The Small Business Administration’s SOP for 7a & 504 loans (currently SOP 50 10 5 (E)) has become a very popular policy for environmental due diligence that many banks have adopted as their own bank policy. Instead of trying to reinvent the wheel, or (for SBA lenders) having two policy’s in place – one for the bank and one for 7a & 504 loans – they have simply instituted the SBA Environmental Policy for all loans. Bank regulators have stated that they are looking to see that lending institutions have a policy in place and that all loans adhere to that policy, and the SBA Environmental Policy is a great guideline that may be useful to any lender looking to create a formal environmental policy.
In essence, the SBA 50 10 5 (E) SOP mandates a tiered approach to environmental due diligence, based on loan size and property type/risk. Lower risk properties (such as office buildings) and smaller loans (under $150K) don’t have to do a full Phase I Environmental Site Assessment, but instead start with a limited environmental report as a cost effective way to screen properties for environmental risk. If an issue is identified, or the property use is high risk (such as an auto servicing facility), then the level of due diligence increases to a Phase 1 ESA or more in some cases.
Partner has created a helpful flowchart that depicts this tiered process of the SBA’s Steps of an Environmental Investigation.
This blog kicks of a series of blogs in which I’ll discuss the ins and outs of the SBA Environmental Policy, including:
- Various levels of environmental reports and screening tools;
- SBA Reliance Letters;
- How environmentally sensitive operations such as gas stations are handled;
- Reviewing the SBA environmental reports; and
- Selecting an Environmental Professional for SBA projects.
In my next blog I’ll start with a discussion of a streamlined environmental report. For those loans that don’t require or warrant a full Phase 1 Environmental Site Assessment, the SBA makes good use of a “stripped down” environmental report, the “Records Search with Risk Assessment” or “RSRA”.