An Old Persian Proverb teaches that “One pound of learning requires ten pounds of common sense to apply it.”  By applying this lesson when reading through Appendix 4 of the current SBA SOP 5010 5 (E) the NAICS Codes of Environmentally Sensitive Industries, lenders can save their borrowers time and money.

I’ve had many lenders contact me with an order for a Phase I Environmental Site Assessment solely due to the fact that the property type was found on the North American Identification Class System (NAICS) of Environmentally Sensitive Industries as determined by the United States Small Business Administration.  They all had the misconception that it was law that a NAICS code match automatically directed them to a Phase I Environmental Site Assessment.

This thought process is flawed due to the fact that the SBA has determined why many of those industries listed in Appendix 4 don’t require a Phase I Environmental Site Assessment.  The word if is found 17 times, and the word except is found three times in Appendix 4 providing common sense reasoning why some of those NAICS codes don’t automatically require a Phase I Environmental Site Assessment.

A good example would be NAICS Code 8123 – Laundry & Dry Cleaning Services.  If you had a property that matched this NAICS code and you went off the understanding that every property type that had a NAICS code match had to have a Phase I Environmental Site Assessment you would be mistaken.  The SBA Environmental Appeals Committee understood common sense dictates that a Phase I Environmental Site Assessment would only be required “if “ (there’s that word we found used 17 times in Appendix 4) ”dry cleaning operations have ever existed on site”.  If you made your borrower get a Phase I Environmental Site Assessment and dry cleaning operations never existed on site you just took about $1,500.00 out of their pockets unnecessarily…

Out of the 53 Codes found in Appendix 4 there are 21 that have had common sense rightfully applied to them for “exceptions to the rule”.  The reason the SBA SOP is a living document is due to the fact that it will continually evolve as common sense is used.