SBA rules · SOP 50 10 8.1
Does an SBA loan require an environmental report?
An Environmental Investigation is required whenever commercial real property is taken as collateral for a 7(a) or 504 loan, or when personal property or equipment currently used to operate a gas station secures the loan.
Quoted from SBA SOP 50 10 8.1Every quote checked word for word
In detail
- General commercial property trigger: SBA requires an Environmental Investigation for any commercial property upon which a mortgage, deed of trust, or leasehold deed of trust is offered as security for a loan or debenture.
- Environmentally sensitive industries: If the property's current or prior uses match an environmentally sensitive NAICS code in Appendix 6, or if the business sells, supplies, or dispenses fuel or heating oil, the investigation must begin with a Phase I Environmental Site Assessment (ESA) regardless of loan size.
- Standard thresholds by loan size: For commercial properties not matching an environmentally sensitive industry (and units in multi-unit buildings), the investigation may begin with an Environmental Questionnaire for loans up to and including $250,000, or at minimum an Environmental Questionnaire and Records Search with Risk Assessment for loans over $250,000.
- Special properties and facilities: Gas station loans secured by real or personal property/fixtures require a Phase I ESA; on-site drycleaners with current or historical chlorinated or petroleum solvent use require a Phase I followed by a Phase II ESA; and child-occupied facilities built before 1978 require lead risk assessments and drinking water testing.
- Escalation to Phase I or Phase II: An Environmental Questionnaire that reveals further investigation is warranted or a Records Search with Risk Assessment that is anything other than "low risk" requires obtaining a Phase I ESA, and a Phase I recommendation for further investigation typically requires a Phase II ESA.
The source
What the SOP says
“SBA requires an Environmental Investigation of all commercial Property upon which a security interest such as a mortgage, deed of trust, or leasehold deed of trust is offered as security for a loan or debenture.
“If there is a NAICS code match to an environmentally sensitive industry identified in Appendix 6, the Environmental Investigation must begin with a Phase I, regardless of the amount of the loan.
“If the loan amount is up to and including $250,000, the Environmental Investigation may begin with an Environmental Questionnaire.
“If the loan amount is more than $250,000, the Environmental Investigation must, at a minimum, begin with an Environmental Questionnaire and Records Search with Risk Assessment.
“The Environmental Investigation requirements set forth below apply to all loans secured by a lien or security interest on real property (a fee simple or leasehold mortgage, deed of trust, etc.) or personal property (gas station fixtures or equipment such as tanks, pumps, lines, etc.) currently used to operate a gas station or commercial fueling facility ("Gas Station Loans").
“Prudent lending practices dictate and SBA requires that for any Property with on-site dry cleaning facilities, whether currently in operation or operated historically at the site, that uses, used, or likely used chlorinated and/or petroleum-based solvents, a Phase I followed by a Phase II Environmental Assessment is required.
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Related reading
This page quotes the SBA's Standard Operating Procedure 50 10 8.1. Lenders can ask for more than the SBA minimum. It is general information, not a loan approval or legal advice.