Lending Power | Loan Programs & Leadership for small business

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SBA 504 Current Rate:

4.607%

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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

OR

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

AND

US Small Business Administration


2315 Whitney Avenue, Suite 2B


Hamden, CT 06518

Post-Construction Inspection

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).

 

Environmental Reports

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

  • SBA will accept a Record Search with Risk Assessment (RSRA) completed up to one year prior to submission to the SBA. 
  • If the RSRA indicates a "high" or "elevated" risk level, then a Phase I ESA must be conducted.
  • SBA will accept a Phase I ESA completed within 180 days of the acquisition of the SBA 504 Project Property. 
  • The SBA will also accept a Phase I ESA completed within one year of acquisition provided components of the Phase I ESA (interviews, visual inspection, record review and EP declarations) are updated within 180 days prior to acquisition.
  • IMPORTANT - Environmental due diligence cannot jump from a Record Search with Risk Assessment (RSRA) to a Phase II ESA without also completing a Phase I ESA.

Reliance Letter

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.