Field Examination

A field examination (field exam) is a scheduled or surprise on-site review that ABL lenders conduct to validate what a borrower reports on its borrowing-base certificate. Because ABL revolvers are self-reported collateral facilities—the borrower certifies eligible A/R and inventory each week—lenders periodically send examiners to confirm that the numbers match reality.

A typical field exam covers: - A/R verification — reconciling the borrower's aging report to the general ledger, testing invoices for legitimacy, confirming debtors exist and balances are accurate. - Inventory count and appraisal — physically counting and appraising finished goods, raw materials, and WIP; identifying obsolete or damaged items. - Dilution analysis — calculating the historic rate of credits, returns, and disputes against gross invoiced amounts, which informs the advance rate. - Internal controls review — evaluating cash application procedures, billing controls, and management reporting. - UCC lien search — confirming no undisclosed liens have attached to the collateral.

Field exams are typically performed at origination (before closing), annually for healthy borrowers, and more frequently (quarterly or on-demand) if the lender identifies deteriorating trends. The FDIC's supervisory guidance for ABL portfolios specifies that bank examiners review whether lenders have field exam programs proportionate to facility size and risk (https://www.fdic.gov/regulations/examinations/supervisory/insights/siwin04/abltranscript.html). The Federal Reserve similarly instructs commercial bank examiners to evaluate the adequacy of ABL monitoring programs, including frequency of field exams (https://www.federalreserve.gov/supervisionreg/topics/commercial_lending.htm).

Costs—typically $5,000–$25,000 per exam—are passed to the borrower as a loan expense and should be budgeted annually.

These stakes are not abstract: the Federal Reserve's 2026 Report on Employer Firms found 22% of applicants for a loan, line of credit, or merchant cash advance received none of the financing they sought (https://www.fedsmallbusiness.org/reports/survey/2026/2026-report-on-employer-firms) — the population an ABL lender's collateral-verification rigor, field exams included, is ultimately trying to separate from creditworthy borrowers. The SBA's 7(a) and 504 programs, which rely on different verification standards, still guaranteed 84,400 loans worth $44.8 billion combined in FY2025 (https://legacy.sba.gov/article/2025/09/30/trump-sba-delivers-record-capital-small-businesses-fy25), evidence that rigorous underwriting and real loan volume aren't mutually exclusive.