For SBA lenders
Short answer
Environmental due diligence, such as a Transaction Screen or Phase I ESA, is still required for real estate not directly securing the loan if it is owned by the borrower or an affiliate and presents potential environmental risk.
Even if real estate is not taken as collateral, if it's owned or controlled by the borrower or an affiliate and its use or history suggests potential environmental contamination, the SBA expects environmental due diligence. This prevents undisclosed environmental liabilities from impacting the borrower's ability to repay the SBA loan.
A borrower for a $900,000 loan has sufficient business assets as collateral, but also owns a separate industrial property that is not being taken as collateral. Due to its historical use, the lender requests a Transaction Screen or Phase I ESA on this unpledged property to assess potential liabilities.
Insider move
Lenders must identify all real estate owned by the borrower and its affiliates, regardless of whether it's pledged collateral. Failure to assess potential environmental risks can lead to unforeseen liabilities that jeopardize the borrower's financial health and ultimately the SBA guaranty.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-13. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-13 · SBA sources checked through 2026-06-13. DealRoom analysis of public SBA 7(a) lending records (FY2020–present). Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
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