As lender finance becomes more complex, field audits are playing a larger role for lenders and their leasing company borrowers. Leasing companies remain attractive commercial borrowers for banks, insurance companies and private equity-based lenders: line utilization is often high and collateral is usually more liquid and secure than in many traditional accounts receivable facilities. Still, higher funding costs, portfolio pressure, shifting lessor strategies and closer scrutiny of asset quality have made standard monitoring less sufficient. Borrowing base certificates, aging reports and covenant packages remain useful, but lenders increasingly want independent confirmation that the receivables, assets, management, documentation and controls behind those reports hold up to increased scrutiny. Lessors also benefit when audits help lenders understand their operations, strategy and market opportunities. A qualified third-party auditor can enhance the process, improve results and help the parties understand anomalies.
Credit Conditions Are Less Forgiving
Many leasing companies grew during years of abundant liquidity, low rates and strong equipment demand. Since then, inflation, rising interest rates, tariffs, post-COVID disruption and higher fuel costs have put more pressure on lessees and portfolios. Transaction risk may no longer match the assumptions made at origination. Lenders are now more selective, especially where end users are small- and mid-sized businesses with limited cash reserves. If lessees slow payments, refinance instead of amortizing or return equipment early, cash flow and collateral support can weaken quickly. Field audits help lenders catch those signals before they become defaults or borrowing base shortfalls.
Risk also varies by equipment type. Transportation, small-ticket equipment, technology assets, construction machinery, medical equipment and energy-related assets may perform differently from one another depending on economic conditions, residual values, utilization rates and industry cycles. A lessor may appear diversified at a headline level, while an audit shows unhealthy concentrations by asset type, customer segment, geography, source or contract structure. Those details can influence whether a lender maintains, increases, reprices or tightens a facility. A recent engagement for a PE firm looking to lend to a leasing company revealed previously undisclosed portfolio concentrations that would have violated the PE firm’s investment guidelines and caused the firm to pass on the opportunity.
Partnership Has Become More Important
Field audits also test whether lender and lessor expectations remain aligned. An audit can show whether new originations fit the lender’s expectations or point to trends management sees as opportunities, such as a shift toward lower-risk assets, markets with stronger lessee demand or a new equipment segment. It gives the lender a practical way to evaluate those opportunities through its own risk lens. A qualified, independent auditor can help both sides understand a strategy shift before it becomes a credit issue. Through my experience in field audits, I have seen shifts in origination strategy that have caused lenders to exit a facility, as well as those that have been effectively communicated to the lender and implemented with appropriate guardrails. Lending facilities are too valuable a commodity not to take the latter approach.
Conversely, if an audit reveals an uncommunicated shift in originations or risk appetite, it can serve as an early warning. It brings the parties to the table before concentrations become a problem. Without that review, a lender may be advancing against assets that are overconcentrated, misclassified, poorly documented, or inconsistent with the original credit thesis.
Fraud and Documentation Risk Are Front of Mind
Banks are also expanding audit scope because fraud risk has become harder to ignore. As origination, processing and documentation move further online, bad actors can exploit automated processes designed for efficiency. Borrowers may submit schedules that appear complete while files contain missing signatures, incorrect serial numbers, duplicate collateral, unsupported invoices, stale receivables, weak lien filings or unresolved exceptions. A strong audit compares reported collateral to source documents, evaluates controls and tests whether reporting is dependable. Demonstrating those controls is critical when stakeholders are trying to gain comfort with a borrower.
Borrowing Base Reporting Needs Independent Testing
Many lending facilities to leasing companies rely on borrowing base formulas that exclude delinquent accounts, ineligible leases, concentration excesses, related-party exposure, unsupported equipment or contracts that fail documentation standards. Because borrowers prepare these reports, even well-run companies can make eligibility mistakes when systems are manual, data fields are inconsistent or teams are stretched. A field audit tests whether reported collateral is eligible not only under the borrowing base formula but also under the actual credit agreement, and it helps lenders adjust advance rates, reserves and reporting requirements.
