Business lending and environmental performance
When a new business is starting out or an existing business is expanding, there are many things to take into consideration. As a lender, you are in a unique position to talk with businesses during the preliminary stages of their planning process and guide them to consider how they manage or improve their environmental performance. Doing so is a win-win for the financial institution, the business and the environment!
As a lender you want to know your clients have thought about all aspects of their business before you provide a loan. One thing that business owners may overlook is what they need to do to comply with environmental regulations and how to operate in a manner that improves their environmental performance.
Complying with regulations can be costly, but not complying can be even more expensive in the long run. New and expanding businesses should consider what impacts their operations will have on the environment. Changes in a business can bring the operations under new or different regulations. Evaluating whether changes will be regulated early in the planning stage can prevent the possibility of costly penalties and help avoid potential negative publicity.
Considering these issues early in the planning process prevents surprises that could delay a project or require expensive equipment changes. Encouraging business owners to make well thought out selections when purchasing equipment and property that both meet their operational needs and minimize their environmental impact can have many benefits. As an example, purchasing equipment or optimizing a process with a goal of reducing energy use can cut costs and lead to more efficient and productive operations. Evaluating materials or equipment to reduce waste reduces the cost of waste disposal. Alternatively, waste products can sometimes be donated or sold to another business that can repurpose the materials. Changing a process to eliminate or reduce emissions often allows a facility to avoid certain regulations altogether.
A growing number of customers are looking to do business with greener companies. Being a leader in environmental performance is valuable information to be included in a marketing plan and can improve customer perception. Some businesses who focus on their environmental performance may also receive recognition from DNR for their efforts, which can further their business' competitive advantage.
The following resources can help you understand common environmental issues and can be passed on to clients applying for business loans.
- Getting started? SBEAP can help!
Wisconsin's Small Business Environmental Assistance Program (SBEAP) provides a comprehensive set of resources to help small businesses determine their responsibilities regarding federal and state environmental regulations. The program also strives to provide opportunities for sustainable practices that can benefit businesses. You may want to review SBEAP's web resources to learn more about the program or refer small businesses to these resources. The "Industry specific" section on the webpage provides a list of business sectors the program commonly assists. The “Process specific” section provides information on common industrial processes that trigger environmental regulations. There are also sections for each major category of environmental issues that apply to many types of businesses.
Interested businesses should review the eligibility page to see if they qualify for free, non-regulatory assistance. Businesses of all sizes may benefit from the information on SBEAP's website, although it is geared toward smaller sources. Those who qualify for assistance can contact the program directly with questions and receive one-on-one assistance. A good starting point for anyone who wants a quick overview of environmental regulations would be to review the "Environmental Information Summary Checklist" (SB-003). The Permit Primer is an interactive tool that takes a business through a series of questions and provides feedback on the types of permits that may be required. After a business figures out what regulations apply, they can get further information on how to comply using Compliance resources. To stay on top of regulatory changes and available resources, subscribe to the Small Business Advisor e-newsletter.
Some businesses may require additional support to manage their environmental obligations. View the Consultants List (SB-004) for information on some of the companies that offer environmental services to small businesses. Learn ways to find a consultant that's right for you in Tips for Hiring an Environmental Consultant (SB-005).
- Lending for property transactions
Financing is usually necessary for the purchase of property or an existing business. Depending on the size and scope of the property, as well as its intended use, businesses may run into multiple programs within the DNR that have rules affecting activities on the property. It's a good idea to review the information on SBEAP's Property transaction pages before finalizing a transaction to prevent surprises. Projects on any type of property could trigger DNR requirements. For instance, different requirements apply to greenspace, such as water-related issues, versus purchasing developed property or an existing business that may have contamination or air pollution requirements. If a prospective purchaser plans to build on the property or demolish an existing building, they will also want to review Construction and demolition before beginning any related activities. When making changes at a business, take steps to update environmental programs.
- Take precautions with former industrial or commercial properties
One issue that should always be considered when industrial or commercial property changes hands is whether contamination may be present on the property. Lenders and potential buyers usually require an evaluation of the property’s environmental condition. Lenders that foreclose on real property may be eligible for an exemption from various state environmental laws if they meet the conditions outlined in state law; see Environmental liability exemption for lenders and representatives for details. Sellers and/or buyers should conduct an Environmental Site Assessment to evaluate their potential liability. More information is available on the Issues related to spills/contamination when purchasing property webpage.
There are several resources available to both buyers and sellers of contaminated or previously cleaned-up properties. Resources include local, state and federal financial resources such as grants, loans, loan guarantees or tax incentives. Much of the assistance is intended for local units of government, but there are some resources for which business owners and private parties may also be eligible. Review the “Financial resources for cleaning up and redeveloping contaminated properties” webpage for some of the options. Purchasers may want to request a letter from DNR clarifying liability for a property they intend to purchase. The Environmental liability webpage provides further explanation.
