SOP 50 10 7

July 6, 2023

SOP, Version 50 10 7 for the Small Business Administration’s Standard Operating Procedures for Lender and Development Company Loan Programs effective on August 1, 2023.

On May 10, 2023, the United States Small Business Administration (US SBA) issued a long-anticipated informational notice regarding implementing their newest Standard Operating Procedures (SOP) under Lender and Development Company Loan Programs. According to this notice, the new SOP, Version 50 10 7, goes into effect on August 1, 2023. All lenders, certified development companies (CDCs), SBA employees, and applicants/borrowers of 504 and 7(a) loans will be subject to the changes therein at that time.

Today’s SCS blog provides critical guidance to entities needing environmental due diligence or other services under the auspices of US SBA programs.

The environmental policies of the SOP are contained within Chapter 5, Section E of the new SOP. One highlighted change from the previous version (10 5 6) is that these policies apply “only to real estate acquired, refinanced, or improved by the loan proceeds” and do not apply to collateral. For the commercial real estate subject to the program, the following summarizes the basic requirements:

• For any loan up to and including $250,000, assuming the Property does not fall under the banner of “environmentally sensitive industries” (per the list provided in Appendix 6 of the SOP), only an “environmental questionnaire” is required.
• For loans exceeding $250,000, in addition to the questionnaire, a Records Search with Risk Assessment (RSRA) report is required.
• If either the questionnaire or the RSRA reveals the potential for contamination or that historic use of the Property is environmentally sensitive (i.e., a “high risk” RSRA), a Phase I Environmental Site Assessment (ESA) will be required.
• Phase II ESAs will be required for all Phase I reports issued with Recognized Environmental Conditions (RECs), as well as for all dry cleaning establishments, regardless of the findings of the Phase I ESA.
• Contamination confirmed in the context of a Phase I or II ESA report will result in cessation of approval/disbursement of the loan unless the SBA can be assuaged that the risk is sufficiently low. Preparing a Section E-5 letter providing the following information is the recommended method for addressing SBA’s concerns:
  • Nature and extent of contamination
  • Remediation (past and planned, including methodology and costs)
  • Collateral value
  • Mitigating factors

The SBA SOP also has specific requirements for “Special Use Facilities,” which differ from other property types. The three categories of Special Use Facilities include child-occupied, dry cleaners, and gas stations. Of the three, the new version of the SOP contains a point of clarification pursuant to child-occupied facilities. It now explicitly specifies that all such facilities constructed before 1978 must undergo a Lead Risk Assessment (RA) and test all taps, water fountains, and spigots for lead in drinking water. The RA should be conducted within one calendar year of submission to SBA for approval and follow US Department of Housing and Urban Development (HUD) Guidelines.

As always, SCS aims to make the process of securing both conventional and SBA loans as painless as possible. Rest assured that we fully understand the program’s intricacies and are well-positioned to assist you with environmental requirements related to this program.

Meet Author Rachel McShane

Additional Resources:

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