At ORMS, one of the most common questions we receive from lenders is what kind of lead testing is required for special property deals, particularly child-care facilities.

Assessing the risk of lead contamination is a highly complex and nuanced process, and the federal government has evolved its stance on the issue over time in response to the growing recognition of significant health concerns for both children and adults. The most recent Standard Operating Procedure for Lender and Development Company Loan Programs issued by the Small Business Administration (SBA) offers new guidance and requirements for lead testing specifically for Child-Occupied Facilities.

It’s no wonder that many lenders are uncertain of the requirements and don’t fully understand what is involved. In this article, we will help to shed some light on this “heavy” environmental risk topic.

What are the health effects of lead exposure?

Lead is a naturally occurring metal that has been used in many products over time, from paint and plumbing components to fuel and even children’s toys. Lead was first added to paint during  the 4th century B.C., and became popular due to its quick-drying and long-lasting properties. The use of lead in commercial and consumer applications accelerated dramatically over the past century, as leaded gasoline became the standard for cars, trucks, and other vehicles.

Although the dangers of exposure to high levels of lead have been known for centuries, with descriptions of lead poisoning dating back to at least 2000 B.C., it wasn’t until 1979 that a U.S. pediatrician documented the severe health effects resulting from varying levels of lead exposure.

These health impacts are most severe for children and include cognitive impairments during their formative years, such as lowered IQ, learning disabilities, and diminished academic success. Behavioral issues like ADHD, aggression, and anti-social behaviors have also been documented in children exposed to lead paint, along with physical impairments like delayed growth and development, loss of hearing, and anemia.

In adults, lead exposure can cause increased blood pressure, greater risk of cardiovascular disease, and reduced kidney function, as well as reproductive problems like reduced fertility and pregnancy complications.

People who have been exposed to lead may suffer a variety of symptoms, including fatigue, chronic headaches, and abdominal pain. It has also been shown that long-term exposure to lead can cause significant and severe problems such as brain and nervous system damage. Often, these symptoms develop slowly over time, making it harder to detect and diagnose the root cause until it’s too late to treat.

How has the government’s regulation of lead evolved?

As the severe health impacts of lead exposure became more apparent over the past half-century, the U.S. government has taken a series of regulatory actions, evolving its stance on lead testing over time.

In the 1970s, the government began addressing lead poisoning, particularly in children. The Lead-Based Paint Poisoning Prevention Act of 1971 was the first of a series of federal laws targeting lead hazards. It prohibited the use of lead-based paint in residential structures that were built or renovated by the federal government or with federal assistance.

This was followed by The Safe Drinking Water Act in 1974, which (enhanced by subsequent amendments in the 1980s) mandated the testing of lead in drinking water. The Environmental Protection Agency (EPA) issued the Lead and Copper Rule in 1991, establishing action levels for lead in water.

The Residential Lead-Based Paint Hazard Reduction Act of 1992 (Title X) and the establishment of the EPA’s Renovation, Repair, and Painting (RRP) Rule in 2008 required contractors to employ lead-safe practices during renovations.

Over the past few decades, governmental agencies have moved from their initial recognition of the environmental and health threats of lead contamination, toward the enactment of comprehensive policies aimed at reducing lead exposure across a range of environments.

Latest SBA SOP addresses lead testing in Child-Occupied Facilities

As evidence of this more proactive approach, the SBA has refined its stance toward lead risk identification and remediation through the agency’s Standard Operating Procedures (SOP). The most recent SOP (50 10 7.1, effective November 15, 2023) tightens the requirements for rigorous lead risk assessments and testing in “Child-Occupied Facilities,” reflecting ongoing efforts to mitigate lead exposure risks. Per the SOP, the definition of a Child-Occupied Facility is “a building, or portion of a building, constructed prior to 1978, visited regularly by the same child, under 6 years of age, on at least two different days within any week (Sunday through Saturday period), provided that each day’s visit lasts at least 3 hours and the combined weekly visits last at least 6 hours, and the combined annual visits last at least 60 hours. Child-occupied facilities may include, but are not limited to, daycare centers, preschools, and kindergarten classrooms.”

For each new loan for Child-Occupied Facilities constructed prior to 1978, the SOP requires lenders to conduct a new lead risk assessment and new testing for lead in drinking water at “all indoor and outdoor taps and fountains accessible to children and therefore potentially used as a drinking water source for children.”

Furthermore, under the latest guidance, “the assessment and any tests must have been conducted within one year of submission of the reports to [the] SBA or reliance upon the report by a Lender utilizing its delegated authority.”

Lenders must submit the results of these assessments to the SBA, which will not approve any loan disbursements until and “unless the risk of lead exposure to infants and small children has been sufficiently minimized.” It’s important to note that if your institution is an SBA Preferred Lender, you have delegated approval authority and are not required to submit the assessment results to the SBA for review. For this reason, it’s even more critical to ensure any required lead assessments and testing have been performed correctly to preserve the loan guarantee.

Lead testing is complex

The lead testing the SBA requires in Child-Occupied Facilities is complex and extensive. According to the guidance, “all lead assessments must be conducted in conformance 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.”

As a practical concern, this means that lead risk assessments must be performed by an appropriately licensed professional, with extensive experience in such testing. The firm must assess the risk of lead contamination from a wide range of exposures, including:

• Lead-based paint
• Drinking water (in public fountains, taps, and other sources)
• Air quality (by conducting dust wipe tests)
• Exposed soil

Depending on the initial risk assessment and the results of any subsequent tests, the property may need to undergo various types of remediation before the lender can make the loan. These may include the repair, cutting, and/or capping of water pipes, spigots, and faucets; the stabilization and/or repainting of interior and exterior surfaces; the removal and replacement of deteriorating surfaces contaminated with lead-based paint, such as window casings and sashes; and the removal or excavation of exposed soil if contamination is discovered.

Don’t go it “a-loan”

Fortunately, even if your institution only lends to a Child-Occupied Facility once in a blue moon, you don’t need to rely on your own expertise to ensure you are conducting all proper risk assessments for lead-based paint and other hazards. Make sure to contact a risk management expert like ORMS, who can provide prudent advice and guidance, contract with qualified professionals to do the job right, and ensure you are following all the latest regulatory guidance to a “T.”