The U.S. Small Business Administration (SBA) environmental policy (SOP 50 10 6, effective October 1, 2020) has particular requirements regarding environmental due diligence on “high risk” properties. Any property that is determined to be anything other than “low risk” is, at a minimum, required to start at a Phase I ESA.
The scope of work for an SBA Phase I ESA is the same as the standard AAI/ASTM E1527 ESA. Although the SBA follows ASTM, they have a few added requirements. The main components of the Phase I ESA are a site and area reconnaissance, a review of regulatory and historical records, and interviews with key site personnel and local and state agencies.
A typical Phase I ESA can be done in a 15-business day turn, but reports rushed more than 10 business days can result in data gaps that could delay the report further. For example, most city and state agencies need at least two weeks to process Freedom of Information Act (FIOA) requests and sometimes can take up to 12 weeks from the date of request, especially on archived files. In cases like these, consultants can provide bids for various dates to meet the needs of lender turn times.
The most common sites to have issues are dry cleaners and gas stations, both of which are addressed very specifically in the SBA SOP.
Dry cleaners require a Phase I ESA and a Phase II ESA if at any operations time they used hazardous substances (i.e. perchloroethylene [TCE] or petroleum-based cleaner).
Gas stations (and other commercial fueling facilities) require a Phase I ESA and a compliance review to determine that underground storage tanks (USTs) and associated equipment are in compliance with state requirements for tightness testing. It is worth noting that each state has different third-party tank and line testing requirements (ie: annually, every two years, or every five), so it is important to have a consultant familiar with these requirements, as they must be included in the appendices of the report. If the site is out of compliance, the consultant will make recommendations which will be required to be completed by the SBA. Determination for a Phase II on a gas station is up to the discretion of the Environmental Professional, so it is also a good idea to have a conversation regarding risk tolerance.
If the Phase I ESA comes back with no further investigations warranted and no recommendations, then you would submit it to the SBA. However, if the Phase I ESA does come back with any recommendations whether it is a Phase II, Operations and Maintenance Plans, non-ASTM items or even housekeeping, these will need to be completed prior to the SBA lending on the property.
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