Now that the U.S. Small Business Administration’s (SBA) Standard Operating Procedure (SOP) 50 10 5(J) went into effect earlier this month, below is a quick summary of the changes that impact environmental policies and procedures:
Records Search with Risk Assessment (RSRA) Definition
(Appendix 2, page 357)
Historical records should be reviewed to determine previous uses of the property back to first developed use or back to 1940, whichever is earlier. All database reports and historical documents used to determine historical uses must be included with the RSRA.
NAICS Code List
(Appendix 4, page 360)
There have been 2 additions, and 4 clarifications to the NAICS codes of environmentally sensitive industries. If the property falls under these codes, a Phase I Environmental Site Assessment (ESA) is required, except as noted:
- • 484 Trucking – if service bays, truck washing or fuel tanks are present
- • 713990 Other Recreational Industries – indoor and outdoor shooting ranges only
- • 316 Leather Allied Product Manufacturing – not required if assembly only
- • 326 Plastics Rubber Products Manufacturing – not required if assembly only
- • 332 Fabricated Metal Product Manufacturing – not required if assembly only
- • 8122 Death Care Services – unless no embalming or cremation at the Property
On-Site Dry Cleaning Facilities
(Subpart B, Section H., page 204 and
Subpart C, Section H., page 318)
A Phase II ESA is required, in addition to a Phase I ESA, if the property currently operates or has historically operated as a dry-cleaning facility that may have used chlorinated and/or petroleum-based solvents. Soil and groundwater contamination, as well as soil vapor pathways/intrusion should be addressed.
Gas Station Loans
(Appendix 5, page 362)
Include documentation used by the Environmental Professional (EP) to determine compliance with regulatory requirements associated with tank and equipment testing.
Phase I ESA Recommendations
(Subpart B, Section E.5, page 200)
The SBA requires compliance with all recommendations provided by an EP in a Phase I ESA, including “household measures”. In situations where an exception may be warranted, Lenders are required to provide the SBA Environmental Committee with justification for not following an EP’s recommendations and obtain approval from the SBA Environmental Committee.
Phase I ESA Life Expectancy
(Appendix 2, page 356)
The SBA will accept an All Appropriate Inquiries (AAI) compliant Phase I ESA within one year of completion. Because the Environmental Protection Agency’s (EPA’s) regulations are to update portions of the Phase I ESA after 180 days, parties may still want to comply with the EPA’s timeframe to avoid compromising legal and regulatory protections. The one-year timeframe does not apply to liquidation loans under SOP 50 55 or SOP 50 57.
(Appendix 2, page 357)
Language in the SBA reliance letter cannot be changed. Lenders and Certified Development Companies (CDCs) should not enter into any agreement in which the terms of the SBA standard reliance letter need to be modified.
Errors and Omissions (E&O) Insurance
(Appendix 3, page 359)
The EP must certify that they have errors and omissions liability insurance coverage as of the date of the Environmental Investigation. “As to the Lender and SBA, Environmental Professional (and Environmental Processional’s firm, where applicable) specifically waive(s) any dollar amount limitations on liability up to $1,000,000 as well as any time limitations on liability.”
(Subpart B, Section E., page 118 and
(Subpart C, Section E., page 294)
If a loan will affect the property listed, or affect its eligibility to be listed on the National Register of Historic Places (NRHP), the Lender must consult with the SBA counsel for further guidance. A determination must be made whether or not the loan will adversely affect the historic property.
The full update of SOP 50 10 5(J) is available here. The SBA recommends fully reading it to understand the changes which are required to conform to recently revised regulations in 13 CFR Part 120. For more information on any of the environmental policies associated for 7(a) and 504 Loan Programs, or to discuss any of your environmental due dligence needs, please contact Erin Pike at 207-591-7000 x37.