For SBA lenders
Short answer
If a Phase I ESA identifies Recognized Environmental Conditions (RECs), the lender must evaluate the severity of the findings and typically require a Phase II ESA to determine the extent of contamination and necessary remediation.
Upon identifying RECs, the lender's responsibility shifts to further investigation to quantify the environmental risk. A Phase II ESA involves sampling and testing to confirm the presence of contaminants and assess remediation costs. The SBA requires that environmental risks be mitigated to acceptable levels.
A Phase I ESA for a property reveals evidence of underground storage tanks. The lender, consulting with environmental professionals, then requires a Phase II ESA to test soil and groundwater for petroleum contamination before proceeding with the loan.
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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