What environmental review does an SBA real estate loan require?
Short answer
SBA requires an environmental investigation of all commercial property taken as security. A sensitive current or prior use means a Phase I. Otherwise it starts with a questionnaire, plus a records search above $250,000. Source: SOP 50 10 8.1, Sec. A, Ch. 5, Para. E.
Every commercial property taken as security needs an environmental investigation. SOP 50 10 8.1, Section A, Ch. 5, Para. E, applies this to all 7(a) and 504 programs. On a 7(a), failure to comply may result in denial of SBA's guaranty.
How the review starts
The lender checks the NAICSThe federal code system that sorts businesses by industry. codes of the property's current and known prior uses against Appendix 6.
- A match to a sensitive use requires a Phase I, at any loan amount. Examples include gas stations, auto repair, dry cleaning and printing.
- With no match, a loan up to $250,000 may begin with an Environmental Questionnaire. Above that, it needs a questionnaire and a Records Search with Risk Assessment.
A unit in a multi-unit building skips the NAICS check and follows those same two loan-size steps.
When it escalates
- A questionnaire that warrants more review means at least a records search.
- A records search showing anything other than low risk means a Phase I.
- A Phase I warranting more work is typically followed by a Phase II. SBA requires compliance with all of the Environmental Professional's recommendations.
Dates and reliance
Reports must be dated within one year of the SBA loan number. Transaction Screens and Phase I and II reports need an Environmental Professional and SBA's Reliance Letter (Appendix 5). EPA's Phase I timing is shorter, so parties may wish to meet it anyway (Appendix 4).
Lenders may require more than this minimum.
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