ABF Journal, a journal for the commercial finance professional, recently published an article, “Order Up! Food industry assets are increasingly on the menu for asset-based lenders,” that argues that those who appraise assets for lenders in the food manufacturing, retailing, and food service sectors need to be sure their analytics are keeping pace with the rapidly changing food industry.
The authors contend that with the “razor-thin margins in today’s food industry, it is more important than ever for appraisers, liquidators, and asset-based lenders to be on the same page about food-related businesses.”
They cite multiple examples of appraisal-relatedconsiderations that can be overlooked to the detriment of lenders issuing loans against food-related collateral. Some of the areas the article covers include:
- The differences between liquidation sales involving grocery stores and those focused on other retail inventories
- The wide variation in food retailing recovery values from store to store
- The importance of understanding the various factors that can affect collateral values for any appraisal of food-processing equipment
Appraisals in the majority of food industry businesses involve “unique, context-dependent considerations” that are necessary for appraisers and the lenders for whom they value assets to understand.
The best way a lending institution can protect itself from liability in this case is to use the services of a certified machinery and equipment appraiser. An appraisal professional can help the lending institution make its lending decisions based on the fair market, orderly liquidation, and forced liquidation values of the piece of equipment to be purchased, and make sure that the borrowing business has collateral of high enough value to secure loan repayment.