For SBA lenders
Short answer
An environmental investigation is required if the leased property's current or past use, or the nature of the business, involves hazardous substances, or if there's reasonable suspicion of contamination.
Even for leased property, the SBA's environmental policies apply if there's a potential for environmental risk that could impact the business's ability to repay the loan or create lender liability. This includes operations that use or store hazardous materials, or properties with a history of such uses.
A 7(a) loan funds a manufacturing business operating on leased premises. The business uses chemicals in its processes. The lender would require a Phase I ESA on the leased property to assess potential environmental risks, regardless of ownership.
Insider move
Lenders must assess environmental risk for all properties associated with the loan, whether owned or leased. Failure to conduct appropriate environmental due diligence on leased property can expose the lender to liability and jeopardize 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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