SBA Crash Course: Records Search with Risk Assessment
Not all loans require or warrant a full Phase I Environmental Site Assessment – there are many useful streamlined environmental reports available to help screen high risk properties. These “desktop environmental reports” are often used on smaller loans or lower risk properties. One such product is an SBA Records Search with Risk Assessment, or you may have heard it abbreviated as RSRA.
The RSRA includes a review of government and historical records, the property’s NAICS code, and an Environmental Questionnaire (more on the EQ later) for environmentally sensitive operations on the subject property or nearby properties. All of this information is reviewed and analyzed by an Environmental Professional, who determines whether the property is “High Risk” or “Low Risk”.
We usually don’t hear the full title, which is Records Search with Risk Assessment by an Environmental Professional (EP). Prior to the current definition of a RSRA as a basic environmental desktop report (meaning no site visit – and a very limited scope of work), lenders could order a computer generated report. This computer based its findings on key words. The report was not looked at by an Environmental Professional. When reports were strictly computer generated, I remember hearing from one of my clients that a simple office building came back High Risk. This was due to the fact that the office handled the paper work for Ford Motor Company. The computer recognized the word Motor and kicked it out as HIGH RISK. Findings like this are why the current definition of a RSRA requires that an Environmental Professional reads the data and issues an opinion of either High Risk or Low Risk.
The RSRA can be used when the loan amount is over $150,000 and the property type is not listed on SBA’s NAICS codes list of Environmentally Sensitive Industries. Previously, these were referred to as FPI’s or Frequently Polluting Industries. These are the minimum requirements that are set forth by SBA – you can always do more than their minimum requirements – and many lenders do.
If you choose to screen a property with a RSRA, you should ask that your consultant notify you the instant a potential High Risk environmental issue is identified – even if they’re not done with the report. If there’s a potential environmental concern it would be more prudent to do a full Phase I Environmental Site Assessment, and for SBA lenders it is required if any issue is identified in the RSRA. So, a good consultant will not waste your time or dollars but instead will offer to upgrade to a Phase I ESA (at a discounted price, because the work for the RSRA will ultimately be rolled into the Phase I ESA).
In my next blog, I’ll discuss one of the components of the RSRA – the Environmental Questionnaire – which is also used as a standalone screening tool for some low risk/low dollar loans.
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