The Real Effects of the 2018 SBA Standard Operating Procedure (SOP) Changes

It is year end and once again, the Small Business Association (SBA) has released their revisions to the Standard Operating Procedure (SOP) 50 10 5(J).  This will be the 10th revision to the SOP and will become effective January 1, 2018.  Included in every version of the SOP are Environmental Policies and Procedures, which must be followed when making a loan using commercial real estate as collateral.  With each SOP revision, PM Environmental carefully reviews the edits and additions to see how they may affect our clients when obtaining SBA financing.  

Several changes have been made to version (J), most of which will not likely cause significant repercussions on the lending process. However, below are a few changes we believe may have an impact.

A Phase II ESA is required for any dry cleaner that used chlorinated and/or petroleum based solvents and operated at the subject property

This replaces the former requirement of a Phase II for any dry cleaner that operated for five years or longer at a site.  The end result is that a Phase II ESA is required for any dry cleaning using solvents of any kind and removes the discretion of the Environmental Professional (EP) for facilities in operation less than five years.  Also, soil vapor pathways must be assessed in addition to the soil and groundwater.  

The evaluation of the soil vapor pathways [i.e. even prior to inclusion here in version (J) changes] has had significant ramifications to SBA deals in terms of investigation costs, timing, etc., associated with owner/operator’s meeting Continuing/Due Care obligations under state and federal regulations. 

Phase I Shelf Life Revised to One Year

A Phase I report for an SBA loan can be up to a year old, as long as it is AAI compliant  This was done to bring the Phase ESA shelf life more in line with other reports, and will add another six months of use for a Phase I report.  However, PM will still recommend that a current Phase I ESA report be obtained (i.e. 180 days old or less) to satisfy the ASTM/AAI requirements for Landowner Liability Protections for any borrower who is purchasing property. 

When completing a Records Search with Risk Assessment (RSRA), historical records reviewed should identify property uses back to the property’s first developed use or 1940, whichever is earlier, which is the same historical documentation requirement as a Phase I ESA. 

The added requirement of documenting use to first developed use or 1940 is new to version (J).  The historical sources used are at the discretion of the EP, however, this requirement will likely require the EP to obtain/review more historical sources, which will likely increase costs and turnaround times. 

Additionally, there is no mention of documenting data failure or significant data gaps as there is with a Phase I ESA.  It will remain to be seen what will be required, if anything, if this new requirement cannot be reasonably met. Also, they require all of the documents now be provided with the RSRA, which will increase costs for some providers as it was common practices for some companies to review “free” online resources that were watermarked / not reproducible. 

NAICS Codes of Environmentally Sensitive Industries (Appendix 4) – Several modifications and additions have been made to this list including the following:

  • The term “(not required if assembly only)” has been added to listings 316 Leather and Allied Product Manufacturing; 326 Plastics & Rubber Products Manufacturing; 332 Fabricated Metal Product Manufacturing.
  • The term “(unless no embalming or cremation at the property)” has been added to 8122 Death Care Services, and 
  • Added are Codes 484 – Trucking (if service bays, truck washing, or fuel tanks present), and 713990 – Other Recreational Industries (indoor and outdoor shooting ranges).

The effect of these changes are that if the borrower’s property is listed as one of these NAICS codes, a Phase I may not be required if operations are “assembly only” with no other manufacturing or high risk uses; or conversely, a Phase I would be required for codes 484 and 713990, as described above.  

Language has been added to Appendix 5 – Environmental Investigation Requirements for Gas Station Loan:

  • Requirements Pertaining to Gas Station Loans, clarifying the need of the consultant to include documentation supporting the EP determination of compliance with all regulatory requirements, pertaining to tank and equipment testing.  
  • Additionally, when referencing the requirement that the SBA Indemnification Agreement be obtained for a contaminated property, the phrase “in change of ownership situations” has been added.  

For all gas station loans, the EP must provide documentation that the UST system is in compliance, including compliance inspection results, tank and line tightness testing results, cathodic protection re-inspection results, etc. as, appropriate.  The added phrase regarding the indemnification agreement indicates that the agreement may only need to be obtained when the borrower is purchasing the property or otherwise obtaining title.  Historically, the agreement was needed for any operating gas station with a known release, and has been difficult to obtain.  

While none of these changes are earthshattering, they will have some effect on certain transactions.

PM Environmental handles nearly half of the SBA loans in Michigan and is a leader in environmental risk management. Please feel free to contact our staff if you have any questions regarding these changes or any topic regarding the environmental requirements for you loan.


Steve Price specializes in transactional due diligence and risk management, with a focus on lending institutions and risk management, lender environmental risk policy development, implementation and training.  Previously and Environmentl Affairs Officer fo a large regional bank, Price has 30 years of experience, has been involved in over 25,000 property transactions and has written environmental policy for over 50 lending institutions.