Audits: Trust But Verify

Audits are an important part of any lender’s ongoing due diligence the main reason being that they verify how a business is doing and if the business is in compliance with the terms of the loan agreement. While lenders need to trust that the client is providing accurate information, audits are independent assessments that basically adhere to the old adage, “trust but verify.”

Audits are scheduled at different frequencies depending on the lender. At Celtic Capital, we audit our clients three times a year. Banks typically perform their audits less frequently but our client base is in a much riskier place than when they’re with a bank.

The focus of our audit is also different from that of banks. Whereas banks focus more on the balance sheet, we’re more concerned with the assets we’re financing; inventory being a good example. We look at how it’s performing and the accuracy of the reporting as inventory is difficult for many companies to control. Doing this analysis also helps us to decide how much to lend against a company’s inventory.

We believe it’s important to rotate auditors to avoid a circumstance where an auditor gets too comfortable and complacent and possibly misses things. Auditors overhear and see things that could uncover poor business practices. They may hear conversations with vendors or as they’re walking the warehouse may see dust on all the boxes or boxes in disarray which could lead us to understand the business has a cash flow problem. When issues related to poor business practices are uncovered, we can advise and make recommendations to help the business run better.

Issues may also come to light regarding how the business is trending and reveal patterns that help in strategic planning. This is key information that lenders don’t get from just seeing paperwork. All in all, the importance of what’s gleaned from an audit, in our belief, justifies the cost.

We look at audits as “kicking the tires” which is important for more than just checking out a new car.

About Celtic Capital
Companies looking for working capital to cover operating expenses, fund growth, increase buying power and take advantage of vendor discounts and rebates turn to Celtic Capital. With an appetite for the more complex transactions, Celtic Capital has a history of success in crafting creative, flexible asset based financing solutions from $500,000 to $5 million with no financial covenants.

As an independent lender, working with companies nationwide, Celtic Capital is willing and able to alter price and deal structure and expand lines of credit to handle its clients’ increased revenues; and when cash flow is an issue, will look toward providing an inventory facility to help offset lost cash flow.

If you know of, or are, a business in need of non-traditional financing, contact Mark Hafner at 800.742.0733 or, or visit us at