Q2 2019

Selling Your Drycleaning Plant May Have Become More Difficult!

By Jon Meijer, DLI Director of Membership

As of the Small Business Administration (SBA) updating its Standard Operating Procedures (SOP) 50 10 on January 1, 2018, lenders who work with it will need to follow the updated Standard Operating Procedure Guidelines (SOP) before making a loan. Many of us know that while the SBA does not actually provide loans for a business startup or the purchase of an existing business, they do guarantee the money that is borrowed, thus making it easier for lenders to take a risk with the borrower. With this guarantee, lenders that work with the SBA follow a set of SOPs provided by the SBA.


The updated SBA SOP, which specifically affects drycleaners, states:


“On-site dry cleaning facilities, which may have utilized chlorinated solvents such as tetrachloroethene (PCE) and trichloroethene (TCE) and/or petroleum-based solvents in the course of their business operations, may present significant clean-up costs if these contaminants have entered the soil, soil vapor and/or groundwater. Prudent lending practices dictate and SBA requires that any Property with on-site dry cleaning facilities, whether currently in operation or operated historically at the site, that did, do or likely used chlorinated and/or petroleum-based solvents undergo a Phase II Environmental Site Assessment in addition to a Phase I which would be required due to the NAICS code match. Any soil and groundwater contamination and soil vapor intrusion must be addressed. A Phase II performed in connection with an on-site dry cleaning facility must be conducted by an independent Environmental Professional who holds a current Professional Engineer’s or Professional Geologist’s license and has the equivalent of three (3) years of full time relevant experience”.


What Is A Phase I And Phase II Environmental Site Assessment (ESA)?


In its simplest terms, a Phase I Environmental Site Assessment (ESA) reflects the initial steps to determine if the drycleaning plant is potentially contaminated or rather if there is a contamination liability from either current or historical practices. A Phase II ESA is the next step to determine what and how much contaminant exists. In this step, the engineer will be doing a subsurface investigation.


So What Does This Really Mean For Drycleaners?


The reality is that lenders have for years typically required a Phase I and Phase II ESA.  DLI published “Environmental Factors Making Lenders Cautious” nearly 20 years ago identifying similar concerns by lenders. This bulletin can be found on DLI’s Online Encyclopedia. While this is really not new, it does put in writing what was already known. What is new is that SBA specifically mentioned drycleaners who use or have used petroleum-based solvents. While petroleum-based drycleaners have typically not faced the same level of regulatory concern and scrutiny as perc drycleaners, it has not been unusual for an SBA loan to require a Phase I and Phase II testing. For more information, please call Jon Meijer at (765) 969-5745.

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