SBA SOP 50 10 8.1, A.Ch5.E — Environmental Policies and Procedures

E. Environmental Policies and Procedures SBA’s environmental policies and procedures apply to all SBA Lenders on all 7(a) and 504 loan programs, except where otherwise indicated. For 7(a) loans, failure to comply with the provisions of this paragraph may result in a denial of SBA’s guaranty. Prudent lending practices may dictate additional Environmental Investigations or safeguards. Definitions: Terms that are capitalized in this Paragraph are defined in Appendix 4. 1. Environmental Contamination Risks The risks of environmental Contamination include: a. The costs of Remediation could impair the Borrower’s ability to repay the loan and/or continue to operate the business; b. The value and marketability of the Property could be diminished. If the Borrower defaults, the SBA Lender or SBA might have to abandon the Property to avoid liability or accept a reduced price for the Property; c. The SBA Lender or SBA could be liable for environmental clean-up costs and third-party damage claims arising from Contamination if title to contaminated Property is taken as a result of foreclosure proceedings and/or the SBA Lender or SBA exercises operational control at the Property; and d. If a Governmental Entity cleans a site, it may be able to file a lien for recovery of its costs which may be superior to SBA’s lien. 2. Environmental Investigations SBA requires an Environmental Investigation of all commercial Property upon which a security interest such as a mortgage, deed of trust, or leasehold deed of trust is offered as security for a loan or debenture. The type and depth of an Environmental Investigation to be performed varies with the risks of Contamination. This paragraph provides minimum standards. Prudent lending practices and internal lending policy may dictate additional Environmental Investigations or safeguards. 3. Submission of Environmental Investigation Reports Environmental Investigation Reports must be dated within one year of the date of issuance of the SBA loan number. SBA Lenders processing delegated, 7(a) Small Loans, SBA Express and Export Express loans are not required to submit Environmental Investigation Reports via the SBA Loan System, but they must keep a copy of any Environmental Investigation Report in the loan file. All SBA Lenders must comply with and meet the requirements of the Environmental Policies and Procedures as set forth in this SOP. For example, all Transaction Screens, Phase I and Phase II ESAs must be performed by an Environmental Professional and be accompanied by the Reliance Letter in Appendix 5. (A Reliance Letter is required even if the Environmental Investigation Report is addressed to the SBA Lender.) Any request for an exception to SBA’s Environmental Policies and Procedures must be directed to the Environmental Committee, regardless of the method of processing used for the loan. The following process applies only to loans being processed under non-delegated procedures: For Properties With No Contamination: Using the Environmental Investigation Steps set forth below, if an Environmental Investigation Report concludes that a Property has No Contamination, it is the SBA Lender’s responsibility to certify in the SBA Loan System that the Property complies with all SBA environmental requirements in this SOP, and the SBA Lender must maintain the Environmental Investigation Reports(s) in the SBA Lender’s loan file. For Properties With Contamination: SBA Lenders must use the Environmental Investigation Steps set forth below. If an Environmental Investigation Report reveals Contamination and the SBA Lender still wishes to make the loan, then the SBA Lender must comply with this SOP and must upload all environmental documentation to the SBA via the SBA Loan System. SBA Lenders must then send an e-mail, without the environmental reports, to EnvironmentalReviews@sba.gov, which must include in the subject line: DISTRICT OFFICE – APPLICATION NUMBER - LOAN NUMBER - LOAN NAME (no spaces in the loan number). Example: “SAN FRANCISCO DISTRICT OFFICE – 98765432 - 1234567810 – ABC CLEANERS”. Attorneys in the SBA’s Office of General Counsel will respond to SBA Lenders with approval of the environmental submission, request for additional information, etc. Once the environmental submission is approved, SBA Lenders must keep a copy of the approval e-mail in their loan file. SBA Lenders who believe that an environmental decision rendered by SBA is inconsistent with the SOP may appeal the decision by forwarding a copy of the decision, along with an explanation of how the determination is perceived to be inconsistent with the SOP to EnvironmentalAppeals@sba.gov. Lenders seeking to rely solely on 5.d.ix “Other Factor(s)” (below), regardless of whether processing a loan under delegated or non-delegated procedures, must forward the Environmental Investigation Report(s) with a memorandum setting forth their request to EnvironmentalAppeals@sba.gov. 4. Environmental Investigation Steps a. NAICS Codes. For all Property except a unit in a Multi-Unit Building, the SBA Lender must begin by making a Good Faith effort to determine the NAICS code(s) for the Property’s current and known prior uses and compare the NAICS code(s) to the list of environmentally sensitive industries in Appendix 6. For a unit in a Multi-Unit Building, the SBA Lender may proceed directly to Subparagraphs ii. a) and b) of this Paragraph below.

