The real meaning of "independence" when it comes to business.....

in·de·pen·dence \ˌin-də-ˈpen-dən(t)s\. noun: freedom from outside control or support : the state of being independent.  ~Merriam‑Webster

Independence Day is my favorite holiday. And like most holidays, it usually gets me to thinking. Now, sometimes all this cogitating this doesn't amount to much, but sometimes a few dots actually connect.

What does it mean to be an "independent business"?

Of course all businesses are interdependent. They rely on buyers and suppliers and all sorts of other relationships.

Yet there is still such a thing as an independent business.

What does that mean?

According to the National Federation of Independent Business, the typical NFIB member employs 10 people and reports gross sales of about $500,000 a year.

But does that really capture all of it?

Is "independent" simply based on size?  Is it simply the absence of a franchise agreement?

Is it simply not being at the mercy of a huge supplier? How about not being at the mercy of your biggest customer? Not being at the mercy of the bank?

I propose a definition like this: "independent" means ability to make independent decisions which place the customer's best interest first.  An independent business is free from all encumbrances and motives that might prevent it from fulfilling it's fiduciary responsibility to it's customers.

Free to do the right thing - every time.

This takes on a whole new meaning in the financial world - as well as in the environmental consulting world where I work.  Much more than in, say, the pizza business, for example.

When you call your pizza guy and he makes an upsell, the effect of extra mushrooms and cheese probably has limited downside - at least short-term!

For financial advisers? Oh, now that's a different story.  

Of course the financial industry has strong laws to prevent abuse. If a financial adviser makes recommendations to their client which result in benefit for an affiliate or partner firm or a subsidiary, they certainly have to disclose that.

This issue is so important that it has caused the rise of "fee based" financial advisers, and their appeal is that they are not hawking anything.  They are independent, and people can see that value and are willing to pay for it.

The environmental consulting world is much more loose. These same sorts of relationships and potential conflicts exist in that space, but unlike in the financial sector, there's no law requiring the disclosure of these facts.

So you are left to trust what......the firm's reputation? Your gut instinct? Your bank's approval list?

How can you really know that there is no conflict of interest?

I've seen consulting firms grow large by taking advantage of what's done in the dark, and you may have seen it too.  

Like the fee based financial advisers, the key to eliminating all real and perceived conflicts of interest is in the business model. Instead of inherent conflict of interest, there should be an inherent absence of such conflicts.  If your  consultant can't convince you that a conflict of interest is impossible, than guess what?  It's possible.

Our business model makes conflict of interest truly impossible. To find out  how we are truly independent and why that's good for your customers and your institution, click here.

Any time you can do business with someone who is truly independent, you have a huge advantage built right in - and that should always give you - and your customers - a great deal of confidence.

Order your EZ Screen now.

The Ancient, Priceless, Secret Value of "Free"!

Some people quickly dismiss the value of "free". We've all heard the trite cliche': "You get what you pay for!"  

These folks are the unfortunate few who don't yet understand the immeasurable value of "free".  They don't know what they are missing!

The original "free" business model goes back about 2000 years. The reason that our modern calendar says 2015 today is because something of immeasurable value was offered for "free" to a worldwide audience, and then that promise was kept.

Few would disagree that this single, most monumental transaction of all time - which was based on nothing more than a promise - has changed the world in immeasurable ways.

The secret is trust.

At worst, the items of value actually exchanged in this deal are trust, traded freely for two other priceless gifts: peace of mind and better behavior, at least to some degree.

At best? Trust exchanged for an even better priceless gift: eternal life.  So that's a pretty good upside, with a very limited down side, don't you think?

That's what we like to call a "win-win"!

Of course, since it has been so successful (2015 years of solid referrals - and counting!), this model has been adapted into other areas of life, including business. 

Wildly successful modern examples of the "free" business model include Google, Facebook, Internet Explorer, and the universal phenomenon of the "free trial version" of software products, including LinkedIn.

Blinds.com offers a "Fit or Free" business model, to build trust in the buyer so that they know they can buy with confidence.  It is also wildly successful.

Banks offer free checking, free savings, free pens, free suckers. Why? To demonstrate their trustworthiness in a tangible way.

