errors.
Asset Inspection
Examiners perform test counts of finished goods and raw materials to ensure they match the monthly reports provided by the borrower. If the field exam verification reveals a deficit between a supplier’s forecast and the demonstrated rate of stock arrival, the lender may reduce the available credit limit. Checking for the condition of the stock is also part of the visit.
Variance Detection
Discrepancies between the company records and the physical count indicate potential issues with the internal control system. The field exam verification process looks for slow-moving or obsolete items that should be excluded from the borrowing base. Precise data entry is required for a clean audit.
Lending Threshold
Results from these inspections determine the actual amount of cash a company can draw from its line of credit. A poor field exam verification can lead to a freeze on funding or a demand for additional collateral. Continuous monitoring keeps the risk profile within acceptable limits.
