Vinu:  Manu, we already collect audited financial statements, GST returns, bank statements and CMA data. Why do bankers still insist on a site visit?

Manu: Because documents tell us what the borrower has reported. A site visit helps us see what is actually happening on the ground.

Vinu: What can we really discover in one visit?

Manu: Quite a lot. Start with the most basic question: Does the scale of operations match the numbers submitted to the bank?

Vinu: Can you give me an example?

Manu: Suppose a manufacturing company reports annual sales of ₹40 crore. On paper, the turnover looks healthy. But when you visit the factory, you find only a few machines operating, limited workers on the shop floor and very little movement of raw materials or finished goods.

Vinu: That immediately creates a doubt about the turnover.

Manu: Exactly. It doesn't prove the sales are incorrect, but it tells the banker to investigate further.

Vinu: So we should observe capacity utilisation?

Manu: Yes. Look at whether machinery is running, how many shifts are operating, whether production appears continuous and whether the infrastructure is adequate for the reported business volume.

Vinu: What about inventory?

Manu: That's one of the biggest reasons for a site visit. A balance sheet may show inventory of ₹6 crore. A stock statement may also report ₹6 crore. But the banker should see whether that stock physically exists and appears commercially reasonable.

Vinu: We cannot count every item during a normal visit.

Manu: We don't have to. We are looking for broad consistency. Is the warehouse reasonably full? Is the stock moving? Is it properly stored? Does the type of inventory match the business?

Vinu: And ageing?

Manu: Very important. Financial statements may simply show ₹6 crore as inventory. At the site, you may find obsolete models, rusted material, damaged goods or slow-moving stock occupying a major part of the warehouse.

Vinu: So ₹6 crore in the books may not necessarily mean ₹6 crore of realisable stock.

Manu: Correct. That's a critical credit insight.

Vinu: Can a site visit also tell us something about receivables?

Manu: Indirectly, yes. Suppose the borrower claims that business is booming, but there is hardly any dispatch activity. You can ask about major customers, current orders, dispatch schedules and payment cycles. Sometimes conversations with the sales or accounts team reveal more than a receivables schedule.

Vinu: What about fixed assets?

Manu: Check whether major machinery financed by the bank is actually installed and being used. If the bank financed a machine costing ₹1.20 crore, the banker should not be satisfied merely because the asset appears in the balance sheet.

Vinu: We should verify the end use of funds.

Manu: Exactly. Is the machine there? Is it operational? Does the nameplate broadly match the invoice? Is it being used for the intended business?

Vinu: Can we identify business stress during a visit even before it becomes visible in financial statements?

Manu: Often, yes. Reduced workforce, idle machinery, empty production areas, delayed maintenance, accumulation of unsold goods and unusually low business activity can all be early warning signals.

Vinu: Financial statements may show the previous year's position, while the site shows today's position.

Manu: That's the key difference. A March balance sheet may look comfortable, but when you visit in August, the business could already be facing serious operational problems.

Vinu: What should we observe about employees?

Manu: Not just the number of employees. Observe the overall working environment. Are key technical people available? Does the operation appear organised? Is there normal activity? Frequent employee exits or a drastically reduced workforce can sometimes indicate stress.

Vinu: Can the visit tell us something about the promoter too?

Manu: Absolutely. The promoter's knowledge of operations is revealing. Ask simple questions about production, major customers, suppliers, current orders and challenges.

Vinu: And if every question is passed to the accountant?

Manu: That may be worth noting, particularly in a promoter-driven SME. A genuine promoter normally has a reasonable understanding of the business.

Vinu: Should bankers also look at statutory and basic operational records?

Manu: Yes. Depending on the business, you can check licences, stock records, purchase and sales documentation, insurance details and other relevant records. The objective is not to conduct an audit but to cross-check the business story.

Vinu: What about the condition of the premises?

Manu: Very useful. A well-maintained unit does not automatically mean good credit, and an untidy unit does not automatically mean bad credit. But poor maintenance, neglected machinery or deteriorating infrastructure may indicate cash-flow pressure or weak management.

Vinu: Sometimes borrowers arrange everything neatly because they know the banker is visiting.

Manu: That's why experienced bankers don't just look at what is presented to them. They observe movement—trucks entering and leaving, workers operating machines, material flow, dispatch activity and normal business processes.

Vinu: So the visit should not become a photo-taking exercise.

Manu: Exactly. A photograph proves that you visited. It doesn't prove that you understood the business.

Vinu: What is the biggest mistake bankers make during site visits?

Manu: Going with a checklist but without knowing the financial statements.

Vinu: Why?

Manu: Because the financial statements tell you what to verify at the site. If inventory is unusually high, inspect inventory carefully. If sales have doubled, see whether capacity and activity support that growth. If a large term loan was recently disbursed, verify the assets created.

Vinu: So the visit should be linked to financial analysis.

Manu: Precisely. Think of it this way:

Financial statements create questions.

The site visit helps answer them.

Vinu: And if what we see doesn't match what we read?

Manu: Don't immediately conclude that there is fraud. Document the inconsistency, ask for an explanation and cross-check it with supporting records.

Vinu: Give me one final rule to remember.

Manu: Never assess a business only from the comfort of your desk.

Vinu: Give me one final rule to remember.

A balance sheet can show ₹10 crore of inventory.

A site visit can tell you whether that inventory is present, moving, usable and worth financing.

That difference can change the entire credit decision.

Vinu: So numbers tell us the financial story.

Manu: Yes—and the site tells us whether the business appears capable of supporting that story.

To learn more about Banking & Financial related topics

We invite you to join our Diamond Membership
Check - https://courses.carajaclasses.com/courses/Diamond-Membership-6305fad1e4b0cccc82d610be
For Special Discount on Diamond Membership 
Connect with us  - https://wa.me/919025100249?text=DLM