Managing Environmental Risk During the Commercial Lending Process

Description: 

A sound Environmental Risk Management Program, which includes well written environmental policy and procedures, can protect lenders from losses and liability associated with environmental issues on a collateral property. A Lender’s Environmental Risk Management Program should have procedures that outline the environmental due diligence required for new commercial loans, criteria for loan renewals, and required procedures for due diligence prior to foreclosures.

In addition to policy development, ERI will discuss all levels of environmental due diligence from the Environmental Questionnaire to the Phase II Environmental Site Assessment (ESA). An overview of “industry standard” environmental desktop assessments and the various types of historical sources reviewed for these evaluations will be presented. Additional topics covered include reliance letters, acceptable lifespan of an ESA, as well as methods to update an assessment without another site visit, who should/should not order Phase I and Phase II ESAs, when it is appropriate to obtain a “cost to correct” and selecting and monitoring the performance of environmental consultants, to name a few.

Are your lenders required to complete a site visit, site questionnaire or site screening form prior to loan approval? Are they able to spot floor drains, damaged building materials, vent pipes or fill ports associated with underground tanks, and other features that might pose an environmental concern? ERI’s guidance will include information which will help lenders identify some of the most common environmental issues.

Managing Environmental Risk During the Commercial Lending Process (PDF)