The New SBA SOPs 50 10 7 and 7.1: Environmental Policy Updates

The New SBA SOPs 50 10 7 and 7.1: Environmental Policy Updates

On May 10, 2023, the U.S. Small Business Administration (SBA) issued the newest Standard Operating Procedure (SOP) 50 10 7, which became effective on August 1, 2023, and supersedes SOP 50 10 6. However, on October 24, 2023, a revised SOP 50 10 7.1 was released, becoming effective on November 15, 2023 (superseding 7). The new SOPs has several policy and structural updates compared to the prior version (50 10 6); one major structural change being the transfer of Part 1 content (Lender Participation Requirements) into the new SOP 50 56 1. Nonetheless, only minor updates were made to its Environmental Policies and Procedures, which are now found under Section A, Chapter 5, Subsection E, and its related Appendices 4 through 8.^[1] The changes to SBA’s environmental policies include the following revisions, with updates from the SOP 50 10 7.1 noted in blue with [7.1]:

New Language

1. The SBA added revised guidance stating that “environmental policies apply only to real estate acquired, refinanced, or improved by the loan proceeds” and that they are “not applicable to real estate collateral that is available from, for example, a lien filed for a loan where proceeds are not used to acquire, refinance, or improve the real estate.” This change clarifies that a property, placed as an abundance of caution^[2] to secure an SBA loan, does not need to follow these policies. Nevertheless, specific internal bank policies and procedures may be more conservative and/or stringent and supersede those of the SBA SOP.
2. The SBA added language for Child-Occupied Facilities (constructed prior to 1978) that clarifies that a new lead risk assessment and new testing for lead in drinking water are required for each new loan. It also states that both the assessment and tests must have been conducted within one year of report submissions. Furthermore, it clarifies that the testing for lead in drinking water must be conducted at “all indoor and outdoor taps and fountains accessible to children and therefore potentially used as a drinking water source.” As is customary, lead risk assessments and testing for lead in drinking water are required to follow EPA and HUD guidelines for facilities meeting the definition of a Child-Occupied Facility. Therefore, in the event of any new loan transaction, new assessment and testing is required, and previous sampling data cannot be used.
3. [7.1]  The Transaction Screen definition now added language stating that “the database records and historical records search must be attached to the Transaction Screen” reports.
4. [7.1]  Under Release of Rights to Indemnification from SBA/Lender (Section A, Ch. 5, E, 7) added that for 504 loans, “local” SBA counsel will be the ones to review and approve loan documents submitted.

Updated Language

5. The NAICS code for Gas Stations was revised to 457, from 447. See the NAICS codes section below for more details.
6. All references to the Transaction Screen ASTM standard have been updated from the E1528-14 to the current standard, E1528-22. (Found in Appendices 4 and 5)
7. All references to the Phase I ESA ASTM standard have been updated from the E1527-13 to the current standard, E1527-21. (Found in Appendices 4, 5, and 8)
8. Under the definition of Environmental Questionnaire (EQ), the ASTM Transaction Screen questionnaire that is allowed to be used as an alternative to the EQ is now listed as Questionnaire A due to updates within ASTM E1528-22. Unlike the SBA’s EQ,^[3] however, the ASTM Questionnaire A must be both filled out and signed by the owner or occupant to satisfy the requirements of E1528-22.
9. Under the definition of Transaction Screen, the third requirement (the completion of an environmental questionnaire) has been updated to state, “completion of both environmental questionnaires A and B” due to the updates within ASTM E1528-22. Unlike Questionnaire A (discussed above), Questionnaire B must be completed by an Environmental Professional.
10. Pronoun language stating his or her/he or she has been updated to say their/they. These changes can be found in Appendices 4 (Definitions – Environmental) and 5 (Reliance Letter). As a reminder, the reliance letter language cannot be changed. So be sure to use the newest letter that addresses these changes.
11. Sections referenced have been updated to the newest location; in addition, numbering conventions have been corrected.

