Client Alert for CRE Lenders: SOP 50 10 5(D) Obsolete on June 1st – New SOP 50 10 5(E) Takes Effect

Effective this Friday, June 1st, the U.S. Small Business Administration is putting a new version of the requirements for the agency’s 7(a) and Certified Development Company (CDC) loan programs into practice. As of Friday, all documentation submitted by lenders participating in the 7(a) or CDC loan program must reflect SOP 50 10 5(E), not its predecessor 50 10 5(D).

Changes to SOP 50 10 5

Since its initial release, the SBA has made a number of revisions and clarifications to SOP 50 10 5, Chapter 4, Section III (Environmental Policies and Procedures) in response to comments from lending partners and the environmental professionals who support work under these two lending programs. Previous revisions reflected new language clarifying the role of qualified environmental professionals, additions/deletions to the NAICS code list of environmentally sensitive industries, a unique set of requirements for gas stations loans or loans on properties that once housed dry cleaners, among other changes.

Unlike previous revisions, SOP 50 10 5(E) looks very much like the previous version (D). Version E does make one notable change, adding that for loans processed under the agency’s SLA program (as is the case for the SBA’s PLP, SBA Express, Export Express and Patriot Express programs), lenders must still follow these guidelines, but do not have to submit documentation or obtain SBA’s concurrence prior to approval or disbursement of the loan in most cases. Like the previous version of the SOP, for all property (except for a unit in a multi-unit building), the lender/CDC must compare the property’s current and known prior uses and compare the NAICS code(s) to the list of environmentally sensitive industries in Appendix 4. Then, if there is a NAICS code match, the Environmental Investigation must begin with an AAI-compliant Phase I ESA conducted by a qualified environmental professional, regardless of the amount of the loan. Notably, with this version, the SBA did not make any changes to the qualifications required of environmental professionals, the Reliance Letter language, the NAICS code list, the Reliance Letter language or other elements of the environmental requirements.

Loan Volume Under 7(a) and 504 Programs

Release of the previous version (D), which took effect on October 1st, coincided with the end of FY11 and record-high loan volume under the SBA’s 7(a) and 504 programs. Shortly afterwards, 13 of the nation’s biggest banks pledged to increase their small business lending by $20 billion over the next three years. Based on mid-FY12 data, the approval rate for 7(a) loans is down 29% compared to the first half of FY11, but 2% above FY11’s CDC loan volume. Of the 20,854 7(a) loans approved thus far in FY12, SBA contacts estimate that 60% had a commercial real estate component, meaning that approximately 12,500 loans nationwide drove demand for environmental investigations like RSRAs, Phase I ESAs, and even Phase II ESAs in some instances. Outside of SBA-supported lending, the SOP 50 10 5 policy has been adopted as the environmental protocol by a number of banks for other types of lending so its impact goes beyond the loan volume shown in the accompanying graph. Based on the latest ranking by the U.S. SBA, Wells Fargo tops the list of the 10 most active 7(a) lenders, followed by JPMorgan Chase and Live Oak.

Action Items

Given the June 1, 2012 effective date, lenders who participate in the SBA’s 7(a) and CDC programs are advised to immediately review the new requirements, make any necessary changes to their environmental policies and ensure they are working with environmental professionals who meet the SBA’s professional qualifications. Any reports completed by environmental consultants and submitted to the SBA for loan approval must also reflect the new version (E) as of this Friday.

For More Information

EDR has supported thousands of 7(a) and CDC loans under SOP 50 10 5, and frequently receives inquiries from commercial real estate lenders and environmental professionals about the SBA’s environmental guidelines. Our latest information on the new SOP is posted at including:

  • The final SOP 50 10 5(E) (a clean version and tracked changes version);
  • An updated flow chart that diagrams the steps of an SBA environmental investigation;
  • The latest NAICS code reference for environmentally sensitive industries;
  • The agency’s most recent environmental guidelines for liquidated loans (a policy that took effect in November 2010);
  • EDR’s tip sheet based on outreach to environmental consultants and SBA lenders (and reviewed by members of the SBA’s Environmental Committee) that addresses some of the challenges faced in implementing the SOP.

This revision to the SOP reflects the SBA’s efforts to continually review its environmental policy and make clarifications, as necessary. Anyone with feedback on the SOP is invited to contact SBA via email at