Question 1

Our borrower receives audited financial statements; why is a field exam also required?

Accepted Answer

While audited financial statements are an important information source, they do not fully capture collateral quality or liquidation values and are often stale for collateral analysis purposes. Audited financial statements typically present collateral values as of year-end but do not reveal collateral trends throughout the year or current lendable values. They also lack the detailed information lenders need to properly structure borrowing certificates, identify ineligible collateral categories, and set appropriate advance rates.

Additionally, the field exam's independence is assured because our services are retained exclusively by the lending institution, ensuring an unbiased and objective evaluation separate from the borrower.

Our staff is uniquely qualified to evaluate collateral quality and quantity. During a field exam, customary analyses include reviewing accounts receivable turnover, dilution, concentration, and collectability. We assess whether the accounts receivable advance rate supports dilution and other factors and identify potential invoice manipulation or aging categories that may violate loan agreements. We also check for prebilling, preassignment, and risks related to bill and hold or consignment arrangements. Additionally, our exams identify ineligible collateral, according to standard banking principles, that may not be explicitly stated in the loan agreement.

Inventory analysis is equally critical when part of the borrowing base. We analyze not only the quantity but also the quality of inventory, identifying slow-moving, off-site, custom, or consigned inventory that may impact its value. Our evaluations verify that inventory advances are supported by actual on-hand quantities and accurate costing records.

The field exam's comprehensive analysis provides lenders with timely, clear insights into collateral performance and risk, enabling informed and confident lending decisions.

Question 2

What areas does the typical collateral field exam scope include?

Accepted Answer

The scope of a collateral field exam generally includes an in-depth analysis of accounts receivable, inventory, cash, accounts payable, payroll taxes, and insurance. It also covers financial statement and general ledger analysis to assess the borrower's overall financial position. The scope may expand or narrow depending on the specific situation and lender requirements. Additional areas such as cash receipts and disbursements, borrowing base validation, identification of ineligible collateral, reserves, and risk factors related to asset convertibility and loan repayment may also be included. The field exam aims to provide a thorough and objective collateral valuation to help lenders make informed credit decisions and manage their lending relationships effectively. The scope is often tailored to the lender's credit risk appetite, the borrower's business profile, and the complexity of the loan facility.

Question 3

Are field exams conducted onsite or remotely?

Accepted Answer

Our staff is equipped to perform field exams fully on-site, entirely remotely, or through a hybrid approach combining both methods. We provide a secure, user-friendly data room for the borrower to upload requested documents before and during the exam, ensuring a seamless and efficient process.

Question 4

How long is the typical collateral field exam engagement?

Accepted Answer

The duration of a collateral field exam varies depending on the scope and specific circumstances, including the borrower's size, location(s), record accuracy, number of divisions, and responsiveness. Our staff is trained to perform exams efficiently without compromising audit quality. To help manage costs and enhance preparedness, we typically provide a data request list for the borrower in advance. Borrowers can also expedite the process by electronically submitting initial information prior to the exam’s start. This collaborative approach helps control timing and reduces expenses while ensuring a thorough exam.

Question 5

When is it most beneficial to have a collateral field exam?

Accepted Answer

Collateral field exams are beneficial both before committing to new or additional financing and on an ongoing basis. Since the borrower's financing and working capital requirements can change frequently, field exams provide timely insights that support informed decision-making, assist in risk management, and help to avoid surprises. These insights help lenders determine whether to increase credit lines, disqualify certain collateral, set caps or limits, or adjust advance rates. Incorporating guidelines early in the loan process is often easier and more effective. Recurring exams keep lenders updated on collateral trends, new ineligible categories, and the accuracy of borrower reporting. Additionally, field exams benefit borrowers by supplying lenders with detailed data and analysis that can support increased funding or improved borrowing certificate structures, fostering a mutually beneficial relationship between lender and borrower.

Question 6

Is it permitted to provide the field exam report to the borrower?

Accepted Answer

Occasionally, borrowers request copies of the field exam report; however, industry standards and bank legal counsel strictly prohibit releasing these reports. Whether conducted by internal bank examiners or external providers, field exam reports are considered confidential internal bank documents, similar to credit facility approval memos. This confidentiality is essential to preserve the integrity of the exam process and maintain the examiner’s independence. Nonetheless, it is beneficial for the field examiner and lender to discuss key findings and recommendations with the borrower, helping address identified issues and improve the borrowing base structure.

Question 7

What about field exam fees?

Accepted Answer

Our services are engaged solely by the lending institution, not by the borrower. Field exam fees are invoiced to the lender, who typically pass those costs on to the borrower. Our rates are competitive, and we tailor our field exam program to meet the specific needs of each engagement. We offer our most competitive fees for preplanned and recurring assignments, allowing us to maximize efficiency by aligning staff expertise and geographical location with the job requirements. This approach helps control costs while maintaining high-quality service.

Trump Lender Services, Inc.

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