For SBA lenders
Short answer
If RECs are identified, the lender must obtain a Phase II ESA to further investigate the extent of contamination, evaluate the financial impact, and determine the necessary remediation steps.
SOP 50 10 specifies that if a Phase I ESA identifies RECs, the lender must generally require a Phase II ESA to quantify the contamination and assess the associated risks. The lender must then evaluate whether the cost of remediation is acceptable and if the property can still serve as adequate collateral.
A Phase I ESA for a property reveals evidence of underground storage tanks. The lender requires a Phase II ESA, which confirms soil contamination. The lender then works with the borrower to obtain remediation estimates and decides if the loan remains viable considering the costs.
Insider move
Lenders must ensure RECs are thoroughly investigated and risks are mitigated. Failure to address environmental contamination appropriately can result in significant financial losses and jeopardizes 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.
More on environmental
Terms in this answer
Pre-qualify your SBA 7(a) deal
Tell us the business, the price, and where you are — we'll point you to the lenders most likely to fund a deal like yours and flag anything that trips up approval.
Free · No documents · Usually same-day