i. If there is a NAICS code match to an environmentally sensitive industry identified in Appendix 6, the Environmental Investigation must begin with a Phase I, regardless of the amount of the loan. If the NAICS code begins with 457 (gas stations with or without convenience stores), the Environmental Investigation must begin with a Phase I and the SBA Lender must also refer to and, if applicable, comply with “Environmental Investigation Requirements for Gas Station Loans” in Appendix 7.

iii. If the Environmental Investigation reveals Contamination, the SBA Lender should determine whether disbursement is appropriate under one or more of the factors identified below in Paragraph 5, Property Contamination or Remediation. 5. Property Contamination or Remediation Loans may not be approved or disbursed if there is known Contamination or on-going Remediation at the Property unless the risks have been minimized to the satisfaction of SBA. SBA Lenders seeking loan approval or disbursement authority despite Contamination or on-going Remediation at the Property must submit a recommendation to SBA that includes, at a minimum, a discussion of the following: a. Nature and Extent of the Contamination including copies of the following documents pertaining to the Property: i. All relevant Environmental Investigation Reports; ii. All publicly available Governmental Entity correspondence. b. Remediation: i. Recommended method of Remediation; ii. Status of on-going Remediation, if any; iii. Environmental Professional’s estimated cost of Remediation;

iv. Environmental Professional’s estimated completion date;

v. Governmental Entity’s designation of responsible Person(s) (as defined in 13 CFR § 120.10);

vii. Contamination Originating from another Site. If Contamination on the Property is shown to have come from another property, approval or disbursement may be considered if: a) Another Person with sufficient resources is performing Remediation pursuant to a Remediation action plan that has been approved by the appropriate Governmental Entity; or b) The state has laws or regulations that provide that an owner or operator of property will not be responsible for Contamination from another site; or c) The Governmental Entity provides satisfactory written assurance that it will not hold the Property owner liable for the Contamination. The SBA Lender should attempt to have the SBA Lender and SBA included by name in the letter along with the Property owner and future purchasers.

viii. Additional or Substitute Collateral. If additional or substitute collateral is being pledged, or an additional equity contribution is being made, sufficient to overcome the potential loss due to Contamination, then approval or disbursement may be considered.

