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Understanding SBA SOP 5010 5 (C)

Since the latest revision to SBA’s SOP 5010 5 (C), that came out in October 2010, I have been asked some reoccurring questions in regards to the Environmental Requirements on 504 and 7a loans.

One of those reoccurring questions is when there is a NAICS Codes match does it mean that I will have to have a Phase I AAI Compliant ESA?  The answer to this is a definitive YES, and NO!

Take a look at SOP 5010 5 (C) pg 357 -358, Appendix 4: NAICS CODES OF ENVIRONMENTALLY SENSITIVE INDUSTRIES. If your property matches up to one of those NAICS codes you would be required to have a Phase I ESA performed if (and that’s a big “if”) you’ve read the little notes accompanying the NAICS code.  Let’s say you have a Motor Vehicle and Parts Dealer – NAICS code match 441.  You would assume that a Phase I would be required – however if you read what Appendix 4 says you would read (if service bays present).

Many dealerships are just car lots without service bays and therefore wouldn’t require a Phase I.  Based on the dollar amount of the loan SBA would require only a Records Search with Risk Assessment, or perhaps if the loan was small enough (under $150,000) SBA would only require an Environmental Questionnaire.

What’s important is to read the accompanying notes in Appendix 4: NAICS CODES OF ENVIRONMENTALLY SENSITIVE INDUSTRIES to determine whether or not you will be required to engage a full Phase 1 Environmental Site Assessment.

The next time you need to turn to the NAICS Code listing just let your eyes search through to the italicized notes in parenthesis within the document to see how many exceptions there really are.

I’ve also had calls requesting a Phase I for a property the borrower was constructing a gas station on.  If the property wasn’t a prior gas station (or NAICS code match) then again the requirement would be a Records Search with Risk Assessment, or, an Environmental Questionnaire  if the loan was under $150,000.

If you need assistance in determining the level of environmental due diligence that’s required on your property, Partner Engineering and Science, Inc. would be more than happy to assist.

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Affiliations: Member, National Association of Government Guaranteed Lenders ( NAGGL) Member, National Association of Development Companies (NADCO) Member, Northern Texas Association of Government Guaranteed Lenders (NTAGGL) Member, Enviornmental Bankers Association (EBA) Mr. Reynolds has 29 years of sales and marketing experience. Mr. Reynolds is a marketing expert by career and has now become an SBA enviornmental expert by design. He has focused his enviornmental due diligence career working with U.S. Small Business Administration lenders. Mr. Reynolds is regularly called on to speak at a variety of conferences on the subject of Small Business Administration (SBA) enviornmental due diligence requirements. He has had articles published in national industry publications and continues to search for ways to provide valuable and timely information on enviornmental due diligence to the various industries Partner Engineering and Science serves.

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