There is not a business in the US today which could not benefit from demonstrating additional trust in the minds of it's customers, and the value of free is arguably the most successful model in history for doing this.  There is nothing else like it.

We recently changed the way we do business to harness this power as well. Our new business model "puts our money where our mouth is", as my mom used to say (she still says that!). Because we believe in the value of what we do, our company eagerly embraces this business model.  We are willing to do what others aren't, and that's why we bring greater value than they do.

And that original free offer from 2000 years ago? It's still just as valuable today as it was then. Something worth checking into!

Order your EZ Screen now.

Nutshell: SBA Environmental Procedures/Policies and Tools For Lenders & CDC's

We sometimes get asked about the SBA environmental requirements for 504 and 7(a) loans.  The SBA's most recent policy is long, and can take some time to go through. The USDA Rural Development Program employs a similar policy. To help, we've put together a quick overview of how this works, along with links to a few helpful resources.  Here we go.

1)  Regardless of the it's SBA program designation, is the loan secured with commercial real estate?

• Might seem basic, but if this is the case, then some level of environmental due diligence is required.

2) Is the real estate collateral’s current or past use listed on the SBA's "environmentally sensitive industries list"?

• If no, proceed with the minimum step for that loan size. (See below)
• If yes, you must begin with a Phase I environmental study. The report must be submitted to and approved by the SBA prior to loan disbursement (PLP/Express lenders can use delegated authority).

3) Is the loan <$150,000? If yes, and the real estate collateral is not identified as environmentally sensitive according to it's NAICS code, you may begin with an Environmental Questionnaire.

4) If the loan is >$150,000 and not identified on the list of sensitive industries, you must begin with a Records Search with Risk Assessment (RSRA).  (Note:  you should still have the current property owner complete an Environmental Questionnaire on the subject property!)

5) The RSRA will have one of two possible outcomes:

•  "Low Risk: No further action required".  At this point, simply send a copy of the report to SBA underwriting for concurrence (PLP/Express lenders can use delegated authority).
• Elevated/High Risk: Phase I Recommended". The lender/CDC must follow this recommendation before submitting to SBA.

This Phase I upsell can be a real or perceived hidden "conflict of interest" zone as I have written about before. Is the Phase I really needed?  Maybe.....or maybe it is a very nice upsell for the consultant who could have resolved the matter with just a little more effort.  How can you possibly know for sure?  Even if the cost of the RSRA is applied to the Phase I, it's still a nice upsell, isn't it?

• There's only one way to know for sure: from the get-go, make sure that the consultant who does your RSRA's has no possibility of profiting from any upsell.  That means hiring a consultant for your RSRA who uses a business model which eliminates this possibility.  Every environmental firm which performs RSRA's counts on the revenue from this Phase I upsell.  Most firms essentially treat the RSRA as a loss-leader.  

• There is currently only one company in the environmental industry which has developed a business model which inherently eliminates this serious, yet hidden conflict of interest.  Learn more here.

• It is important for SBA and USDA lenders to follow these steps carefully.

It's also important to recognize that these steps are primarily for risk valuation for the collateral, for the lender's and guarantor's benefit. 

Order your EZ Screen now.

There is also some benefit to the borrower: peace of mind.  While it may not be a full Phase I, at least there has been some professional risk evaluation performed, and in many cases this is better than what the alternative would have been: nothing.

Attorneys generally agree that for the time being, environmental due diligence measures other than a Phase I ESA do not provide a basis for legal defense against future claims.  

If you are doing a non-SBA/USDA deal and are unsure about what level of due diligence is appropriate, it's not a bad idea to ask an attorney.  

If you think you, or the borrower, can't afford an attorney to protect your interests in a real estate deal, then perhaps you haven't seen the costs of not using one when you should have!  

Hot tip: It sounds almost too good to be true, but it really is true: "legal service plans" which offer unlimited access to top-rated attorneys are available in 49 states for families and small businesses, starting at $20/month.

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We still want to work with you, so if there are any issues - technical or otherwise - that need to be fixed, please don't hesitate to call us at (800) 769-7437, or email us at info@sierraconsultants.net and someone will respond ASAP.  Thanks again!

