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SBA Crash Course – Topic 1: The SBA SOP and Why You Should Care

The SBA SOP and Why You Should Care

We first brought you our first SBA series in 2012; however, as eight years have passed, we have seen some major changes in the SBA SOP. The biggest updates to the environmental policy were made in 2017 within the SBA 50 10 5(J), and as of October 1, 2020, the SOP will be referred to as SBA SOP 50 10 6.

Over the years, the Small Business Administration’s SOP for 7a and 504 loans has provided the minimum requirements to satisfy the SBA. As such, it has become a very popular policy for environmental due diligence that many banks have adopted as their own bank policy when processing SBA loans. Instead of trying to reinvent the wheel, or (for SBA lenders) having two policies in place – one for the bank and one for 7a and 504 loans – they have simply instituted the SBA Environmental Policy for all loans. Bank regulators have stated that they are looking to see that lending institutions have a policy in place and that all loans adhere to that policy; the SBA Environmental Policy is a great guideline that may be useful to any lender looking to create or modify their formal environmental policy.

Just like all previous SOPs, SBA SOP 50 10 6 mandates a tiered approach to environmental due diligence to assess risk, which is based on property type/use and loan size. All loans, up to and including $250,000 on properties begin with an Environmental Questionnaire (EQ) completed by the lender and signed by the owner/occupant. If the loan is greater than $250,000 a Records Search with Risk Assessment (RSRA) is completed with the signed EQ. Without the signed EQ, the minimum starting point is a Transaction Screen Assessment (TSA). A lender can always begin at the Phase I ESA, the SOP just provides guidance for the minimum starting points. However, one must start at the Phase I ESA if the property was identified as having any environmentally sensitive industries onsite at any time, for any duration.

In short, using the tiered approach is a cost-effective way to screen properties for environmental risk. If an issue is identified, or the property use is high risk (such as an auto servicing facility, presence of fueling tanks, drycleaners, manufacturing, etc.), then the level of due diligence must begin at a minimum of a Phase I ESA. In the case of a dry cleaner, a Phase II will also always be required. Overall, the determination of risk, is based on the data available and the Environmental Professional’s opinion and overall knowledge of the SBA.

Partner has created a helpful flowchart that depicts this tiered process of SBA’s Steps of an Environmental Investigation.