The SBA’s latest guidance, SOP 50 10
6, is in effect as of October 1, 2020 and replaces SOP 50 10 5(K). The updated
SOP streamlines and reformats guidance from the previous manual and gathers all
core requirements for 7(a) and 504 loan programs in one section. The document
is now easier to use, with a helpful navigation pane and hyperlinks to important
references and required documents throughout.
Following are some of the key changes
relating to environmental and collateral due diligence requirements with which
you should familiarize yourself:
RSRA Threshold: The
threshold for requiring lenders to begin their environmental due diligence
process with a Records Search with Risk Assessment has increased from
$150,000 to $250,000. Note that loans with a NAICS code match to an
environmentally sensitive industry still require a Phase I, regardless of
Commercial Property Appraisal Threshold: In
accordance with SBA Policy Notice 5000-19007, the loan size threshold for
requiring an appraisal on commercial property for 7(a) and 504 loans has increased
from $250,000 to $500,000.
Appraisal Values for SBA Express: Under
new guidance for SBA Express loans, lenders may now close a loan if the
appraised value is less than 90% of the estimated value but must include a
written justification as part of its file. The SBA may review this
justification at time of guaranty purchase or lender review. The justification
must include a thorough analysis of the reasons for the low appraisal and an
explanation of the steps the lender took to offset the risk, such as obtaining additional
equity or collateral.
Historic Properties: The
updated SOP includes a revised process for complying with Section 106 of the
National Historic Preservation Act. Under the new guidance, for projects
eligible to be listed on the National Register of Historic Places, borrowers
can self-certify that they have no intention of altering, renovating,
rehabilitating, restoring, and/or demolishing any part of the property or site.
Lead Assessments for Child-occupied
Facilities: Per the new guidance, lenders must perform additional
environmental assessments for child-occupied facilities constructed prior to
1978. This assessment must include a lead risk assessment as well as lead testing
of all taps and drinking fountains in accordance with EPA regulations and
Housing and Urban Development (HUD) guidelines.
lenders must follow SOP 50 10 6 for all 7(a) and 504 applications submitted to
the SBA on or after October 1, 2020. Applications submitted prior to that date
must follow the earlier guidance, SOP 50 10 5(K). Note also that any Environmental
Transaction Screen, Phase I ESA or Phase II ESA issued on or after October 1,
2020 must include the latest version of the SBA Reliance Letter.
With foreclosures rising, the SOP also provides a
step-by-step process for liquidation, and serves as a template for prudent
environmental due diligence on any, even non-SBA, deals.
If you are active in SBA lending, we
recommend reading through the entire 590-page
SOP for further details. As always, if
you have any questions, don’t hesitate to reach
out to your risk management experts at
ORMS for assistance. We are here to help!