When the Small Business Administration released its latest guidance for Lender and Development Company Loan Programs, SOP 50 10 6 on October 1, 2020, it was widely understood to contain minor revisions to the environmental policy provisions for SBA 7(a), 504, and Express loans.  However, the latest SOP contains several important new environmental due diligence provisions, and at least one missed initially by most industry professionals that adds a requirement to all Environmental Questionnaires.

The key environmental risk management changes in SOP 50 10 06 are:

• A single section of the core requirements that apply to both the 7(a) and 504 loan programs including eligibility; uses of loan proceeds; ethics, fees, and use of Agents; guaranties; IRS Tax Transcripts and verification of financial information; insurance requirements; guidance on historic properties; and environmental policies and procedures (Part 2, Section A, Chapter 6, Subchapter E).
• Increased from $150,000 to $250,000 the threshold loan amount to determine whether the Environmental Investigation must begin with an Environmental Questionnaire or a Records Search with Risk Assessment for loans where there is not a North American Industry Classification System (NAICS) code match to an environmentally sensitive industry (Part 2, Section A, Chapter 6, Subchapter E, paragraph 4, p. 216).
• Clarified that a construction date of “prior to 1978” has been added to Paragraph 7 a: Special Use Facilities, along with the definition of Child-occupied facilities (Part 2, Section A, Chapter 6, Subchapter E, paragraph 7, p. 222).
• Specified new language that must be included in the Environmental Questionnaire as follows (note this change is buried in Appendix 4: Definitions – Environmental, p. 538 of the SOP, was not noted in the SBA Information Notice: issuance of SOP 50 10 6, and has been largely overlooked to date):

“The undersigned owner(s) and/or operator(s) acknowledge(s) and agree(s) that intentionally falsifying or concealing any material fact with regard to the subject matter of this Environmental Questionnaire may, in addition to other penalties, result in prosecution under applicable law including 18 U.S.C. section 1001.”

In addition, the new SOP includes a several updates that impact real estate collateral valuations and appraisal requirements, including:

• Incorporated guidance provided in SBA Policy Notice 5000-19007 that increased the loan size from $250,000 to $500,000 as the threshold that triggers the requirement of appraisals on collateral secured by commercial real property, for both 7(a) and 504 loans (Part 2, SBA Loan Requirements: Section B – 7(a) Loan Program Specific Requirements).
• Revised guidance and process for complying with Section 106 of the National Historic Preservation Act for properties and sites that are listed or eligible to be listed on the National Register of Historic Places (Part 2, SBA Business Loan Requirements: Section A – Core Requirements for all 7(a) and 504 Loans).

Generally, the updates were designed to improve the document’s accessibility and user friendliness with active bookmarks, a navigation pane to easily locate specific sections, and consolidation of certain sections pertaining to both 7(a) and 504 loans.  However, in the process of simplification, the SBA also added a few new provisions including one that impacts a large majority of transactions, the Environmental Questionnaire certification statement.

As always, we strongly recommend SBA lenders review, understand, and consult the full SOP to make sure all new and existing environmental and collateral valuation provisions and requirements are incorporated into your projects.  Please don’t hesitate to contact your risk management professionals at ORMS for help with navigating and interpreting the new guidance.