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Navigating SBA Loan Environmental Questionnaires

How and when to fill out reports

Environmental due diligence can involve many types of reports and assessments. For SBA loans, environmental due diligence reports are tiered in terms of complexity, compliance requirements and risk level.  The due diligence process begins with the completion of an Environmental Questionnaire (EQ) by the lender and signed by the property owner and/or occupant. Then, based on the responses, loan amount and property type, environmental due diligence by an Environmental Professional begins with either a Records Search with Risk Assessment (RSRA), Transaction Screen Assessment (TSA) and finally, the most comprehensive report, the Phase I Environmental Site Assessments (ESA).  Because each of these reports also requires the completion of an EQ, Partner’s SBA team often gets asked by clients what it is and when is it used.

What is an Environmental Questionnaire?
Environmental due diligence for SBA reports begins with a good faith effort by the lender to make one visit to the site and complete a comprehensive list of questions (EQ) set forth by the SBA.  The required questions include details about the site and the adjoining properties and their known current and historical uses. Based on the answers provided, loan amount, and property type, as defined by its North American Industry Classification System (NAICS) Code, additional reporting may be required.  

Think of an environmental questionnaire as a limited scope starting point for the least environmentally risky properties, for example properties with SBA loans of less than $150K and that are not listed on the North American Industry Classification System (NAICS) Codes of environmental sensitive businesses, that may not need a full site assessment. In other cases, it’s part of a more comprehensive due diligence package, such as, a Phase I ESA report.

If the property type is not listed on the NAICS code list of environmentally sensitive industries and the loan value is over $150,000, you can begin your environmental investigation with an RSRA. Bear in mind, the lender is still required to do a site visit and fill out an EQ, obtain a signature on the EQ from the owner/occupant, and submit that along with the RSRA report to the SBA.

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.

If the owner or occupant will not sign the questionnaire, then due diligence must begin at a minimum with a TSA report, 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 Do You Fill Out an EQ?
Start by filling in all the blanks to the best of your knowledge and available answers and documentation. This can be done on a computer form or a printed paper version. The first section discusses current contact information for the property and loan applicant (if they are different). The second section asks for the addresses and past/present uses of neighboring properties in all 8 directions.

The third section is very important – this is where you are asked 11 questions (with four separate parts for each question) 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 neighboring properties. The lender’s answers in this section will be recorded twice, once based on the site visit, and once based on 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.

The fourth section collects signatures by the current owner/occupant, the lender and the SBA loan applicant. The current owner and/or occupant must sign the environmental questionnaire, or the required due diligence elevates 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!