This testing is especially valuable when a lessor has grown by adding vendor programs, acquisitions, broker channels or new asset classes. Growth can introduce inconsistent underwriting standards and documentation packages. One segment may have strong contracts and clean titles, while another relies on weaker dealer documentation or less mature servicing. Audits help lenders identify those differences instead of treating all receivables as equal.
Regulators and Credit Committees Expect Stronger Monitoring
Lenders are also responding to internal and external expectations. Credit committees, risk officers, auditors and regulators increasingly expect lenders to show that they understand collateral and borrower operations, not simply that they received reports. A field audit creates a record of what was tested, what exceptions were found, how management responded and whether the credit structure still makes sense. In a cautious lending environment, that record supports active monitoring and disciplined secured lending.
More frequent audits do not necessarily signal distress. They may reflect growth, larger credit lines, new products or market volatility. A strong leasing company can use the process to build lender confidence. Clean files, accurate schedules, timely exception resolution and transparent reporting can support better access to capital. Repeated findings, however, may lead to reduced availability, pricing changes, tighter covenants or remediation requirements.
Audits Are Becoming More Data-Driven
The audit process is also becoming more data-driven. Lenders still value file review and collateral testing, but they increasingly pair those methods with analytics. Instead of relying only on a small sample, lenders can review broader data sets for anomalies, aging trends, concentration changes, payment reversals, duplicate records, unusual modifications or sudden portfolio shifts. This makes the audit more useful as an early warning tool and helps focus testing where it is most likely to matter.
For leasing companies, audit readiness is no longer just assembling files before the examiner arrives. It requires disciplined data management, clean systems, consistent contract coding, accurate collateral descriptions and clear reconciliation among the general ledger, servicing platform, borrowing base certificate and lender reporting package. Static loss pools are an underutilized diagnostic tool that allows lenders and lessors to identify and track portfolio issues relating to a specific period or point in time. A recent engagement revealed a lessor’s flawed methodology in calculating such pools and resulted in the parties agreeing to adopt our recommended methodology. Companies that produce reliable information quickly generally have smoother audits and stronger lender relationships.
What It Means for Leasing Company Borrowers
Leasing company borrowers should view the trend as both a challenge and an opportunity. An increase in audit frequency requires time, coordination and investment in reporting infrastructure. Management teams may need to strengthen controls, improve document retention, update lien perfection procedures and resolve historical data issues. At the same time, a well-prepared borrower can stand out in a tighter credit market. Lenders are more likely to support companies that show strong collateral controls, transparent reporting, disciplined underwriting and a proactive approach to exceptions.
How Leasing Companies Can Prepare
A successful field audit starts before the auditor arrives. Leasing companies should review the lender’s request list early, assign internal owners and reconcile the borrowing base, servicing system, general ledger and collateral schedules before submitting materials. Lease files should be complete, organized and easy to trace from approval through documentation, funding, servicing, lien perfection, insurance and payment history. Management should identify known exceptions in advance, document corrective action and be ready to explain strategy shifts, concentration changes, delinquency trends or unusual portfolio activity. The goal is not a perfect portfolio; it is to show control, transparency and command of the details. Prompt responses, consistent data and open communication can turn the audit from a defensive exercise into a credibility-building event.
The Bottom Line
Lenders and leasing company borrowers need fewer surprises. Field audits provide comfort by validating collateral, testing reporting accuracy, identifying control weaknesses and surfacing emerging risks early. For lessors with strong systems, processes and management, the audit can reinforce credibility and support a more collaborative lender-lessor relationship as target markets change. An experienced independent audit provider with exposure to multiple business models, transaction structures and ticket sizes can strengthen the process and add practical perspective. •
Gary LoMonaco is the practice leader for The Alta Group’s Business Assessment practice, which specializes in portfolio and due diligence reviews for lenders and investors in the equipment finance and leasing industry. He is a 40-plus-year industry veteran with a background in senior leadership, credit management and lender finance, among other things. When not working on client engagements, he can often be seen driving or pushing his vintage car around his native Chicago area.