Part II - Environmental Industry Secrets: 4 Hidden Conflicts of Interest Seen Through Your Customer's Eyes

Today we'll finish our examination of 4 major conflict areas within the environmental due diligence industry which can have a big impact, especially on small lenders and CDC's, where building a relationship of trust with the customer is everything.

In Part I, we covered  Vendor Upsell Conflicts and  Pre-Approved Vendor List Conflicts.

Today, we're going to take a look at "Outsourcing & Partnering", and "Updating Old Reports".

We're also going to discuss some easy things that can be done to avoid these problems. Here we go:

Conflict 3) "Outsourcing" and "Partnering" in the environmental industry

While they may not mention this up front, big players in the environmental industry now often rely heavily on outsourcing and "partner agreements". 

These arrangements can have some advantages - primarily for the environmental company. 

However, for you and your customers, there can be some hidden downsides. In the environmental due diligence industry, there are currently several popular business models:

I) The RSRA company you order from could be essentially a national database and marketing firm. These firms "partner" with regional consulting/engineer firms.  It usually works something like this:

• The database company provides all the data for the RSRA and assembles the report, and the "partner" firms review and sign off on this report for a small fee. 
• The "partner" firms don't make much for certifying these RSRA reports - a nominal fee - but if it comes back "elevated risk" thus necessitating a Phase I, it is now referred back to that very same regional "partner" as a much more profitable upsell for them. 
• Can you see it now? Conflict of interest.

Remember that since A) your customer probably has never been through this process before, and B) his relationship is with YOU - not the environmental company, he may well see this conflict of interest as a reflection on you and your organization.

II) The Phase I company you order from might position itself as a "national player" by contracting with regional "partner firms" or even worse - a loose network of independent subcontractors.  It usually works something like this:

• These subcontractors or "partners" are hired for a nominal fee to provide the most important part of the assessment: the walk-through and photographs of the site for the report.
• Again, these subcontractors don't make much for the inspection, but if there's any additional work recommended (Phase II sampling), this is usually referred to them, or else a "partner" firm in the area. 
• See the conflict of interest?
• Under the EPA and ASTM Standards for Phase I ESA performance, these subcontractors ARE NOT required to be qualified environmental professionals. Believe it or not.
• They only need to be "under the direction or supervision of" a qualified environmental professional.  This can mean by telephone or email.
• As we've already discussed, sometimes these people are qualified, and sometimes they are not. 
• All of the other functions of the ESA are added by clerical staff back at the main office and the report is signed off by an "environmental professional" who has never been to the property. 
• As you might imagine, we've seen many problems stem from this system.

III) The environmental company you order from might be some combination or variation on the above themes.

Conflict 4) Updating old reports

Truth is, in the environmental business, there is very little savings to be gained in the update of an old report. 

The standards for these reports change every 5 or 10 years and usually everything has to be done all over again. So there's not much savings for the environmental company, really. The vendor may show some discount in consideration for their previous report, but it's not a huge benefit to them. 

No, that's not the problem we're talking about here. 

The real problem is, there are times when environmental companies make mistakes.

I know, I know, shocking, right? Yes, it's true. Believe it or not.

There have even been cases of fraud, where a company has made a property appear clean when it's dirty, or vice-versa. 

I know, I know, this could never happen with your vendor, right? 

Guess again. It happens more often than you think, and most cases probably never get caught.

Asking a environmental company to update something that they did five or ten years ago gives them an opportunity to cover their tracks if there was a "mistake". They can simply gloss over it or ignore it or get around it in a hundred different ways.

It's a potential conflict of interest.

We've seen this more than once, and it's really unfortunate. Here's an example:

• A recent case we reviewed involved a very large and well respected regional engineering firm.  They did a Phase I ESA in the late 1990's on a large nationally recognized restaurant in an old factory building.  They had done an update in the mid 2000's as well.
• The Phase I ESA from the 1990's revealed several geothermal HVAC wells which have been sucking in contaminated groundwater from off-site sources and then re-injecting it into the ground water in a different location.  
• Unfortunately, the report failed to frame the matter as an environmental concern in any way, and..... 
• .....Neither did the 2000's update.
• This collateral now has a very, very serious environmental defect which could result in devastating liability.  And the problem is ongoing to this day.

