Lately, several of our clients have asked about the Small Business Administration’s recent 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.
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 took effect. Of significance with relation to environmental compliance 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 for SBA loans. Chapter 4, Section 3, of the SOP details the Environmental Policies and Procedures.
Major Change to Environmental Compliance in the Recent Revision
Until March 1, 2009, the compliance process related to gas stations was convoluted. Part of the requirements were based on the age of the gas station and in some cases lenders were directed to order a Phase II as the first step in the process for environmental compliance. The good news is that these requirements have been loosened and streamlined.
Updated 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 (PE) license or a Professional Geologist’s (PG) 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 (EP) [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 must be completed.
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 completed by an Environmental Professional. 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.
Start with question 1, and proceed to the next question, until you answer “yes”:
- Is it a Gas Station->Phase I ESA by a PE or PG
- Is the use High Risk based on NAICS -> Phase I ESA by EP
- Is the Loan>$150,000 -> Record Search with Risk Assessment (RSwRA) by EP
- All others -> Environmental Questionnaire by Lender/Owner
Then if your report (Phase I ESA, RSwRA) or Enviornmental Questionaire results in a finding of “Elevated Risk” or “High Risk”:
- If you ordered a Phase I ESA, consult with your Environmental Professional to determine any next-step actions.
- If you ordered a Record Search with Risk Assessment (RSwRA), then upgrade to a Phase I ESA.
- If you reviewed an Environmental Questionnaire, then upgrade to a Transaction Screen or Phase I ESA.
“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 of the Environmental Professional that performed the risk assessment.
How Can ERS Help?
ERS has teamed up with Phase One Inc. to provide low cost environmental reports to comply with the SBA’s SOP. Phase One Inc. has over 18 years of experience in providing environmental consulting and reports that exceed the SBA’s requirements. In addition to providing great prices, if your report needs to be upgraded, 100% of the cost of the first report ordered can be deducted from the cost of the new report.
More information on Phase One Inc. can be found here: http://www.PhaseI.com
To order a Records Search with Risk Assessment for $299, Click Here.
To order a Transaction Screen for $399, Click Here.
To get a proposal for a Phase I ESA, Click Here.
(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)