The U.S. Small Business Administration’s new and revised SOP 50 10 7 was issued earlier this year and goes into effect August 1, 2023. As it relates to environmental due diligence there are two changes in the SOP’s Chapter 5, Section E – Environmental Policies & Procedures.
Clarity on the Applicability of Enviro Policy
Revised guidance states that environmental policies apply only to real estate acquired, refinanced, or improved by the loan proceeds. According to the SBA, this section is not applicable to real estate collateral that is available from, for example, a lien filed for a loan where proceeds are not used to acquire, refinance, or improve the real estate.
Lead Testing in Child-Occupied Facilities
The other change was the language pertaining to Child-occupied facilities. It now states that a new Lead Risk Assessment and new testing are required for each new loan for lead in drinking water at all indoor and outdoor taps and fountains accessible to children. The assessment and any tests must have been conducted within one year of submission of the reports to SBA or reliance upon the report by a Lender utilizing its delegated authority.
As a result, an LRA that is greater than a year old at the time it is submitted to the SBA or used for a different loan (like for a previous loan at the property, or a loan with a different lender) will no longer be acceptable. A new LRA will be required.
The New Language
We’ve highlighted the changes to the environmental section contained in Chapter 5, Section E of the SOP in the table below.
Old Language
Environmental Investigations
SBA requires an Environmental Investigation of all commercial Property upon which a security interest such as a mortgage, deed of trust, or leasehold deed of trust is offered as security for a loan or debenture. The type and depth of an Environmental Investigation to be performed varies with the risks of Contamination. This paragraph provides minimum standards. Prudent lending practices and internal lending policy may dictate additional Environmental Investigations or safeguards.
New Language
Environmental Investigations
SBA requires an Environmental Investigation of all commercial Property upon which a security interest such as a mortgage, deed of trust, or leasehold deed of trust is offered as security for a loan or debenture when SBA loan proceeds are used to acquire, refinance, or improve the real estate. The type and depth of an Environmental Investigation to be performed varies with the risks of Contamination. This paragraph provides minimum standards. Prudent lending practices and internal lending policy may dictate additional Environmental Investigations or safeguards.
Special Use Facilities
Child-Occupied Facilities – Prudent lending practices dictate that specific additional environmental assessments be performed for Child-Occupied Facilities (see definition in Appendix 3). Such facilities, constructed prior to 1978, must undergo a lead risk assessment and also testing for lead in drinking water at all taps and fountains potentially used as a drinking water source for children. All lead assessments must be conducted in conformance with U.S. Environmental Protection Agency (EPA) regulations at 40 CFR 745 and U.S. Department of Housing and Urban Development (HUD) Guidelines for the Evaluation and Control of Lead-Based Paint Hazards in Housing Second Edition, July 2012. The results of these assessments must be submitted to the SBA. Disbursement will not be authorized unless the risk of lead exposure to infants and small children has been sufficiently minimized.
Special Use Facilities
Child-Occupied Facilities – Prudent lending practices dictate that specific additional environmental assessments be performed for Child-Occupied Facilities (see definition in Appendix 3). Such facilities, constructed prior to 1978, must undergo a lead risk assessment and also testing for lead in drinking water at all taps and fountains potentially used as a drinking water source for children. A new lead risk assessment and new testing for lead in drinking water at all indoor and outdoor taps and fountains accessible to children and therefore potentially used as a drinking water source for children are required for each new loan. The assessment and any tests must have been conducted within one year of submission of the reports to SBA or reliance upon the report by a Lender utilizing its delegated authority. All lead assessments must be conducted in conformance with U.S. Environmental Protection Agency (EPA) regulations at 40 CFR 745 and U.S. Department of Housing and Urban Development (HUD) Guidelines for the Evaluation and Control of Lead-Based Paint Hazards in Housing Second Edition, July 2012. The results of these assessments must be submitted to the SBA. Disbursement will not be authorized unless the risk of lead exposure to infants and small children has been sufficiently minimized.
Other Resources
You can download the new SOP on the SBA website here. We also have a comprehensive flow chart that walks you through the environmental due diligence protocol. You can download it here. CREtelligent offers the full line of due diligence services for your SBA lending, from RSRAs, Phase I ESAs, and Transaction Screen Assessments to flood certificates, inspections, and more.
About CREtelligent.com. Commercial Real Estate Due Diligence. Simplified.
Gold River, CA-based CREtelligent opened its doors in 2015 as eScreenLogic, a Commercial Real Estate (CRE) environmental due diligence firm focused on desktop, RSRA, Phase I, and Phase II site assessments. In late 2020, eScreenLogic rebranded to CREtelligent to better reflect the company’s vision. Since then, the company has grown quickly and today provides the full spectrum of property due diligence services to commercial real estate professionals.
Media Contact: Gary Kulik | g.kulik@cretelligent.com