The situation with these wells is called "exacerbation of contamination".  It can potentially be the basis for the loss of any liability exemptions which may have otherwise been obtained for the property in the first place.

To paraphrase a well-known politician, "it's kind of a big deal".

• The first Phase I's failure to identify the situation as a problem in the first report may have been a mistake (negligence) but......
• The second failure in the update could have been either a a repeat of the first mistake - or else a conflict of interest.  
• We'll probably never know, because our client (the bank) declined the loan based on our review, and another lender probably took on this risk.

Aside from collateral value problems, obviously there can also be serious liability exposures for everyone involved in this example, such as:

• the environmental company who did the original Phase I ESA and also the update, and never identified this problem, 
• the restaurant owner who paid for the Phase I ESA's and relied upon them, and
• potentially the lender, who recommended this vendor - twice - and ordered the reports as a mandatory part of the financing and refinance process. 

What to Do?

Conflicts might not be very apparent to you sometimes, but from your customers perspective, things can look much different. Here are some things to remember:

• These are not the only hidden conflicts of interest, but they are some of the most common. Once you learn to spot these kinds of things, you will tend to notice them more and more.  Remember, look at it from the customers point of view.  Awareness is key.  

• Every time you order an environmental report, consider these possible conflicts of interest, or even the appearance of a conflict. 

• There is one environmental service on the market specifically designed to avoid all of these conflicts of interest:  
• Using  EZ-Screen™ as the first  step on every deal eliminates the possibility of most or all conflicts of interest, and thus puts you in a better light in your customer's eye.  
• Plus, it's a great value. 
• Learn about EZ-Screen "Clean or Free" advantage here.

• Just keeping these things in mind can make a big difference in your ability to guide the process away from conflicts. 

• Review your organization's environmental policy and make changes where applicable.  
• If your organization does not have a formal environmental policy, consider using the SBA's environmental policy as a template - even on non-SBA deals.  
• It won't address all the conflicts of interest discussed in this article, but it's a good starting point if you've got nothing else.

• If you're uncomfortable reviewing and changing policy on your own, or just want to have a second set of eyes on it, having your attorney review it is a great idea. This can identify and possibly mitigate potential conflicts, among many other things.  

• If a traditional attorney doesn't fit the budget, consider an inexpensive legal service plan. 
• Unlimited access to excellent attorneys in every state, along with many other benefits.
• All plans include document review
• Small Business plans start at less than $40
• Family plans start at less than $20
• No long term contracts
• Take a quick look at plans in your state
• Business owners absolutely love these legal plans. Share this link with with your small business borrowers - they will thank you! http://goo.gl/YcDEi6

About Us

Our clients tell us that they won't entrust their environmental risk decisions with anyone else.  

Give us a try on your next project and find out what they mean.

To EZ-Screen your next deal, simply visit our order portal.

To ask a question, email us here, or call (800) 769-SIERRA

To find out more about us, please visit our website.

What About Contamination Risk? Why Your Next Environmental Report Should Be Clean - Or Free.

In early 2015, we sent an Environmental Risk Survey to lenders and Community Development Companies (CDCs) nationally.  

These two items in the survey sparked the most interest:

1) Desktop environmental screening sometimes reveals elevated environmental risk, triggering the much more costly and time consuming Phase I Environmental Site Assessment (ESA). 

• About 90% responded thus:
• "It would be nice if we could avoid this extra step up front. We're always looking for ways to speed our deals up and have them cost less."

and......

2) If the fee were waived for desktop environmental screens which found an "elevated risk" and then subsequently recommended a Phase I ESA (AKA "Clean or Free Guarantee"), it would be advantageous for our organization and our clients.

• 100% of respondents said:
• "Yes.  Eliminating this "double dip" would save time and money."

While suspected this would be the case, we were really surprised that the survey supported this so strongly.  

The result?  We've introduced a brand new concept in the environmental risk industry.

