United States Small Business Administration Updates Standard Operating Procedure for 7(a) and 504 Loan Programs

The United States Small Business Administration (SBA) has published updates to their Standard Operating Procedure (SOP) related to the 7(a) and 504 loan programs that refine procedures, add clarification, and formalize lender responsibilities. Per the SBA website, the “7(a) loan program is SBA’s primary business loan program for providing financial assistance to small businesses” and 504 loans provide “long-term, fixed rate financing of up to $5 million for major fixed assets.”

The SOP, 50 10 8, was issued by the SBA in April 2025 and took effect June 1, 2025. The SBA SOP has updated Environmental Policy and Procedure Requirements for lending transactions that include SBA involvement. The new requirements/updates are located in Section A, Chapter 5, and Appendices 4 through 8 of the SOP. Relevant changes to the SOP are highlighted below:

Report Submittals and Retention for Non-Contaminated Sites

Lenders will no longer be required to submit certain documents to the SBA when the investigation concludes that no further action is warranted. Specifically, if the Environmental Investigation Report concludes that there is no contamination on-site, the lender is responsible for certifying that the property complies with SBA environmental requirements, but the report does not need to be submitted to the SBA. However, all Environmental Investigation Reports for 7(a) loans – including those processed under delated authority, 7(a) Small Loans, SBA Express, and Export Express, as well as for non-contaminated properties – must be saved in the lender’s loan file for audit or guaranty review.

It is worth noting that gasoline stations, which are subject to additional environmental scrutiny under the SBA SOP, may also be certified directly by the lender if the Environmental Investigation Report concludes that there is no contamination on-site. If this is the case, it is the lender’s responsibility to confirm that additional requirements specific to gasoline stations (as summarized in Appendix 7 of the SOP) have been met and all documentation must be retained in the lender’s loan file.

Report Submittals for Contaminated Sites

If an Environmental Investigation Report reveals contamination, all environmental documentation must be filed with the SBA via its ETRAN system, followed by sending an email to EnvironmentalReviews@sba.gov with the following information in the subject line: District Office – ETRAN Application Number – Loan Number – Loan Name. An example subject line would be: New York – 1523452 – 1234567890 – Jim’s Cleaners

The SBA’s Office of General Counsel will review the documentation and respond with approval of the submission or a request for additional information. Approval emails must be retained in the lender’s loan file.

Appeals for Environmental Decisions

The updated SOP outlines a formal appeal process for lenders to follow if they believe that the SBA’s decision is inconsistent with the SOP or to seek an exemption to policy when additional investigation (e.g. a Phase II ESA) is recommended.

Formal appeals must be submitted to EnvironmentalAppeals@sba.gov and must include information regarding the decision to appeal following one of the criteria below:

• Explanation of how the decision conflicts with the SOP
• Justification for the exception

Exceptions for Use of “Other Factor(s)”

Lenders can no longer proceed with deals or loan closure based on “other factors” such as environmental insurance, brownfield agreements, indemnification, or institutional/engineering controls without a formal approval from the SBA. Similar to the appeals process described above, lenders must submit a request to EnvironmentalAppeals@sba.gov for formal approval, with supporting documentation including the Environmental Investigation Report(s) and a memorandum offering justification and an explanation for why an alternative is appropriate.

Non-Compliance Risks to Guaranty

SOP 50 10 8 now clearly states that noncompliance with environmental policies “may result in a denial of SBA’s guaranty” for all 7(a) loans. The SOP also added that “prudent lending practices may dictate additional Environmental Investigations or safeguards.” Lenders should be prepared to go beyond minimum requirements, potentially completing additional environmental investigations, when specific property risks warrant closer scrutiny.

Additional Considerations:

• All submissions for reports will now be done through ETRAN. This shift will create a standardized and centralized submissions process for all environmental documentation that is required for the loan.
• The SOP now clarifies that all environmental reports, including Transaction Screens, Records Search with Risk Assessment (RSRA), Phase I ESAs, and Phase II ESAs must be dated within one year of the date of issuance of the SBA loan number, rather than one year from the date upon which it was submitted to the SBA Loan Processing Center. Note, this change may result in updated reports needing to be completed if there are delays getting loan approval.
• The updated SOP omits language explicitly stating that environmental reviews apply only to real estate acquired, improved, or financed, meaning that real estate pledged as collateral could be subject to the same environmental due diligence process. If a group of properties is offered as collateral, it is recommended to verify whether the SBA will require due diligence for all pieces of the collateral pool.
• Environmental reports must follow the most recent ASTM International (ASTM) standards, including E1527-21 (Phase I ESAs), E1528-22 (Transaction Screens), and E1903-19 (Phase II ESAs).
• Child Occupied Facilities constructed prior to 1978 must undergo a lead risk assessment and testing for lead in drinking water at all indoor and outdoor taps and fountains. While this requirement is unchanged, the updated SOP clarifies that testing must have been conducted within one year of issuance of the SBA loan number and further clarifies that results must be retained in the loan file. Loan disbursement cannot occur until potential lead exposures have been properly assessed and minimized.

SOP 50 10 8 specifies that non-compliance with environmental policies may result in denial of the SBA’s guaranty and further indicates that additional environmental investigations or safeguards (beyond the SBA’s minimum requirements), may be necessary as part of prudent lending practices. It is imperative that lenders follow the SBA guidance to ensure that loan guaranty is maintained, particularly for sites with known contamination or for property uses that pose an environmental concern.

While the updated SOP does not adversely affect the approach for environmental due diligence for commercial properties, it does place an additional burden on lenders to properly document, process, and justify decisions to maintain the SBA’s loan guaranty. Lenders should consult the SBA and environmental professionals for assistance with proper documentation for loan closures.

LaBella’s team of environmental professionals has over 30 years of experience completing due diligence for SBA loans and can assist clients in obtaining SBA approval for loan disbursement, regardless of the nature of the property or potential environmental risk. Click here to contact our team for expert guidance and support throughout the due diligence process.