- Construction, renovation and demolition requirements
If a client is looking for a loan for construction or renovation, or is demolishing a structure, make sure they have reviewed the environmental regulations and know what permits or licenses might be needed before beginning such activities. A wide range of requirements may apply. For instance, a building owner must identify any harmful materials such as asbestos, mercury and lead before beginning a project that could disturb such materials. Specialized inspectors, contractors and/or transporters will be needed to properly identify, handle and dispose of the materials. DNR notification may be necessary prior to beginning removal of those materials. Identifying regulated materials upfront will help avoid costly delays, protect the health and safety of workers and building occupants, and limit liability that could impact the financial viability of the project.
Owners must ensure proper disposal of all construction, demolition or renovation materials and retain documentation from those who handle and dispose of all waste types, whether hazardous or nonhazardous. Owners must be able to show that wastes were disposed of properly to prevent liability, in the event DNR discovers waste that was not legally disposed. Burning is not permitted as a method of disposal; learn about alternatives to burning on the Open burning webpage. Many construction and demolition materials can be reused or recycled.
The DNR has numerous resources for these projects. Visit SBEAP's Construction and demolition or Demolition, construction and renovation for information and links to resources. The DNR also offers assistance to the building sector to help navigate the permitting process. Cooperation between all parties can help make a project both an economic and environmental success.
- Evaluate compliance with compliance audit programs
The DNR provides businesses of any size the opportunity to take a proactive approach to compliance. The DNR's Enviro-Check program allows businesses to bring in an external auditor to conduct a voluntary audit of environmental requirements and obtain limited liability for violations found and corrected within specific timeframes. Not only do participants improve their awareness of and compliance with DNR regulations, but they also reduce their financial risk and liability for violations that might otherwise be discovered by the DNR. Some exclusions do apply, and the business needs to submit a signed statement acknowledging that violations known before the audit do not qualify for protections before the audit begins. Taking advantage of this program is great for any business, but it may be especially beneficial to new owners or managers who want to evaluate past operations at their facility.
The DNR's Enviro-Check program applies to state environmental regulations. For federal requirements, the U.S. Environmental Protection Agency (EPA) offers two similar programs: the Audit Policy and the Small Business Compliance Policy. Much like the DNR's program, the EPA offers penalty reductions for self-disclosure and prompt resolution of environmental violations if the company meets program eligibility conditions. The Audit Policy has specific incentives for new owners of existing businesses that want to make a "clean start" by addressing noncompliance that began prior to acquisition. Some of the procedures and requirements for participation in the EPA programs are different than for the DNR's program, so make sure to review all criteria thoroughly before beginning.
- Business benefits of environmental management
While ensuring compliance is an essential first step, many businesses have realized the benefits of improving their environmental performance and "growing their green bottom line". One way this can be done is through participation in the DNR's Green Tier program. Green Tier is a voluntary program outlined in state statute that recognizes and rewards positive environmental performance, achieved by exceeding the minimum legal requirements and committing to continuous improvement. Participating businesses operate in a way that improves the environment and economy. The specific actions taken to improve environmental performance are up to the participant and can be tailored to meet their unique circumstances. For more details, visit "Overview of the Green Tier Program".
Green Tier participation is meant to benefit the businesses involved as well as the environment. Companies gets recognition and visibility for superior performance that enhances public perception and distinguishes them from competitors, as well as a variety of DNR incentives and potential cost savings from increased efficiencies. The face sheet, The Business Case for Green Tier (CO-506) provides more details on economic benefits participants may realize.
Whether or not a company participates in Green Tier, implementing an Environmental Management System (EMS) can be a valuable tool. An EMS can help any organization evaluate its environmental impacts and systematically operate more efficiently through reduced energy consumption, waste and pollution. Impacts can be managed in a way that emphasizes continual improvement in both environmental and economic aspects of the business.
Increasingly, businesses are discovering the possibilities for gaining a competitive edge and expanding their bottom line by engaging in more sustainability activities. At the same time, consumers are looking to purchase products from and do business with environmentally conscious companies, large and small. SBEAP's "Sustainability" page has information to help small businesses get started. Many programs exist to help small businesses in this endeavor.
- PACE and other financial and business development resources
SBEAP does not have any grants or loans for businesses. However, the program's “Financial resources” webpage outlines some resources that may be of interest, including programs that can help with things like creating a business plan as well as training and mentoring opportunities for business owners. There are also economic development programs in addition to assistance for pollution prevention and energy efficiency projects.
Many counties across Wisconsin are adopting the Property Assessed Clean Energy (PACE) program in their communities. Renewable energy, energy efficiency and water conservation projects for commercial, industrial and other buildings in participating communities may be eligible to receive low-cost financing. Participants enjoy no up-front costs, long repayment periods, immediate cost savings and increased property values. Projects for both existing buildings and new construction are eligible.
Financing for PACE projects is provided by private lenders of the applicants' choosing. Lending and financial institutions need to become Qualified PACE Lenders to provide financing for PACE projects in Wisconsin. Property owners need to get consent from their mortgage lenders in order to participate. The PACE Commission enters a PACE Financing Agreement with both the borrower and lender. Visit the PACE Lenders page for details. Qualified PACE Lenders are listed on the program’s website to help link lenders, property owners, project developers and other interested parties.