Lately, several of our clients have asked about the Small Business Administration’s recent and upcoming changes related to the environmental requirements in the SBA’s SOP 50 10 (5). As a result, we wanted to present an overview of these new requirements.
Background
New requirements were set forth in the SBA’s SOP 50 10 (5) that became effective August 1, 2008. This was a major revision of the SBA’s operating procedures for 7 (a) and 504 loans. On March 1, 2009, an updated version of these procedures will take effect. Of significance to environmental consultants was the creation of a new report entitled “Records Search with Risk Assessment” and the creation of a specific step-by-step process for determining the appropriate environmental compliance. Chapter 4, Section 3, of the SOP details the Environmental Policies and Procedures.
Environmental Compliance Steps
The first step is for the lender to determine if the site falls under the SBA’s list of high risk NAICS codes. The list of high risk NAICS codes can be found in Appendix 4 of the SOP and includes sites such as gas stations, automotive repair, manufacturing, printing, etc.
If the site use is a gas station, the SOP requires the completion of a Phase I ESA by an environmental professional holding either a Professional Engineer’s license or a Professional Geologist’s license.
If the site use is identified on the list of high risk NAICS codes, the SOP requires the completion of a Phase I ESA by an Environmental Professional [defined in 40 CFR Section 312.10 (a)].
If the site use is not identified on the list of high risk NAICS codes, and the loan is $150,000.00 or less, then an Environmental Questionnaire can be completed. If the Environmental Questionnaire indicates further investigation is required, a Transaction Screen or a Phase I ESA is required.
All other sites (those that are not high risk and the loan is greater than $150,000.00) require a Record Search with Risk Assessment. If the Record Search with Risk Assessment concludes that the site is at an elevated or high risk, the SOP requires the completion of a Phase I ESA by an Environmental Professional.
Practically speaking, lenders will likely complete the Environmental Questionnaires in-house, so the procedures as they relate to environmental consultants can be simplified to this: If the site is high risk, complete a Phase I ESA; otherwise if the site is low risk, complete a Records Search with Risk Assessment.
Definitions
“Environmental Questionnaire” means the questionnaire used by a Lender to determine the likelihood that Contamination may be present at the Property offered to secure an SBA guaranteed loan. Environmental Questionnaires must be completed or reviewed by a Lender that has made at least one site visit to the Property and a good faith effort to conduct an interview with the current owner or operator of the site. An Environmental Questionnaire may be considered if it was completed up to one year prior to submission. The current owner or operator of the site must sign the Environmental Questionnaire.
“Phase I Environmental Site Assessment” (Phase I ESA) means an AAI compliant Phase I ESA conducted by an Environmental Professional in accordance with the most recently adopted standard for a Phase I ESA established by ASTM International, currently ASTM E1527-05. A Phase I ESA must contain an opinion by the Environmental Professional as to whether the inquiry has identified conditions indicative of Releases or threatened Releases at the Property. Additionally, SBA requires that all Phase I ESAs contain a conclusion by the Environmental Professional that performs the assessment that either: (1) the risk of Contamination at the Property is so minimal that no further investigation is warranted; or (2) there is risk sufficient to warrant additional investigation. Alternatively, the Environmental Professional may include a similar statement to this effect. If further investigation is warranted, the Environmental Professional should provide a detailed description of the recommendation.
“Records Search with Risk Assessment” means and includes (1) a search of the government databases identified in 40 CFR § 312.26 for an AAI compliant Phase I as well as a search of historical use records (for example, aerial photography, city directories, reverse directories and/or fire insurance maps) pertaining to the Property and Adjoining Properties; and (2) a risk assessment by an Environmental Professional based on the results of the records search as to whether the Property is either “low risk” or “elevated risk” or “high risk” for Contamination. The choice of historical records to be reviewed on any particular site is at the discretion of the Environmental Professional. The report must identify by name the Environmental Professional that performed the risk assessment.
How Can ERS Help?
For a Records Search with Risk Assessment, ERS (Environmental Record Search) can supply you with our RecCheck Report which will cover the AAI compliant search of governmental databases. We can also provide you with Aerial Photographs, City Directory Abstracts, and Fire Insurance Map Abstracts. With all of this information and the Environmental Questionnaire provided by the bank, you have all the information that is necessary to prepare your Records Search with Risk Assessment report without ever leaving your desk.
For a Phase I ESA, not only can ERS supply you with the same RecCheck Report and historical research listed above, but also provides Environmental Lien Research, Chain of Title Abstracts, and our RAID Report to help you locate regulatory contacts with jurisdiction over your site.
Click here to order from ERS .
(The following is a link to the SOP document on the SBA’s website: http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sops_50105a.pdf)