Happy New Fiscal Year! Market Readies Itself For Changes To SBA’S Environmental Requirements

** Part II of our webinar series on the new SOP was held yesterday, October 19, for 400 attendees across the U.S. If you missed it, the replay is available here with detailed information on nine changes made to the agency’s policies and procedures. 

New SBA SOP 50 10 5(J) Just Released

The U.S. Small Business Administration kicked off Fiscal Year 2018 with the release of a new version of SOP 50 10 5—version J—as well as year-end stats on the impressive growth that the agency’s flagship 7(a) and 504 programs have experienced in recent years. Below is a high-level look at the nine key areas of change covered in our webinar, followed by a look at the growth in SBA lending programs over the past six fiscal years.    

First Changes to Environmental Since 2014

The SBA’s SOP 50 10 5 contains the agency’s policies and procedures governing the CDC/504 and 7(a) loan programs. The policies outline the steps that SBA lenders and CDCs must follow for environmental investigations using a tiered process ranging from an environmental questionnaire all the way up to a Phase II environmental site assessment. The SOP also includes the SBA’s NAICS Code list of environmentally sensitive industries. This list is important as a property’s current or past operation in any of these industries automatically dictates that the environmental investigation begins with a  Phase I ESA by a qualified environmental professional.

The latest version J is notable not just as the 10th tenth update to the original SOP 50 10 5, but also because it is the first time the SBA has updated the environmental requirements in several years. The last time the SBA updated the environmental policy was back in 2014 when the SBA revised the SOP to reflect ASTM’s new Phase I environmental site assessment standard (E 1527-13), among other changes. The agency made nine changes to the environmental requirements, effective January 1, 2018:

  • A “Records Search with Risk Assessment” must be based on historical records that identify property uses back to the property’s first developed use, or back to 1940, whichever is earlier:

“While the choice of historical records to be reviewed on any particular site is at the discretion of the Environmental Professional, historical records should identify property uses back to the property’s first developed use, or back to 1940, whichever is earlier.”

In addition, the RSRA “must include all of the database reports and historical records relied upon.”


  • Dry cleaners: Mandatory Phase II ESA (in addition to the requisite Phase I ESA) for any property with on-site dry cleaning facilities, currently in operation or operated historically at the site, that used chlorinated and/or petroleum-based solvents (replaces previous Phase II ESA requirement for dry cleaners in operation for five years or more). The new language also adds the soil vapor pathway to more traditional soil and groundwater considerations, and a mandatory requirement that “Any soil and groundwater contamination and soil vapor intrusion must be addressed.”
  • Gas stations: The process for gas station properties, which begins with a Phase I ESA, must also include supporting documentation on the environmental professional’s determination of tank and equipment testing compliance.
  • Reliance Letter: Added emphasis that the language in the Reliance Letter to be signed by the environmental professional  “may not be modified,” a position SBA has taken in the past and is seeking to clarity to avoid screen-outs in the loan process.
  • Exceptions from EP’s Phase I ESA Recommendations: The new SOP clarifies the process to be followed if a lender does not wish to follow a recommendation made by the environmental professional in a Phase I ESA.
  • Phase I ESA Shelf Life: Previously, the SBA adopted the shelf life language in the U.S. EPA’s AAI rule that a Phase I ESA is valid for up to one year, provided certain components were updated to within 180 days. The new SOP states that:

    “For SBA’s purposes, and notwithstanding the EPA’s regulations on updating Phase I ESAs after 180 days, SBA will accept for review an otherwise AAI compliant Phase I ESA if it was performed within one (1) year of the date upon which it was submitted to a SBA loan processing center as part of an Environmental Investigation. Lenders or CDCs using their delegated authority may accept for review an otherwise AAI compliant Phase I ESA if it was performed within one (1) year of the date of approval of its Environmental Investigation. Parties may still wish to strictly comply with EPA’s regulatory timeframes to avoid jeopardizing legal and regulatory protections. Note: The immediately preceding paragraph does not apply to liquidation situations under SOP 50 55 or SOP 50 57.”

The new shelf life language brings consistency to the shelf life of environmental questionnaires, RSRAs, Transaction Screens, Phase I ESAs and appraisal reports.

  • NAICS Code Phase I ESA Triggers. Appendix 4 of the SOP 50 10 5 contains NAICS codes of environmentally sensitive industries. This list is important because any match between a property’s “current and known past uses: and an environmentally sensitive industry identified in Appendix 4 automatically triggers the need for a Phase I ESA, regardless of the amount of the loan. Version J makes two additions to the list as follows:
    • 484 Trucking (if service bays, truck washing or fuel tanks present)
    • 713990 Other Recreational Industries (indoor and outdoor shooting ranges only) [see FOR MORE INFORMATION section for a link to the list]
  • It is also important to note a few clarifications the SBA made to limit the applicability of four existing NAICS codes by adding the parentheticals shown below:
    • 316 Leather/Allied Product Mfg (not required if assembly only)
    • 326 Plastics and Rubber Products Mfg (not required if assembly only)
    • 332 Fabricated Metal Product Mfg (not required if assembly only)
    • 8122 Death Care Services (unless no embalming or cremation at the property)
  • Historic Sites. The policy also expanded the special requirements in cases when a loan will in any way affect properties included in the National Register of Historic Places, including a consultation with the relevant State Historic Preservation Officer (SHPO). (EDR’s NEPASearch Map Report has access to 91,000 sites on the federal National Register of Historic Places, and another 197,000 sites from State Historic Preservation Offices.)
  • E&O insurance. The new policy does not change the previous requirement than an environmental professional must have minimum $1 million coverage, but it does require proof of coverage on the date of the investigation, and also now requires the consultant to waive time limitations on liability.

As a reference tool, the table below provides the citation/page number within the SOP for each of these nine changes:Asummary

SBA Lending Continues to Grow

Lending under SBA-guaranteed programs has been a continuing bright spot of activity for lenders—and the environmental consultants who support them—as the commercial real estate market marches along its recovery path. Many community banks, in particular, would not lend on commercial real estate without the government backing that the SBA 7(a) or CDC programs provide.

The SBA’s latest data on 7a and 504 lending for the fiscal year ending September 30th is nothing short of impressive. Just in the past six years, these two SBA programs have supported almost 400,000 loans, totaling almost $160 billion. And over that timeframe, lending volume grew by 27 percent. In terms of dollar volume, FY17 set a new high of $24.6 billion, up seven percent from the prior FY.

SBA_no of loansSBA_dollarvoluem

Largest SBA Lenders in the U.S. 

The most active SBA 7(a) lenders in the U.S. by lending volume as of mid-year 2017 are shown in the table below, Wells Fargo, Huntington National Bank and JP Morgan Chase did more SBA 7(a) loans than any other banks. Live Oak ranked second in terms of loan amount by dollar volume.



If you missed our two-part webinar series on SBA SOP 50 10 5(J) changes, replays are available here:

  • Part I: For a look back at the historical context of the SBA’s environmental policy in the broader evolution of the risk management field and its impact on the lending world, listen to our October 10th webinar.
  • Part II: For our late-breaking webinar on the nine areas of change in the environmental requirements and valuable tips on how to prepare for a seamless transition, listen to the October 19th webinar–and the slide deck highlighting exactly what changed.
  • The new version of the SOP is available here.
  • EDR’s flowchart illustrates the tiered approach of an environmental investigation under the SBA’s environmental policy, an approach that has been widely adopted by lenders even for non-SBA lending. This link also takes up to the updated NAICS code list.