Secured creditors need and want regular updating of the value of the collateral pledged to secure the debt. Those needs and wants are easily satisfied for many types of collateral.  Published value sources exist for most vehicles, boats, airplanes and similar personal property.   Fee appraisers can be employed to develop reliable real property values. That was easy.

What about specialty, one-of-a-kind, shop- or home-made equipment, distant real estate, or other unusual collateral? At some time, institutional creditors will probably be faced with the need to establish value for something that doesn't fit into the usual easy categories. Regardless of the ease or difficulty of establishing value, the need for that valuation remains. How does a creditor obtain this information reliably and economically?

Large institutions with specialized staffs may not have difficulty. Smaller institutions may lack sufficient expertise or reference and resource bases to answer these questions. And, the cost in time and effort of acquiring an "in-house" resource base may not be justified. Traditionally, lenders have asked used machinery or equipment dealers, various liquidators, auctioneers, or others to assist. Unfortunately, in many cases, the values determined from these sources are liquidation values. If that's the purpose of the valuation, fine. However, liquidation and going-concern values may be very different. Under some circumstances, employing an outside source may be an efficient way to coordinate accumulation of values. Because an outside source has no direct financial involvement in the transaction it is less likely to be viewed as a victim of the circumstances. Some questions related to finding real value are much more easily asked by a theoretically dis-interested third party. 

On-site inspections can be time consuming and expensive. While they are a necessary part of collateral maintenance, getting them scheduled and done is frequently not easy. Often, the inspections must be combined with other business development or maintenance   purposes.  Under some circumstances, it could be better to have inspections done independently of other servicing needs. As is well known, floor-plan checks should seem spontaneous. This is one example of a type of inspection that might be satisfactorily   outsourced. Condition reports and inspections of various commercial and multi-family real estate projects could quite possibly be more objective when done by a third party with no financial stake in the particular project. Audits of pledged accounts receivable to determine  quality, collectibility, adequacy of collateral protection and other significant characteristics are extremely time consuming. Unless a creditor has a staff to do these tests, they often don't get done. When they aren't done, the danger of erosion increases significantly. 

Many times, it can be difficult for a loan officer, account manager, or person in a similar position to be completely objective about collateral and its location, availability, or condition, particularly if the person is the originator of the relationship. As with many components of creditor/debtor relations, some questions are better asked and some things are better said by third parties. 

Unfortunately, from time to time, creditors are faced with the decision of whether or not to recover the collateral. Many factors come into play and influence this decision. Value at recovery, holding period and cost, and liquidation value are some of the influencing factors.   Information supplied by an outside source may take much of the emotion out of these decisions thereby facilitating focus on the business issues and related decisions.