SBA Crash Course – Topic 2: The Environmental Questionnaire

The SBA Environmental Questionnaire is a screening tool required for all loans on low risk properties, regardless of the loan amount. If the loan amount is $250,000 or less and the property type is not on SBA’s list of environmentally sensitive industries (such as manufacturing, gas stations, dry cleaners, auto repairs, etc.), then the environmental due diligence can start with just an Environmental Questionnaire. If the loan amount is above $250,000 the Environmental Questionnaire is included and required with the Records Search with Risk Assessment (RSRA).

Per the SBA SOP, the questionnaire must include all known current and past uses at the subject property as well as the current and past uses of the adjoining properties in each geographical direction. This is done with the intent of identifying current or previous environmentally risky operations that has or had the potential to adversely impact the subject property. By definition, the questionnaire “must be completed or reviewed by a Lender that has made at least one site visit to the Property and a good faith effort to conduct an interview with the current owner or operator of the Property.” Moreover, the Environmental Questionnaire (EQ) needs to be filled out AND signed by the lender and the owner/occupant. As of October 1st 2020, the new SOP 50 10 6 also requires that the EQ contain specific language be included pertaining to false statements. If the owner/occupant is unwilling to sign, then the level of due diligence increases, at a minimum, to an environmental Transaction Screen Assessment (TSA).

The SBA uses the Environmental Questionnaire as a preliminary screening tool. It should be noted that loan officers are not trained Environmental Professionals and may not know what to look for during a site visit. In addition, there is a potential for bias in the way a loan officer or owner/occupant answers the questions since they are incentivized to get the deal done, or because they simply are not aware that something could result in a significant environmental concern.

If the Environmental Questionnaire identifies the possibility of contamination, then the level of due diligence may increase beyond the RSRA and up to a Phase I ESA.

The SBA Crash Course Series:

Topic 1: The SBA SOP and Why You Should Care
Topic 2: The Environmental Questionnaire
Topic 3: The Records Search with Risk Assessment
Topic 4: The Transaction Screen Assessment
Topic 5: SBA Screen Outs and Appeals
Topic 6: Reliance Letters
Topic 7: The Phase I ESA and Beyond