Appraisals & Reports
In most every instance, it is the Third Party Lender who engages the appraiser to conduct an appraisal of the real estate project. Prior to closing, the SBA must approve the Appraisal Report as meeting its requirements.
To meet SBA requirements, appraisal reports must be prepared using one of the following options to be in compliance with Uniform Standards of Professional Appraisal Practice (USPAP):
Self-Contained Appraisal Report
Summary Appraisal Report
Appraisals for projects with significant construction must provide an "as complete" value.
US Small Business Administration must be identified as an Intended User within the Appraisal so it is important to include that requirement in the terms of the Appraiser’s engagement. In addition the Appraisal must be addressed to the Third Party Lender
US Small Business Administration
2315 Whitney Avenue, Suite 2B
Hamden, CT 06518
SBA guidelines require a post-construction inspection prior to closing of a construction project. The inspection must be completed by the original appraiser for all ground-up construction projects and for major renovation projects. The appaiser must issue a statement that the improvements were built according to plans and specifications with only minor modifications (if any).
In most instances, it is the Third Party Lender who engages the environmental consultant to conduct the environmental due diligence for the real estate project. Prior to closing, the SBA must approve the environmental due diligence as meeting its requirements.
Type of Environmental Required
Based on CIC’s experience, the minimum acceptable level of environmental investigation is a records search with risk assessment (RSRA). Depending on the site location or prior use of the property, a Phase I Environmental Site Assessment (ESA) and further due diligence may be required.
Shelf Life of Reports
A Reliance Letter must accompany the environmental report when submitted to the SBA. (Download the Environmental Reliance Letter Template). The SBA Reliance Letter Form is the only permissible form and cannot be modified. Terms are non-negotiable and amendments/addendum are not allowed. – SBA will not accept the environmental report without the signature of the EP on this Reliance Letter form.
The EP signing the Reliance Letter must also provide evidence of Professional Liability Insurance coverages in amounts no less than $1Million.
Existing Environmental Issues
Environmental conditions revealed in the due diligence process must be addressed prior to closing.
In order to close the CIC 504 Loan before all environmental issues are addressed, CIC must:
(1) Obtain an estimate of the cost of the remediation in writing from the environmental company.
(2) Establish an escrow account of 150% of the cost of the estimate must be set up.
(3) Obtain SBA approval of the remediation plan and escrow account.
Under certain circumstances an Environmental Indemnification Agreement may be required.
Other mitigating factors may apply. CIC contracts with experts familiar with environmental practices and SBA requirements to facilitate the SBA approval process.
Feel free to contact us throughout the process with any questions.
CIC is an economic development lender contributing financial expertise and practical guidance to small business entrepreneurs in Connecticut and Rhode Island who have powerful ideas and need more power to grow them.