ix. Other Factor(s). The SBA Lender and SBA may rely on factors other than or in addition to the eight referenced above when considering approval or disbursement. For example, the existence of adequate environmental insurance that is already in place and already paying remediation costs, bonds, agreements not to sue present and future property owners from the Governmental Entity, brownfields agreements, Engineering and Institutional Controls, etc. However, reliance solely upon “Other Factor(s)” requires clearance from the SBA Environmental Committee. This requirement extends to loans processed under delegated and non-delegated procedures. Lenders seeking to rely solely on “Other Factor(s)”, regardless of whether processing a loan under delegated or non-delegated procedures, must forward the Environmental Investigation Report(s) with a memorandum setting forth their request to EnvironmentalAppeals@sba.gov. (NOTE: This email address cannot receive submissions larger than 15MB. If the email and attachments exceed this size, the request must be sent in more than one email.) e. For 7(a) loans processed under delegated authority, including 7(a) Small Loans, SBA Express and Export Express, 7(a) Lenders must follow these guidelines, but they do not have to submit documentation or obtain SBA’s concurrence prior to approval or disbursement of the loan, unless they are relying solely upon Paragraph d. ix, Other Factor(s) immediately above. 6. Special Use Facilities a. Child-Occupied Facilities Prudent lending practices dictate that specific additional environmental assessments be performed for Child-Occupied Facilities (see definition in Appendix 4). Such facilities, constructed prior to 1978, must undergo a lead risk assessment and also testing for lead in drinking water at all taps and fountains potentially used as a drinking water source for children. A new lead risk assessment and new testing for lead in drinking water at all indoor and outdoor taps and fountains accessible to children and, therefore, potentially used as a drinking water source for children are required for each new loan. The assessment and any tests must have been conducted within one year of the date of issuance of the SBA loan number. All lead assessments must be conducted in conformance with U.S. Environmental Protection Agency (EPA) regulations at 40 CFR Part 745 and U.S. Department of Housing and Urban Development (HUD) Guidelines for the Evaluation and Control of Lead-Based Paint Hazards in Housing Second Edition, July 2012. The results of these assessments must be retained in the loan file. The SBA Lender may not disburse the loan unless the risk of lead exposure to infants and small children has been sufficiently minimized. b. Drycleaners On-site dry cleaning facilities, which may have utilized chlorinated solvents such as tetrachloroethene (PCE) and trichloroethene (TCE) and/or petroleum-based solvents in the course of their business operations, may present significant clean-up costs if these contaminants have entered the soil, soil vapor and/or groundwater. Prudent lending practices dictate and SBA requires that for any Property with on-site dry cleaning facilities, whether currently in operation or operated historically at the site, that uses, used, or likely used chlorinated and/or petroleum-based solvents, a Phase I followed by a Phase II Environmental Assessment is required. (Any deviation from this requirement must be directed to EnvironmentalAppeals@sba.gov as a request for an exception to policy). For on-site dry cleaners, the investigation must address soil, groundwater, and soil vapor. A Phase II performed in connection with an on-site dry cleaning facility must be conducted by an independent Environmental Professional who holds a current Professional Engineer’s or Professional Geologist’s license and has the equivalent of 3 years of full time relevant experience. c. Gasoline Stations Gasoline stations also present significant clean-up costs if contaminated (for specific requirements pertaining to gasoline stations, please refer to Appendix 7). 7. Release of Rights to Indemnification from SBA/Lender If any Person has a right to indemnification from subsequent owners of the Property (e.g., SBA or SBA Lender after acquiring Property through foreclosure or other means), then they must execute either the SBA Indemnification Agreement or another document in which they waive all known and unknown rights and release all claims and causes of action whether now or hereafter in existence against SBA and the SBA Lender related to Contamination at the Property including the right to indemnification. The document containing the waiver and release must be recorded. Additionally, for 504 loans: SBA Lenders must submit all waiver and release documents to the SBA via the SBA Loan System for review and approval by local SBA counsel, along with a copy of the title report, the document providing for indemnification, and the purchase and sale documents, if any. PCLP CDCs must also submit the waiver and release to the SBA via the SBA Loan System for review and approval prior to a request that SBA fund the loan. 8. Brownfields Sites SBA encourages the redevelopment of brownfields, and SBA Loan guarantees are available to small businesses interested in locating on revitalized brownfields. Typically, this occurs through utilization of one or more of the nine Mitigating Factors in Paragraph 5.d. above. 9. Questions on SBA’s Environmental Policy and Appeals Questions on SBA’s Environmental Policy should be directed to local SBA counsel for the area where the Property is located. SBA Lenders who believe that an environmental decision that has been rendered by SBA is inconsistent with this SOP may appeal the decision by forwarding a copy of the decision, along with an explanation of how the determination is perceived to be inconsistent with this SOP to EnvironmentalAppeals@sba.gov. (NOTE: This email address cannot receive submissions larger than 15MB. If the email and attachments exceed this size, the appeal must be sent in more than one email.) Environmental appeals, including exceptions to Agency environmental policy, will be reviewed by the SBA Environmental Committee comprised of OGC attorneys appointed by the Associate General Counsel for Litigation, who may consult with an environmental engineer. The Associate General Counsel for Litigation retains the authority to overrule decisions rendered by the SBA Environmental Committee.