The Small Business Administration (SBA) just released its 2011 revisions to one of their Standard Operating Procedures, SOP 50 10 5 (D), which includes some important revisions to the Environmental Investigation required for loan due diligence.
For those not familiar with SBA’s Environmental Investigation requirements, they consist of a tiered approach in which higher risk properties such as gas stations or drycleaners must undergo more thorough due diligence including a Phase 1 Environmental Site Assessment, whereas lower risk properties such as commercial office buildings may only undergo an environmental screening. The screening tools include an Environmental Questionnaire, a review of regulatory and historical records (called a Records Search with Risk Assessment or “RSRA”), and/or an environmental Transaction Screen. A property is deemed high or low risk by it’s NAICS code – the SBA maintains a list of which NAICS codes are considered high risk.
Many commercial lenders have a similar tiered approach to environmental due diligence.
Changes to SOP 50 10 5 (D)
The most significant of the 2011 changes to SBA environmental due diligence include:
- The Environmental Professional must now determine whether the gas station is in compliance with all state requirements, if any, pertaining to tank and equipment testing (rather than requiring that equipment testing was conducted within 12 months prior to the environmental investigation). This is due to the fact that not all states require tank and equipment testing every year.
- Terminology has been expanded to include any “commercial fueling facility.”
“Car Wash Only” facilities are no longer required to start with a Phase 1 Environmental Site Assessment – they may now begin with a Transaction Screen.
Other changes include clarifications on indemnification, definitions, acceptable questionnaire formats, and participants in conducting the Phase 1 ESA.
The changes are scheduled to go into effect on October 1.
SBA Environmental Resources
- Updated SBA SOP Due Diligence Decision Tree
- Updated SBA NAICS Codes of Environmentally Sensitive Industries
- The new SOP 50 10 (D) Environmental Sections, Definitions, Reliance Letter, Requirements Pertaining to Gas Station Loans, and Environmental Indemnification Agreement
Contact [email protected] for any questions on the revisions.