Deleted Language

12. The entire Lead District Office and Center Counsel Responsibilities section has been removed, previously found in SOP 50 10 6 (Part 2, Section A, Chapter 6, E, 5). It stated that the SBA Loan Processing Center’s personnel receiving environmental investigation reports had to obtain “SBA District Counsel or Center Counsel’s opinion as to the adequacy of an Environmental Investigation and whether the risk of Contamination, if any, has been sufficiently minimized.”
13. In addition, within the first paragraph of the Property Contamination or Remediation section (E, 5), SBA removed the mention of the SBA Loan Processing Center personnel needing to obtain further counsel, and simply state that “risks must be minimized to the satisfaction of SBA.” Deletions 12 and 13 from the SOP 50 10 6 imply that SBA District Counsel’s opinion as to the adequacy of the environmental investigation is no longer necessary, and the determination that the risk of contamination has been sufficiently minimized can be conducted by the SBA loan processing personnel or others with their delegated authority.
14. Under Escrow Account (E, 5, d – Mitigating Factors, vi), it now states that “The escrow agreement for the escrow account must ensure that escrow funds will only be used for Remediation costs.” It removed the mention of the Loan Authorization also needing to ensure the escrow funds only be used for remediation costs. This is due to the newest SOP requiring loan authorizations now be done via E-Tran Terms and Conditions.
15. [7.1]  Under Mitigating Factors, the factor of Groundwater Contamination Originating from Another Site (E, 5, d, vii) removed the condition of “Groundwater.” Now, any contamination coming from another site will be considered when deciding to disburse before completion of remediation or monitoring.
16. Under Other Factor(s) (E, 5, d, ix), the requirement that the SBA Environmental committee must provide clearance to rely solely on Other Factor(s) beyond the eight mitigating factors^[4] they reference now states that the requirement “extends to loans processed under delegated authority (PLP, SBA Express, Export Express, and PCLP).” The term “delegated authority” was added, implying that lenders who are granted authority to process, close, service, and liquidate loans without prior SBA review must still get clearance from the SBA Environmental Committee to rely solely on “Other Factor(s).” In addition, the SBA programs which were previously listed without mention of delegated authority are now placed in parenthesis, having included PCLP and removed 7(a) Small Loans.
17. The “Note” in Appendix 7 (requirements pertaining to gas station loans) has been condensed to its first sentence, “SBA Lenders are reminded that documentation associated with gas station loans can be voluminous and complex.” The SOP removed the second sentence stating, “Apart from environmental concerns there are affiliation and credit issues that SBA Lenders must analyze in order to make the initial loan eligibility determination.”

NAICS Code References

The NAICS Code revisions within SOP 50 10 7 reflect the revised 2022 NAICS Code which can be obtained from the U.S. Census Bureau website’s NAICS page. These edits include:

• 311 FOOD MANUFACTURING (if fuel tanks present) – The term “underground” was removed as the qualifier to the fuel tanks.
• 457 GASOLINE STATIONS & FUEL VENDORS (not required for propane or firewood dealers) – NAICS codes 447 (Gasoline Stations) and 45431 (Fuel Dealers) were removed and newly combined as the above code 457.
• 54138 TESTING LABORATORIES & SERVICES – New language of “& Services” was added.

Keep in mind that NAICS Codes were developed as self-appointed codes for Federal agencies to assess statistical data related to U.S. Business Economy. However, SBA has identified environmentally sensitive industries, found in Appendix 6 of the SOP, that begin with the initial three digits of environmentally sensitive sectors and up to six digits related to more specific environmentally sensitive uses within the sectors.

Users, including lenders, should not feel overwhelmed or stressed about the environmental policy changes, as they do not change the overall purpose and procedures for conducting environmental due diligence. In addition, Partner has created additional user resources, which include a flowchart of the environmental investigation steps, a single-page NAICS code cheat sheet of environmentally sensitive industries, and an Environmental Questionnaire that works as a paper and/or digitally fillable form.

For more information regarding SBA policies and how to maneuver through the Environmental Policy, please refer to Partner’s SBA Resources page or email our SBA Experts to assist you further.

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FOOTNOTES:

^[1] Appendices cited within the Environmental Policies and Procedures section include: (#4) Definitions – Environmental, (#5) Reliance Letter, (#6) NAICS Codes of Environmentally Sensitive Industries, (#7) Requirements Pertaining to Gas Station Loans, and (#8) SBA Environmental Indemnification Agreement

^[2] ‘Abundance of caution’ occurs when lenders seek extra security or precautions, such as taking a lien on real estate, beyond typical underwriting guidelines to minimize risks. This is often seen in high-risk loans or with first-time borrowers.

^[3] Environmental Questionnaires (EQ) “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. […] The current owner or operator of the Property must sign the Environmental Questionnaire.”

^[4] Mitigating factors include: (1) Indemnification, (2) Completed Remediation, (3) No Further Action, (4) Minimal Contamination with Minimal Remediation, (5) Clean-up Funds, (6) Escrow Account, (7) Contamination Originating from Another Site, and (8) Additional or Substitute Collateral.