Here's the "Clean or Free" guarantee, in under 40 seconds:

This revolutionary approach to environmental risk management for real estate collateral has many fundamental and unique advantages: 

• "Clean or Free" means that EZ-Screen quickly clears the property as low environmental risk, or there is no charge. 

That's right.  Your fee will be waived or refunded.  No more fear of being "double dipped" for additional investigations.

• This unique program completely eliminates all real and perceived conflicts of interest in your environmental process.  There are many such conflicts which can be very damaging to customer trust - and you may very well not even be aware of them.

• If there is additional work recommended, not only is there no charge for our effort, but you are free to contract with any local consultant of your choice in order to reap that benefit. 

• Lenders love this program, because:
• it's fast and inexpensive enough to serve as a first level "cut" for every deal, as part of a tiered environmental risk screening approach. 
• This relieves the lender from the burden determining of which level of environmental reporting makes the most sense.
• It paints the lender in a good light with the borrower.
• It frees the lender up to work on other aspects of the deal where they are more effective.
• If a legitimate concern is discovered, sometimes that concern can be investigated on it's own merit (e.g.: Phase II sampling), potentially saving weeks, not to mention thousands in Phase I fees.

• We don't outsource or refer to a "network of partner firms" eager to profit from the upsell.

• In this way, you - and your clients - can rest assured that we always have your best interest in mind.

• Not only does the "Clean or Free" program eliminate all conflicts of interest, it also gives us a built in incentive to work hard to investigate potential environmental concerns and determine whether they truly and elevated threat to the property or not. 

• In cases where other companies might see a potential problem and simply kick it up to a Phase I, we're going to put in that extra effort now, instead.  Your deal will always reap the benefits.

• We provide personalized, in-house expertise on every project.  We never subcontract or "partner" with other firms.  We start your project, and we finish it.

• EZ Screen meets or exceeds the US Small Business Administration's requirements for the Records Search with Risk Assessment (RSRA), but is not limited to SBA deals when used as a sensible component of a tiered assessment approach.

• We've been in business since 1993, and in that time, our experience has taught us how to be the value leader.  At under $300 and 48 hour turnaround, no competitor can beat our value. 

Our clients tell us that they won't entrust their environmental risk decisions with anyone else.  

Give us a try on your next project and find out what they mean.

To EZ-Screen your next deal, simply visit our order portal.

To ask a question, email us here, or call (800) 769-SIERRA

To find out more about us, please visit our website.

Environmental Industry Secrets: Hidden Conflicts of Interest Seen Through Your Customer's Eyes

Have you ever wondered why there are some parts of some deals that seem to make your customers a bit crabby, but perhaps you couldn't quite put your finger on why? 

It could be related to a real or perceived conflict of interest in your environmental process. 

Conflicts of interest in environmental lending policy are certainly not confined to SBA deals by any means.  Every real estate deal can be affected, and many are. 

As a lender or CDC, you may not even be aware of these hidden or inadvertent conflicts in many cases. 

However, just because you may not be aware of them doesn't mean they aren't sometimes giving you a poor reflection in the eyes of your customers.  And that poor reflection is something else you may not be seeing.

Examining these topics is a more fruitful exercise if we do it through our customer's eyes. With this in mind, we're going to dive fairly deeply into four common - but often hidden -conflicts of interest.  These can have a big impact, especially on small lenders and CDC's, where building a relationship of trust with the customer is everything:

1) Vendor Upsell Conflicts

2) Pre-Approved Vendor List Conflicts
3) "Outsourcing" and "Partnering", and
4) "Updating old reports"

We're also going to discuss some easy things that can be done to prevent these problems. Here we go:

Conflict 1) Vendor Upsell Conflicts

Have you ever ordered an environmental screen or a Phase I Environmental Site Assessment (ESA) only to learn that additional work is needed?

Of course. 

From your borrower's point of view, the engineer or consultant that does this initial work has a conflict of interest in performing additional, and more lucrative, investigation. 

Sometimes this conflict is only a perception, but sometimes it's real. 

What are these guys drilling for?

How can you know? It can be tough to tell the difference, and from your customer's point of view, it's a moot question.

Most of us know of cases where there has been at least a suspicion of additional work recommended on specious grounds. The scenario happens often enough that it's common knowledge in business circles.

