Stage 4: Closing
The next step in the SBA 7(a) loan process is obtaining third-party reports. The goals of this step are to identify any issues with the business or property involved in the loan and independently assess the value of the loan collateral. These reports play a pivotal role, mitigating risk and ensuring the viability of the loan.
These reports are called third-party reports because they’re done by third-party companies. Lenders have lists of vetted and approved companies, and these companies submit project bids that the lender then chooses from. The borrower isn’t involved in this process, but they do pay for the services [See: Step 10: Deposits].
Common Third-Party Reports
Third-party reports are a key part of risk mitigation in the loan process. The reports that are needed will differ based on the loan, but here’s an overview of the most common types, as well as when they’re typically required:
• Business Valuation
Determines the value of the business. Required for all SBA loans over $250,000. The resulting report gives an overview of the business and a breakdown of its valuation.
• Real Estate Appraisal
Determines the value of the real estate. Done for any loans involving real estate. The resulting report gives an overview of the real estate and its location, as well as a breakdown of its valuation.
• Environmental Assessment
Determines if there are any environmental hazards on the business site. Usually done for any loans involving real estate, as well as any non-real estate loans where it’s deemed necessary. Especially important for any businesses using chemicals (gas stations, factories, etc.) or any business sites located near a business using chemicals.
Environmental assessments can have two phases. The first, Phase I, is done entirely on paper, using state and county records to determine if there are any obvious issues or risk factors that warrant a deeper analysis of the site. If it’s determined that a deeper look is needed, then a Phase II assessment is done. This involves going to the site and boring holes to collect soil and groundwater samples, which are then tested. A Phase II assessment determines the actual nature and extent of the problem, as well as what cleanup actions are recommended or required on the site, if any.
