On December 7 the Montana District Office hosted a 2 hour webinar on SBA Environmental Procedures and Policies. Steve O ’Lear, SBA’s Lead Attorney on environmental policies and Gary Reynolds from Partner ESI (environmental consulting firm) teamed up to provide a thorough walk through of the steps to perform environmental due diligence on SBA guaranteed loans. Here is a summation of the steps (Note- Gas station loans follow specific guidance. Please refer to Appendix 5 I SOP 50 10 5e ):
- Is the loan secured with commercial real estate? If yes- some level of environmental due diligence is required
Is the commercial real estate’s current or past use listed on the identified ‘environmentally sensitive industries’?
- If no- proceed with the minimum step for that loan size
- If yes- you must begin with a Phase I environmental study. The report must be submitted to and approved by the SBA prior to loan disbursement (PLP/Express lenders can use delegated authority)
- Is the loan <$150,000? If yes, and the CRE is not identified as environmentally sensitive, you may begin with an Environmental Questionnaire.
- If the loan is >$150,000 and not identified on the list of sensitive industries, you must begin with a Records Search with Risk Assessment (RSRA). (Note- You should still have current property owner complete an Environmental Questionnaire on the subject property!)
- Upon completion and review of the RSRA, the lender should follow the recommendation of the provider. If the report indicates ‘No further action required’, send a copy of the report to SBA underwriting for concurrence (PLP/Express lenders can use delegated authority). If the report recommends further investigation, the lender must follow the guidance provided, usually a step to a Phase I environmental review.
It is important for lenders to follow the required steps in due diligence with regards to environmental concerns. Your institution will avoid potential costs and risks that often stem from financing a property with unforeseen environmental contamination. If you are working with your borrower on a purchase money deal it is important to explain to your borrower that this effort also protects their investment in the asset. Wouldn’t they sleep better knowing that their investment is free from hazardous contamination?
Find useful attachments below.