How to Satisfy SBA Environmental Due Diligence Requirements

The Small Business Administration (SBA) has several programs to help business owners launch or grow their ventures. One of the organization’s best resources is its commercial real estate loan services, as SBA real estate loans offer favorable terms for small business owners. For loan officers at banks that work with business owners, it’s essential to help your client meet SBA environmental due diligence requirements. Familiarizing yourself with these requirements will enable you to help your client close their deal without delay.

What Are the SBA Environmental Due Diligence Requirements for Commercial Property?

SBA loans are similar to other commercial loans in many ways. Like other loans, SBA loans adhere to ASTM International standards that outline the type of due diligence that must be performed and the criteria that would make a piece of land ineligible for commercial applications. Despite these similarities, SBA loan due diligence requirements differ from standard loans in one major way: SBA loans require reliance letters.  Reliance letters convey the right to rely on an environmental report like a Phase 1 environmental site assessment (ESA). They also protect lenders from liability. The SBA isn’t the only lender that uses reliance letters. Many other lenders require reliance letters, too, but these can be placed on generic templates as long as they contain the required information. The SBA has created its own reliance letter form. You must submit reliance data on this form when your client applies for an SBA loan. Otherwise, loan processing will be delayed. Reliance forms are required for:

• Transaction screens
• Phase 1 ESAs
• Phase 2 ESAs

The firm that conducted the assessment must complete the SBA reliance form. The same firm must also provide information to verify that they meet the SBA’s reliance requirements. On the form, the firm must indicate what type of environmental due diligence was performed. They cannot have any vested interest in the property or the deal. When seeking a due diligence partner, ensure the firm you choose meets SBA reliance requirements. You should also determine whether they have experience filing SBA reliance documents. You don’t want to work with an inexperienced firm, even if they meet SBA reliance requirements. Such a partnership may inadvertently cause delays. And, as you know, unnecessary friction during a transaction can ruin a deal.

Which Requirements Should Loan Officers Pay Special Attention To?

When you partner with an experienced firm, their team should oversee all SBA loan due diligence. However, you should still pay close attention to the Phase 1 ESA report and its findings. A Phase 1 ESA will reveal if any potential hazards exist. If such hazards are discovered, you’ll need to book a Phase 2 ESA, assuming your client still wants to move forward with the deal. The presence of hazards won’t make your client ineligible for an SBA loan, but you’ll need to submit the findings of the Phase 2 ESA to the SBA, along with another reliance letter. The SBA will use the content of the Phase 2 ESA report as the basis for approving or denying the loan. They’ll also use the report and reliance letter to protect their investment.

How RSB Environmental Can Protect Your SBA Deal

RSB Environmental can help you protect your SBA loan deals. We provide extensive SBA environmental due diligence services and meet all necessary SBA reliance requirements. To learn more about our services, contact our team to schedule a no-obligation consultation. Let’s discuss the SBA environmental due diligence requirements so that you can best support your clients.