Can SBA finance a property with environmental contamination?
Short answer
Sometimes. A loan cannot be approved or disbursed with known contamination or ongoing remediation unless the risks are minimized to SBA's satisfaction. The SOP lists mitigating factors such as indemnification, closure letters and escrow. Source: SOP 50 10 8.1, Sec. A, Ch. 5, Para. E.5.
Only if the risk is handled first. SOP 50 10 8.1, Section A, Ch. 5, Para. E.5, bars approval or disbursement with known contamination or ongoing remediation. The exception is when the risks are minimized to SBA's satisfaction.
The mitigating factors
SBA relies on one or more of these:
- Indemnification by a person with sufficient resources, using the Appendix 8 agreement.
- Completed remediation, with monitoring results and a professional's conclusions.
- A no further action or closure letter from a government agency.
- Minimal contamination and cost, with remediation projected to finish within 1 year.
- Government clean-up funds sufficient to cover the costs.
- An escrow of at least 150% of estimated remediation cost, not funded from loan proceeds.
- Contamination from another site, with qualifying protection for the owner.
- Additional or substitute collateral, or more equity, sufficient to overcome the potential loss.
- Other factors, which need SBA Environmental Committee clearance if relied on alone.
What the lender must submit
The recommendation covers the nature and extent of contamination, the remediation plan and cost, collateralProperty a lender can take and sell if a loan is not repaid. value and mitigating factors. Delegated 7(a) lenders follow the same guidelines but do not submit unless relying solely on other factors.
Brownfields
SBA says it encourages the redevelopment of brownfields, typically through these same factors (Section A, Ch. 5, Para. E).
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