For SBA 7(a) and 504 loans secured by commercial real estate, the lender must complete an environmental investigation under the SBA's Standard Operating Procedure, SOP 50 10. Whether that means a short questionnaire, a records search, a full Phase I ESA or a Phase II depends mainly on how the property has been used. Here's how the current SOP (version 8) approaches it. Always confirm the specifics with your lender, who makes the final determination.
Step 1: The lender checks the property's NAICS codes
The lender identifies the NAICS industry codes for the property's current and known prior uses and compares them to the SBA's list of environmentally sensitive industries (Appendix 6 of the SOP). Examples include gasoline stations, dry cleaners, auto repair, printing, metal finishing and many manufacturing uses.
- If a use matches the list: a Phase I ESA is required, regardless of loan size.
- Gas stations: a Phase I, plus documentation of regulatory compliance such as tank and equipment testing.
- On-site dry cleaners: both a Phase I and a Phase II ESA.
- Car wash only facilities: a Transaction Screen Assessment.
Step 2: For other properties, a screening comes first
If no current or prior use is on the list, the lender can start with lighter screening: an Environmental Questionnaire and, for larger loans, a Records Search with Risk Assessment. If that screening shows elevated risk, the lender moves on to a Phase I. Many lenders simply order a Phase I up front for commercial property, because it avoids a second step and a delay late in underwriting.
Report age and reliance
- Environmental reports generally need to be dated within one year of the date the SBA loan number is issued.
- Phase I and Phase II reports must include the SBA's reliance letter, so the lender and SBA can rely on the report. Breeze provides it on request at no extra charge.
- The report should be prepared by an Environmental Professional and conform to ASTM E1527-21.
Child-occupied facilities
For buildings constructed before 1978 that are used by children under six, such as daycares, the SOP adds a lead-based paint risk assessment and testing of drinking water for lead. Breeze offers lead paint testing alongside the Phase I.
How to keep an SBA closing on schedule
- Order the Phase I as soon as the property is under contract. Breeze delivers in about 10 days, or about 5 with rush.
- Tell us it's an SBA loan and send the lender's name, so the reliance letter and any lender-specific format are handled from the start.
- Share any prior environmental reports, tank records or permits you have. They can shorten the review.
- If the Phase I recommends a Phase II, start it right away. Send us the report and we'll scope and quote it promptly.
Frequently asked questions
Does every SBA loan require a Phase I?
No. A Phase I is required when the property's current or prior uses match the SBA's list of environmentally sensitive industries, or when initial screening shows elevated risk. Many lenders still order one for most commercial properties.
How old can a Phase I be for an SBA loan?
Environmental reports generally must be dated within one year of the SBA loan number being issued. Your lender may require an update if the report is older.
Do you provide the SBA reliance letter?
Yes. Breeze includes the SBA reliance letter with Phase I and Phase II reports on request at no extra charge.
This article is general information about environmental due diligence and is not legal advice. Requirements can change; confirm specifics with your lender or attorney.
