When borrowing large amounts, lenders need to verify the borrower’s capability to pay back the sum intended with the appointed interest rates. The process of examining the borrower’s assets to verify collateral support is called a field inspection–which is an entirely different process from audits.
The job is done by a mortgage field inspector who conducts the collateral inspections for different financial or lending institutions. The information collected by the inspector will be placed in a report that will play a significant role in the financial company’s final decision to accept or reject a loan application.
These are incredibly beneficial to every financial or lending institution as it allows them to get a brief background of the capability of a potential borrower to pay back the loan. Borrowers also need to consider what field inspectors typically look for to ensure that their applications will be accepted.
Here are six things that you need to understand about field inspections. It is important to know these things if you plan to apply for a loan. There are certain procedures and essential information that you have to consider.
1. A field inspection is not an audit.
Audits are a much more detailed procedure that deals with assessing the overall compliance with one or more regulations, internal policies, and other compliance drivers. For most financial institutions, it is also conducted by a third-party that visits the site being audited. They are performed less frequently than inspections.
Inspections are recurring and only deal with the completion of checklists by some facility EHS coordinators, managers, and other similar facility-level personnel. To put it in simpler terms, field examination services can be a targeted verification of collateral, equipment, and property. It may include inspection of leased equipment, general sites, commercial collections, and more.
2. It provides reliable financial information.
Field inspections assure lenders in asset-based lending transactions. They obtain comfort from gaining information that is reliable and portrays the authenticity of the financial information provided by prospective customers. As a result, they can rely on the collateral’s quality and value to approve the loan.
3. Helps borrowers know their collateral value.
Based on the field inspectors’ reports, financial institutions gain confidence in their loan provisions, and borrowers can then determine the value of their collateral. This information can allow them to adjust their borrowing plan according to the described value. It also influences their decision on their planned purchases.
Borrowers who know their collateral value can adjust the amount that they will borrow and ensure that they do not borrow more money than they can afford. Accurate reports help the borrowers interpret their collateral value and avoid gathering unnecessary financial data that may lead them to commit some mistakes in the process.
4. Collaterals change over time.
Field inspections are necessary for lenders as it warrants collateral monitoring that can help identify deteriorating situations. There are times wherein a business’ financial position before the loan may drastically change after the lender approves the credit. Field inspections take the guesswork and reduce the risk of misinterpretation of data.
5. It benefits both parties.
Although a field inspection might seem most favorable to lenders and other financial institutions, its implications can be advantageous to the borrowers as well. The asset evaluations help businesses adjust their loans, making them either larger or smaller, depending on the result.
Borrowers will receive insight and identify underlying issues that they were not able to detect right away. This helps their business save time and money down the line. Instead of forcing a loan that is far from their collateral’s value, they can adjust their strategies and obtain new loans and lines of credit.
6. It limits the number of bad debts.
A financial institution or other lending companies need to conduct field inspections to avoid unpaid debt that may lead to severe consequences that involve lawsuits and court appeals. These kinds of legal procedures are a hassle on both ends, so it is better to take the right steps to prevent them from happening.
Lenders who have insight regarding the client’s account can efficiently decide to approve or disapprove of the loan. This means that any issue that may cause bigger problems in the future can be addressed immediately by altering the lending agreement. A field inspection employed by banks and credit unions is crucial to determine the overall quality of the loan underwriting process.
Overall, verified asset-based loans are essential information on both ends. It prevents misunderstandings between the two parties and serves as a ground for possible negotiations. Furthermore, it is noticeably affordable compared to traditional audits. Since field examinations only look at the business’ particular accounting aspects, it reduces the fees and results in faster turnaround times.