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Field Examinations in 2022 and Beyond
October 5, 2022
By Michele Ocejo
TSL’s editor-in-chief interviewed several field exam professionals as well as lenders to get an overview of what lenders should look for, the current challenges and the effects of the pandemic.
Don Clarke, president of Asset Based Lending Consultants, summarized the importance of field exams well: “The field examination is an important management tool for the relationship manager and the lender. Its historical metrics allow the lender to preempt emerging issues and to be proactive. The field examiner is the ‘eyes and ears’ of the lender and the only person to make frequent site visits.”
The challenges brought up by lenders and examiners are a mix of longstanding challenges that go along with the nature of field exams and new obstacles brought about by the pandemic. Clarke said field exams are viewed as a “necessary evil.” “No one seems to like the process as it can be rather intrusive,” he said. Field examiners must be flexible and not too sensitive if there is pushback from either party during the process, he added. One common theme mentioned by all the participants is the need for an exam to be both timely and accurate.
Aliah Lalani, managing director/COO, Hilco Diligence Services agreed, adding that clear and concise communications are a must. It’s clear, also, that in a field exam, expectations must be managed. “An overly aggressive timeline may be unrealistic. Field exams may take longer than expected,” Lalani pointed out. “We have a saying: ‘The situation on the ground is rarely better than we thought.’”
Both the field examiners and the lenders emphasized there is no “one size fits all” when it comes to the field exam process. Jason Schick of Siena, said, “I look for an examiner that is adept at identifying the pitfalls in the collateral based on the prospect’s business and operations, not just an examiner that goes in with a cookie cutter approach to identifying ineligibles and reserves. I look for an examiner that can be an integral partner in my underwriting process.”
Denise Albanese, owner of Cost Reduction Solutions, added on to Schick’s thought, describing the need for each field exam to be tailored to the lender’s needs: “While there are several core challenges in the collateral field examination process that must be overcome on each assignment, there are different field examination requirements based upon each lender’s culture and credit risk appetite and policies.” She added: “There is an art to obtaining or extracting information from a prospect or borrower in order to produce the results that meet the standards of the lender.”
Another phrase mentioned by both examiners and lenders was “out-of-sight-out-of-mind” as it pertains to virtual or hybrid exams. “The examiner must be fervent in his/her pursuit of information without creating confrontation,” said Clarke.
Brian Kennedy, senior underwriter with Citizens Business Capital, provided additional input from the lender point of view: “Experience matters most. As a lender I need to have confidence the examination firm has the knowledge and ability to properly identify key risks across a variety of industries in multiple jurisdictions. A firm that works efficiently and communicate effectively with both the bank and the customer is likewise imperative.”
Randi Hershgordon, senior vice president with Gibraltar Business Capital, provided some guidance on gauging report quality: Are key findings summarized in a succinct manner and addressed appropriately with consideration for both credit and business risks? Are test results, exceptions and conclusions clearly outlined? Does the report include a detailed explanation of proposed ineligible and eligible collateral along with supporting calculations?
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