NEWS FLASH: SBA SOP 50 10 5(G) Takes Effect Today

ASTM E 1527-13 Recognized in SOP 50 10 5, Effective 10/1/14

Are you a Small Business Administration (SBA) lender under the agency’s 7(a) or 504/CDC programs? Or an environmental professional who supports these programs? Then you should be aware that a new version of the SBA’s policies and procedures for its 7(a) and 504 loan programs just took effect today. The new version 50 10 5(G) supersedes the current version (F). The most significant change in the SBA’s environmental guidelines is official recognition of the current ASTM E 1527-13 Phase I environmental site assessment standard. The new policy, the 7th iteration of this SOP, takes effect just as the federal government’s Fiscal Year comes to a close, and FY15 gets underway. Below is our capsule summary of how lending volume in FY14 measures up to prior years, the top lenders dominating SBA loan volume, information on the new SOP and a refresher on how to avoid screen outs by the SBA’s Environmental Committee.

SBA 7(a) Lending Ends FY14 on a High Note

For many lenders—and the consultants who serve them—lending under SBA-guaranteed programs has been a bright spot during the past few years of market recovery, and the year that ended yesterday (FY14) turned out to be one of the most active years since FY09. The SBA’s latest data on loan approval volume in the 7(a) and 504 programs is shown in the accompanying graph.

* NOTE TO READERS: As of today, the latest SBA data release was September 5th so each bar in the graph below reflects data for the Fiscal Year shown from its start on October 1 through September 5:

1loanvolume

Based on the latest data, 7(a) loan volume for FY14 was 47,517 loans, a healthy increase of 14% over FY13 levels and nearly three times the 5% increase in volume in FY13 over FY12. Notably, this makes FY14 the second-best year for 7(a) lending since FY2009 (with the exception of FY2011). In contrast, 504 loan volume approvals totaled 5,428 loans over the same time period of FY14, down 23% below FY13 levels, and the lowest level of activity over the past six years.

Huntington, Wells Fargo Dominate SBA Lending

The graph below shows the top SBA 7(a) lenders in FY14 (current through the 3rd quarter) based on total number of loans. Large institutions that continue to dominate SBA lending include: Huntington National Bank, Wells Fargo, JP Morgan Chase and U.S. Bank National Association.  The ten institutions shown in the graph accounted for a total of 14,514 loans.
1toplenders

New SOP 50 10 5(G)

EDR Insight reached out to the SBA’s Environmental Committee chair, Eric Adams to get the latest on the new SOP 50 10 5(G). There do not appear to be any surprises within the updated environmental guidelines. In short:

•    The new version brings in the technical corrections that the SBA issued back in March 2014 shortly after version (F) took effect in January. In Appendices 2 (Definitions) and 3 (Reliance Letter), references to the current ASTM International standard for a Phase I Environmental Site Assessment were updated to replace ASTM E 1527-05 with ASTM E1527-13.

•    The track-changes version does not indicate that the NAICS code list of industries associated with high environmental risk was revised in any way.

•    Some clarification of the environmental requirements for loans processed under PLP, SBA Express, Export Express and 7(a) Small Loan procedures.

This brings the SBA policy in line with those of other federal agencies that adopted the current version of the ASTM E 1527 standard, including EPA, HUD and Freddie Mac. Adams did note that despite the reference to the updated ASTM standard, SBA will continue to accept reports prepared pursuant to both -05 and -13.  Also note that the U.S. EPA is about to adopt a final rule removing the old E 1527-05 Phase I ESA standard from the All Appropriate Inquires rule for the purposes of CERCLA liability protection. The rule is expected to be promulgated sometime this month.

Nothing in these changes suggestion anything that would impact the process of SBA 7(a) loan reviews. As Adams noted earlier this year in an industry presentation with regard to ASTM’s E 1527 revisions:

“Reviews will be done the same as usual. On the new CREC definition, note that this is the type of REC that will trigger the Section G analysis requirement mitigation factors under the SOP.”

Refresher on Avoiding Screen-Outs

To avoid delays associated with having environmental reports screened out by SBA reviewers and delaying the loan approval process, environmental professionals and lenders engaged in 7(a) and 504 lending are advised to be aware of some of the most common causes for screen outs:

– Reliance letter date does not match the date on the Phase I ESA report.
– The certificate of liability insurance does not provide evidence of coverage in effect during the applicable time frame.
– The report lacks documentation to support a No Further Action decision.
– Failure to detail current/past use of adjoining properties.
– Failure to provide the required information on compliance status on loans involving gas stations.
– Failure to provide a Phase II ESA performed by a Professional Engineer or Professional Geologist with at least three years’ experience on loans involving dry cleaners that are more than five years old.
– Failure to include lead based paint and lead in drinking water assessments on loans involving a special use facility (e.g., day care center, nursery school, etc.) for which the date of construction was pre-1980.

This new version of the SOP now applies to any 7(a) or 504 applications received by SBA so it is critical for any lenders participating in the 7(a) or CDC programs to make sure their loan documentation contains references to the new version of SOP 50 10 5(G)—not its predecessor 50 10 5(F).

FOR MORE INFORMATION

The SBA posted two versions of the new SOP 50 10 5 as follows:

SOP 50 10 5(G) track changes version highlights where modifications were made.
Clean version of Version (G) reflecting all updates.

Additional information on the latest environmental requirements, including the NAICS code list and a flow chart is available from EDR’s SBA page.

Technical Corrections to Version (F), March 2014