Entry by: Gary Reynolds
So what report do you need for your 504 or 7a loan? This depends on the current and past businesses that occupied your property. SBA has created a NAICS codes list of “Environmentally Sensitive Industries”. The type and depth of an environmental investigation to be performed varies with the risks of contamination. The higher the risk for contamination, the more in-depth the study that will be required. This list can be found at www.partneresi.com under the “Resources” tab. Once there simply click on SBA NAICS Code List. If the property type is not listed (and the loan value is over $150,000) you can begin your environmental investigation with a RSRA (Records Search with Risk Assessment) as shown in the SBA SOP Decision Tree (Flowchart) found on Partner’s “Resources” page. If the loan amount is under $150,000 (and the property type is not found on the NAICS list) then the lender can fill out an EQ (Environmental Questionnaire) with the owner/occupant of the property and submit to SBA.
When you order a Records Search with Risk Assessment (RSRA), the lender is required to do a site visit and fill out an EQ (Environmental Questionnaire) with the owner/occupant and submit with the RSRA report to SBA. For a copy of an Environmental Questionnaire, that meets SBA requirements, you can find one on Partner’s “Resources” page. ( Please note that the SBA Reliance Letter is not to accompany a RSRA report.)
When a RSRA report comes back with High Risk, SBA requires that the lender must then proceed to a Phase I.
For property types that are listed on the NAICS list, SBA dictates that the lender/borrower must begin with a Phase I Environmental Site Assessment (ESA). The Phase I must be AAI compliant (ASTM 1527-05) and must be accompanied by the SBA Reliance Letter.
In Appendix 2 of SOP 5010 5 (B) you will find a great resource, “Definitions” (available on our “Resources” page). Here, you will find various definitions including those regarding an Environmental Professional, various report types, information needed in an Environmental Questionnaire, etc.
Appendix 5 of SOP 5010 5 (B) “Requirements Pertaining to Gas Station Loans” (available on “Resources” page) shows that all Gas Stations must begin with a Phase I ESA with the additional requirement that it be conducted by an independent Environmental Professional who holds a current Professional Engineer’s or Professional Geologist’s license and has the equivalent of three years of full-time relevant experience. This has been a common screen out when the Environmental Professional isn’t a PE or PG – and something that anyone engaging an Environmental Firm should be asking about.
A great source of information for understanding a Phase I can be found on Partner’s “Resources” page under the heading, “A Guide to Understanding SBA Environmental Due Diligence for Commercial Properties”. This “booklet” can be ordered from Partner at no cost, or you can view it online.
The SBA Environmental Appeals committee Environmentalappeals@sba.gov is a great resource for those that have situations that are “abnormal”. They can provide clarification and rulings for those types of properties. Another valuable resource is Stephen Reynolds, Chief Environmental Engineer for SBA in Sacramento. Steve Reynolds can be reached at Stephen.Reynolds@sba.gov and is a valuable resource for CDC’s and various other lenders.
The assumption of an SBA loan would fall under SOP 50 50 4A (“Loan Servicing”). There is no requirement in SOP 50 50 4A for an environmental investigation when an existing SBA loan is being assumed. You as a lender may have your own environmental requirements apart from what SBA requires.