You are here
NEW YORK – A decision made last month by the Small Business Administration (SBA) is adding more uncertainty to the nation’s already complicated and chaotic financial markets. The decision expands the indemnification of environmental issues when making loans on petroleum-related properties, meaning the previous owner would be liable for environmental issues for an extended period of time past the closing date of the sale.
The decision impacts private lenders who seek federal loan guarantees for financing the purchase of small businesses like gasoline station/c-store operations and makes it more difficult to buy and sell c-store/gas station operations at a time when banks are already tightening their lending practices.
"This was an unprecedented and unheard of requirement," said Terry Monroe, president of American Business Brokers, a prominent deal-making firm.
Traditionally, according to Monroe, when an owner sells a petroleum-related property, the site is checked for any outstanding issues or incidents by an environmental engineer. If contamination is found, the owner is required to present a plan of remediation to the state in which the property is located. When the contamination is remedied and the state is satisfied the problem has been fixed, the state will issue the owner a "No Further Remediation" (NRF) letter. Once the letter is submitted and the deal closes, the new owner would be responsible for any environmental issues found after the closing date.
The SBA’s new decision keeps the responsibility for future environmental cleanups with the seller for the duration of the buyer’s loan period. "This essentially extends the liability period of the seller who just sold the property," Monroe said. "There is no way a seller will be willing to stay on the hook for environmental issues after he sells the business, especially for unknown issues."
“The number of sellers that would be willing to stay on the hook for possible environmental issues after they don’t own the property anymore are going to be pretty few and far," he added.
The SBA policy changes were part of a comprehensive SBA revision designed to reduce the paperwork burden on small businesses seeking federally guaranteed loans from private lenders. The SBA reportedly worked closely with private lenders when drafting the policy changes but did not provide notice to nor seek input from the petroleum marketing and convenience store industry.
Monroe, who authors Convenience Store News’ Financially Speaking column, pointed out c-store buying and selling activity hasn’t completely stopped and that innovative buyers and sellers are finding ways to close deals. Check out his next column, in the December issue of CSNews, for a review of some of these solutions.