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New SOP 50 10 5(J) Released 10/13/2017

The SBA just released the new SOP 50 10 5(J), effective January 1, 2018.

The SBA just released the new SOP 50 10 5(J), which includes (among other revisions) some notable changes to the environmental policy. These changes take effect as of January 1, 2018 – until then the current SOP 50 10 5(I) is still in effect. 

Below is a summary of the key environmental changes and how they affect the SBA environmental investigation process.

Important Changes to SBA Environmental SOP

Dry cleaners and Phase IIs: SBA will now require a Phase I Environmental Site Assessment (ESA) and a Phase II ESA / Subsurface Investigation on all dry cleaners that currently or previously have had on-site cleaning operations that did, do or likely used chlorinated and/or petroleum based solvents. This is a big change from the previous requirement for Phase IIs only if the facility was 5+ years old. The SBA also now stipulates that during the Phase II investigation, soil vapor / intrusion must be addressed (in addition to soil and groundwater contamination).

Phase I ESA report age: SBA will now accept a Phase I Environmental Site Assessment (ESA) completed within 1 year of the date submitted to SBA, instead of requiring updates after 180 days. This is a deviation from EPA’s AAI requirements to update portions of the Phase I after 180 days. For SBA loan liquidations, this does not apply. (Refer to the Phase I ESA definition in Appendix 2). 

RSRA report scope of work: The Records Search with Risk Assessment (RSRA) report will now be required to include a review of historical documents back to 1940 or first developed use, whichever is earlier.  This brings the historical review timeframe more in line with the Phase I ESA report.  What historical sources should be reviewed, however, remains at the discretion of the Environmental Professional performing the RSRA – for example, aerial photos, city directories, reverse directories and/or fire insurance maps. (Refer to the RSRA definition in Appendix 2).

NAICS codes of environmentally sensitive industries: SBA made several edits to the NAICS code list of environmental sensitive site uses that automatically trigger a Phase I ESA in SBA’s policy. 

They added language to clarify that a Phase I is NOT automatically required for Leather & Allied Product Manufacturing, and Fabricated Metal Product Manufacturing, IF these operations are assembly-only. If the operations include more than just assembly, a Phase I ESA would still be required. Also for Death Care Services (funeral homes), if there is no embalming or creamation done on site, a Phase I is not required now.

SBA added two new NAICS codes that now require a Phase I ESA for trucking facilities (if service bays, truck washing or fuel tanks are present) and indoor and outdoor shooting ranges (listed under Other Recreational Industries).

Other Environmental SOP Changes Worth Noting

SBA made other clarifications to the language throughout the environmental SOP, most of which are minor and serve only to clarify or update references (for ex. to the latest ASTM standards) rather than as a change of policy. However, some of the changes worth noting are as follows: 

Gas stations: In the section regarding the Phase I ESA and review of the gas station’s compliance, SBA revised language to indicate the environmental professional must document that the gas station is in compliance with “all regulatory requirements”, not just state requirements, regarding tank and equipment testing. This is likely to account for states that do not have any requirements for tank tightness or line tightness testing, where defaulting to federal guidance is typical. 

Reliance letters: SBA added language to the definition of the reliance letter, and to the reliance letter itself. The important changes are:

  • Added language that the reliance letter cannot be modified
  • A clarification that the environmental professional’s E&O insurance must have been in place at the time of the environmental investigation, and
  • Added text that the environmental professional waives any time limitations on liability

Industry Impacts

The industry will be digesting these changes over the next few months before they take effect. The dry cleaner change is significant and may have a substantial effect on how many properties with dry cleaners on-site can be financed through SBA. As for the other changes, it remains to be seen how big an impact they will have on the overall SBA environmental due diligence process. Some of these changes will serve to lessen the due diligence requirements lenders must follow, while others serve to add to the requirements. Will any changes affect price (for example the new RSRA requirements)? Most likely not if you were previously working with quality environmental consultants that are well versed with the SBA SOP.

SBA does an excellent job of taking feedback into account from lenders, environmental professionals and other stakeholders, and these changes were no doubt a reflection of that process. We will keep you updated on how the conversation unfolds as the industry digests these changes! 

In the meantime, feel free to reach out to me or your Partner relationship manager with any questions.