Navigating SBA Loan Environmental Questionnaires

Environmental due diligence for SBA loans can involve many types of reports and assessments, all of which require the completion of an Environmental Questionnaire (EQ). Environmental due diligence reports for SBA loans are tiered in terms of complexity, compliance requirements, and risk level. Depending on the property type (aka: NAICs code), the EQ will be required to be completed either by the lender (with the help of the owner/occupant of the subject property) or by the Environmental Professional (EP).

As part of the tiered approach, the lender would only be required to complete an Environmental Questionnaire for the least environmentally risky properties, which are those not listed on SBA’s North American Industry Classification System (NAICS) Codes of environmentally sensitive businesses. For non-NAICS code properties (aka: low risk, non-sensitive properties) with SBA loans of $250k or less, environmental due diligence begins with the lender EQ. For non-NAICS code properties of SBA loans greater than $250k, this lender-completed EQ is still required to be submitted to the SBA in addition to a Records Search with Risk Assessment, which is performed by an EP. All lender EQs require: (1) a good faith effort by the lender to make one site visit, (2) the completion of the EQ’s comprehensive list of questions set forth by the SBA, and (3) that it be signed by the property owner and/or occupant. This EQ can be completed with the assistance of an Environmental Professional.

For properties that do match SBA’s NAICS codes list of environmentally sensitive businesses, environmental due diligence would be performed by an Environmental Professional (EP), beginning with either a Records Search with Risk Assessment (RSRA), Transaction Screen Assessment (TSA), or the most comprehensive report, the Phase I Environmental Site Assessment (ESA). Both the TSA and Phase I ESA reports require the completion of a different EQ, both of which are completed by the EP.

What is an Environmental Questionnaire?

Think of a lender-completed environmental questionnaire as a limited scope starting point for the least environmentally risky properties that may not need a full site assessment. In addition to the lender performed site visit, the SBA’s current SOP provides a list of the minimum items required to be included in the questionnaire, which pertain not only to the subject property but the adjoining properties, as well. This includes but is not limited to: current and historical operations; current and historical use of hazardous materials, including permitting of such materials; potential sources of contamination; evidence of releases; and several other pertinent items. Based on the answers provided by the lender and owner/occupant, additional reporting may be required and may become part of a more comprehensive due diligence package, such as, a Phase I ESA report.

The lender EQ must be signed by the property owner and/or occupant. If the owner or occupant is unwilling to sign the questionnaire, then due diligence must begin at a minimum with a Transaction Screen Assessment, which is performed by an Environmental Professional. Please note that a TSA has its own EQ that satisfies the SBA and ASTM requirements and does not specifically require any additional EQ. The SBA will accept a TSA questionnaire as an alternative to any SOP requirement that involves completion of an EQ.

Finally, if a Phase I ESA is necessary, the Environmental Professional is required to complete an EQ under ASTM E1527-13, if one is not provided. However, these EQs are separate from an All Appropriate Inquiry (AAI) Questionnaire, required to fulfill the US Environmental Protection Agency compliance, and are not substitutes for this form.

How to Complete an Environmental Questionnaire?

Lenders should start by filling in all the blanks to the best of their knowledge with the available answers and documentation they have. The questionnaire can be completed on either a computer form or on a printed paper version.

Section 1. This section requests information about the property and its past and present uses, as well as contact information of the loan applicant and site contact (if they are different).

Section 2. This section asks for the business name, address, and present and past uses of the neighboring properties from all 8 directions. In addition, it asks if there are toxic chemicals/petroleum products evident for each.

Section 3. This third section is very important – this is where 11 questions are asked about possible site contamination (if known), and specific details about past investigations or studies of potential contamination. Please note that these questions pertain to both the property and its neighboring properties, so will need to be answered separately. The lender’s answers in this section will also be recorded twice; once based on the lender’s site visit and once based on the current owner/occupant interview answers. If the answer to any of these questions is yes, then the answer needs to be explained in more detail. It is best to refer to the NAICS codes list to see if past/present uses of both the property and adjoining properties qualify as environmentally sensitive industries.

Section 4. This last section collects signatures by the current owner/occupant, the lender, and the SBA loan applicant. As of the latest SBA SOP 50 10 6, it now also requires that a “False Statement Certification” be included (found in the SOP on page 539). Its language may not be altered in any way; if an EQ is submitted without it, the loan application will be found to not be in compliance and will be screened out. As mentioned above, the current owner and/or occupant must also sign the environmental questionnaire or the required due diligence will be elevated to a Transaction Screen Assessment, at a minimum.

For more information about what kinds of environmental reports you might need for your SBA loan, take a look at the SBA SOP Decision Tree Flowchart. If you have any questions or concerns about how to fill out the EQ, don’t hesitate to reach out to Partner’s dedicated SBA team to assist you!