There are environmental investigation requirements to be met for all loans in “liquidation status.” Under 50 51 3, a 7(a) lender or CDC is responsible for conducting all liquidation activities on the loans in its portfolio.

Chapter 9 of the revised liquidation policy outlines a tiered process for conducting environmental due diligence ranging from a Questionnaire to a Records Search with Risk Assessment to Phase I and Phase II ESAs. Under the terms of the revised policy, the 7(a) lender or CDC must conduct a Post-default Environmental Investigation prior to taking title to any property to determine whether it is contaminated.

The general process involves:

  1. At a minimum, an Environmental Questionnaire and a Records Search with Risk Assessment; or a Transaction Screen.
  2. For any properties where underground liquid fuel storage tanks are located, a Phase I ESA is required.
  3. If the NAICS codes for the property’s uses since the SBA loan was funded are considered “environmentally sensitive industries”, the investigation must begin with a Phase I ESA.
  4. If the lender is taking control of a business that handles hazardous substances, the investigation must also include an environmental audit to determine whether the business has the required environmental permits and is otherwise in compliance with applicable environmental laws.

The risk assessment portion of the RSRA, and Phase I and Phase II ESAs must be completed by environmental professionals who meet the qualifications defined in the U.S. EPA’s All Appropriate Inquiries rule.

Another similarity is that the liquidation policy also reflects the special consideration given to properties that once operated as gas stations or dry cleaners given the high correlation between these types of operations and potential costly soil or groundwater contamination. Any Phase II ESA sampling as gas station and dry cleaner sites must be conducted only by an EP who holds a current Professional Engineer’s or Professional Geologist’s license.

Environmental Risk Management can help lenders with their environment requirements for loans in “liquidation status”.

Contact Us (859-689-9222) to get more information about the recent changes to the SBA’s Liquidation policy or for any other environmental or safety concern.