What is a field audit in equipment lending?

• A. A lender-conducted audit of the collateral's existence, value, and condition to verify collateral quality and covenants.
• B. An independent audit of the borrower's overall financial statements.
• C. A warranty inspection performed by the field service team.
• D. A lender's review of insurance coverage only.

Answer: (A)

In equipment lending, a field audit is a hands-on check of the pledged equipment to verify it actually exists, is the stated type and condition, and is located where claimed, with correct identifiers like serial numbers. This process confirms the collateral’s quality and that the related covenants are met, providing assurance that the loan is adequately secured even if conditions change. It’s different from an independent audit of the borrower’s overall financial statements, a warranty inspection by service teams, or a review of insurance coverage alone, all of which address other aspects of risk rather than directly confirming the collateral’s status and value.