Whether a conflict of interest is real or perceived, this potential is inherently built-in to  every single deal.  

The vendor may be competent and honorable and honest, and yet the appearance of conflict - in your customers eyes -  is tough to avoid.

Even in cases where your consultant is willing to roll the cost of an "elevated risk" RSRA Screen into the Phase I, they still get to do the Phase I, don't they?

The borrower can often perceive this as a very big upsell.

The customer doesn't know these vendors.  He doesn't deal with them regularly.  

In fact, your customer has likely never been through this process before, and may never again. It's often unfamiliar territory to him, and he's relying on you to guide him through it. 

Thus, when your customer sees this unfamiliar (to him) environmental process unfold before him, it can look like dominoes: one Phase to the next Phase to the next Phase of expensive environmental investigations!  

Recommended by a vendor - and then performed by guess who?

That same vendor.  All with the lender's blessing.

His eyes roll back in his head and he's thinking:

"Are you kidding me? What a racket!" 

In the eyes of your customer, this process can look like a gravy train of conflict for some lucky engineer or consultant, whom your customer may assume you have a cozy relationship with - since YOU are the one who recommended them.

Your customer probably won't say anything to you about this out loud because it won't do him any good, but it can cause him to feel a lot of resentment toward the entire financing process - and you specifically - because in his eyes, you are the one requiring it.

Conflict 2) "Pre-approved" lists of third party vendors

To your customer, this list often just doesn't feel right. 

Limiting the customer's freedom of choice to your list - however long or short -  makes them feel boxed in, and can simply pile on to the conflict of interest they already perceive, outlined in #1 above.

In the borrower's eye, not only are you requiring him to jump through unforeseen and expensive hoops, he now has to choose from your list which - from his point of view - is often seen as a limitation on his choices.

Given recent events in politics and banking, the news reports have been full of "corporate cronyism" stories - and this has obviously included banks. As a small lender or CDC, you obviously don't want your customer to mentally lump you in this category.

It can look and feel like a conflict of interest to your customer, even if it's really not one.

Again, it's most likely not something he'll bring up to you, because it won't help his case, but he'll remember it.

I know, I know, some will say that providing a list simply gives the customer a way to feel confident that these engineers and consultants have been "screened for quality". 

The problem is, that's too often just not the case. 

Firms change personnel constantly.  Sometimes they even change ownership, and you typically might not be aware of it.

Obviously such a change can make a huge difference. But there are many, many other considerations.

Do they still have insurance? Have they been sued recently? Have they raised their prices? Have they kept up with recent changes in the industry?  And the biggest question of all: are they really qualified and credible?  We've heard of environmental firms being run by former hot dog vendors, convicted pedophiles, and pig farmers. Falsified credentials and fake "professionals" abound in the environmental industry, as I've written about before.

Your organization can't possibly know all these things and keep up with them on every vendor. If it turns out that there's a vendor on your list which has one of these problems, and it blows up for your customer, who will your customer look to?

Should you and your organization bear responsibility - fairly or not - for that vendor's issue?

Customers are smart and sophisticated and perfectly capable of making good vendor choices on their own. 

As long as you clearly lay the bar out for them in your environmental policy as to what they need to do, they will generally find the most efficient way to get it done. 

Maybe you keep an approved list or maybe you don't, but ask yourself this question:

Is there any need to limit the customer's choices to a specific list of vendors, as long as applicable standards are met?  

Again, the key here is to look at this through the customer's eyes.  This can go a long way toward building trust with him.


Thanks for spending a minute on this important topic today. We hope you've found your time well spent so far, but the best is yet to come.

In Part II of this series, we cover hidden conflicts that you probably were not aware of in "Outsourcing" & "Partnering" arrangements as well as  "Updating Old Reports".  

Best of all, we'll also discuss some easy-to-implement recommendations to avoid all of these problem areas.

About Us

Our clients tell us that they won't entrust their environmental risk decisions with anyone else.  

Give us a try on your next project and find out what they mean.

To EZ-Screen your next deal, simply visit our order portal.

To ask a question, email us here, or call (800) 769-SIERRA

To find out more about us, please visit our website.