Why would my lender ask for an environmental study?

A Phase I Environmental Site Assessment (ESA) is conducted by an Environmental Professional to determine if “recognized environmental conditions” (RECs) exist in association with a property. A REC is defined as the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property: (1) due to any release to the environment; (2) under conditions indicative of a release to the environment; or (3) under conditions that pose a material threat of a future release to the environment. The Phase I ESA provides an independent professional opinion about the environmental condition of the property and involves a review of regulatory and municipal records, historical land use records, a site inspection, and interviews with owners, occupants, neighbors and local government officials.

Other reasons include:

1.      The costs of remediation could impair the borrower’s ability to repay the loan and/or continue to operate the business;

2.      The value and marketability of the Property could be diminished. If the borrower defaults, lender or SBA might have to abandon the Property to avoid liability or accept a reduced price for the Property;

3.      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 lender or SBA exercises operational control at the Property; and

4.      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.