When considering inventory collateral, lenders often need insights beyond those provided in traditional field examinations.
Field exams provide necessary statistical analysis, but may lack the qualitative insights required to explain the results and to help the lender decide on a course of action. Capitale Analytics can tell the full story of your inventory collateral scenario, and we will investigate and answer your specific questions to help you make informed decisions.
Below are a few examples of custom inventory appraisals we have completed for our lending clients:
Need: A field examiner identified a large portion of discontinued inventory at a corporate awards distributor, who had an inventory credit line from our client. The borrower admitted to having neglected the stock in question, but wanted a chance to liquidate the items through new marketing avenues and pay down his credit balance with the revenues. The bank needed to decide whether to allow a period of time for liquidation, or simply write these items out of the borrower’s advance allowance, which may have caused financial hardship for the borrower.
Solution: Our appraisers spent time at the borrower’s facility interviewing the management team, reviewing the development of new marketing programs, physically reviewing the stock in question, and documenting results from the liquidation efforts to date. We compiled a concise narrative report of our findings to our client; we also advised on a reasonable time allowance for liquidation, reasonable expectations for returns, and an efficient process for monitoring progress.
Need: A retail chain for high-end bicycles was losing money. Neither of the two main creditors – the bank and the bicycle manufacturer – wanted to see a liquidation. A potential buyer for the chain was found, but first the two creditors needed to mutually negotiate a new structure and/or forgiveness of debt for the buyer. The deal had to close quickly, but since no field exam had been ordered in recent years, the bank was not confident in the accuracy of the inventory record. There was no time for a formal field exam – the bank wanted to know what we could provide immediately to help them negotiate with confidence.
Solution: Our appraisers flew out immediately to the chain headquarters. We critically reviewed inventory policies and procedures, gathered all available documentation, and interviewed store managers to confirm the quality of the inventory record and processes. We also worked with management to immediately complete a full physical inventory of nearly 1,000 bicycles and a sampling of key accessory categories with no prior warning; we then observed as management reconciled the counts with the inventory record and documented any discrepancies. Within one week of engagement, we were able to deliver to our client a report which provided the peace of mind needed to move forward with negotiations, as well as documented the necessary due diligence taken on the part of the workout officer.
Need: A specialty metal products manufacturer was going through workout and trying to convince the bank (and the SBA) that its finished goods inventory would have little market value in the event of liquidation. Complicating the matter, the manufacturer’s inventory record was out of date and difficult to comprehend on paper. The bank needed a digestible inventory record, and it also needed to know the potential liquidation value of its collateral prior to making any decisions regarding the loan.
Solution: Our appraisers worked with the borrower to reformat the inventory record and to include identifiers which would be meaningful to the lender. We also conducted a limited sampling, which indicated that the bank needed to order a full physical count and regular field exams moving forward. We researched and reported a liquidation analysis, including interviewing industry participants, suppliers, customers, and liquidators, to advise on potential liquidation returns and other considerations.
Inventory appraisals can follow many paths. Besides custom insights like those described in the examples, above, we can provide various types of market valuations, cost record confirmation, turnover analysis, liquidation / marketability forecast and net return estimates, and many other insights. At Capitale Analytics, we follow a strong journalistic approach to help lenders gain a fuller understanding of their inventory collateral position.
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