The Small Business Administration (SBA) recently issued the yearly update to their Standard Operating Procedure (SOP) 50 10 5(K). Included in every version of the SOP are Environmental Policies and Procedures, which must be followed when making a loan using commercial real estate as collateral.  With each SOP revision, PM Environmental carefully reviews the edits and additions to see how they may affect our clients when obtaining SBA financing.

This newest version is the 11th update to the original SOP 50 10 5. It will go into effect on April 1, 2019 and will apply to applications received by the SBA on or after that date. Applications submitted through March 31 will continue to use SOP 50 10 5 version J.

There are two minor revisions regarding the SBA’s environmental policies and procedures. The first involves Transaction Screen results. The update allows for an Environmental Professional (EP) to recommend proceeding from a Transaction Screen directly to a Phase II Environmental Site Assessment (ESA) if Potential Environmental Concerns (PECs) are identified, thereby bypassing a Phase I ESA. However, this will require concurrence from the SBA Environmental Committee, and may be granted on a case by case basis.  In these instances, the EP should consider whether completion of a Phase I ESA would eliminate the PEC or not.  If not, then the Phase I would not serve any practical purpose.

“With the inclusion of Records Search with Risk Assessment (RSRA) in the SOP in recent years, Transaction Screens are no longer widely used,” said Steve Price, Principal and Vice President at PM Environmental.  Price has extensive experience with loans involving the SBA. “This change will not affect most of our clients, but it is a positive change for the ones it does, allowing them to eliminate a potentially unnecessary step.” Price said.

The other revision pertains to the section on special use facilities. The update rearranges this section into three separate categories, including: child-occupied facilities, drycleaners, and gasoline stations. Most of the language/requirements in each section is similar to version J, with two exceptions. All child-occupied facilities must now undergo a lead risk assessment, and test for lead in taps, fountains, and all potential sources of drinking water for children. Previous versions of the SOP only required this testing for facilities constructed prior to 1980.  Therefore, this revision will likely result in more clients having to complete these lead assessments on newer buildings.  The update now also includes new language stating all assessments must comply with U.S. Environmental Protection Agency (EPA) regulations at 40 CFR 745 and U.S. Department of Housing and Urban Development (HUD) Guidelines for the Evaluation and Control of Lead-Based Paint Hazards in Housing Second Edition, July 2012.

PM Environmental handles nearly half of the SBA loans in Michigan and is a leader in environmental risk management. We work closely with governmental regulators, municipal authorities and property owners to stay at the forefront of the ever-evolving environmental science and policy landscape. Please feel free to contact our staff if you have any questions regarding these changes or any topic regarding the environmental requirements for your loan.