Scrap Metal Recycling Business Plan
A scrap yard is caught by SBA's environmental rules from two directions at once. Recyclable material wholesaling is named in Appendix 6, and so is waste management and remediation as a whole three-digit code. Either way the outcome is the same: your environmental investigation "must begin with a Phase I, regardless of the amount of the loan", with no cheap questionnaire route however small the borrowing. On a yard that has been operating for decades, assume the Phase I escalates. The land, not the equipment, is the risk a lender is underwriting.
Verify every requirement with the named agency and your lender before committing capital. Scrap yards are regulated at state and municipal level for stormwater, air, and in most states for theft prevention and seller identification. Equipment and site costs are specific to your location and we have not surveyed them.
Two Appendix 6 entries, not one
SOP 50 10 8.1 carries Appendix 6: NAICS Codes of Environmentally Sensitive Industries. A scrap operation can be read into either of two entries:
42393 RECYCLABLE MATERIAL MERCHANT WHOLESALERS
562 WASTE MANAGEMENT & REMEDIATION SERVICES
Neither carries a conditional bracket. And the SOP is explicit that "A 3 digit NAICS code includes all industries beginning with those 3 digits", so 562 sweeps in everything below it rather than naming a narrow slice.
The practical effect is that there is no version of a scrap yard that argues its way out of this. Whichever code your lender assigns, the answer is the same.
What that costs you
The cheap route closes. The SOP ordinarily allows that "If the loan amount is up to and including $250,000, the Environmental Investigation may begin with an Environmental Questionnaire." For an "environmentally sensitive industry identified in Appendix 6", the investigation "must begin with a Phase I, regardless of the amount of the loan", conducted to "the most recently adopted standard for a Phase I ESA established by ASTM International, currently ASTM E1527-21".
And a Phase I on a working scrap yard is not a formality. If the Environmental Professional "concludes that further investigation is warranted (typically a Phase II), and the SBA Lender still wants to make the loan, the SBA Lender must proceed as recommended by the Environmental Professional".
Decades of fluids draining into unsealed ground, batteries, mercury switches, fuel tanks and shredder residue are exactly what a Phase I is designed to find. On an established yard, treat a Phase II as the base case rather than the exception, and get a view on remediation exposure before you agree a price.
Buying an operating yard versus starting clean
This is the central strategic decision and it is mostly an environmental one.
An operating yard comes with permits, scales, weighbridge, customer relationships and, crucially, a site that is already zoned for the use. Zoning for a new scrap operation is extremely difficult in most jurisdictions, which is why operating yards trade at a premium. What you also inherit is whatever is in the ground.
A clean greenfield site avoids the inherited contamination but substitutes a zoning fight you may not win. Few uses attract neighbor objection as reliably.
Neither is obviously right. What is wrong is choosing between them without having priced the environmental tail on the first option, and the planning risk on the second.
Is a scrap metal business profitable?
It is a commodity business, and your plan has to say so.
Your margin is the spread between what you pay at the scale and what you receive at the mill or the broker, less processing and freight. Both ends move with global commodity prices that you do not influence. Operators who survive the cycle generally do it by holding working capital rather than inventory, by processing to a higher grade rather than selling mixed, and by building volume relationships with contractors, demolition firms and manufacturers rather than relying on walk-in public trade.
We have not surveyed yard economics and will not publish figures we have not measured. What a lender will want to see is your position modeled across a price downturn, because there will be one, and because a plan priced at the top of a cycle is the version that gets declined.
The compliance layer most plans understate
- Stormwater. An uncovered yard generates runoff across contaminated surfaces. Permitting and management here is a real operating cost, not a formality.
- Seller identification and theft prevention. Most states require photo identification, records and payment delay rules for certain materials, particularly copper and catalytic converters. These are not optional and the penalties are commercial as well as legal.
- Air permitting if you operate a shredder or a torch-cutting operation.
- End-of-life vehicle handling, including fluid and refrigerant recovery and battery and mercury switch removal, if you take vehicles.
Name your actual arrangements in the plan rather than asserting compliance in the abstract. Lenders in this sector have seen the abstract version.
How do you fund a scrap yard?
If the business is new, the SOP's start-up test applies, and it is about the business rather than the operator:
SBA considers a business to be a "start-up" for the purpose of determining equity injection requirements if it has been in operation (i.e., generating revenue from intended operations) for 1 year or less.
A start-up needs at least 10 percent of "all costs required to become operational, regardless of the source of funds, except for lines of credit and 504 loans". For a yard that base is large: balers, shears, a weighbridge, material handlers and site works are capital-heavy and often vendor-financed, and vendor finance is a source of funds rather than an exclusion.
Note separately that "Sanitary landfills" appears on the Limited or Special Purpose Property list while scrap yards do not. That list "is not intended to be all-inclusive" and the SOP requires the CDC to "address whether the Project Property is Limited or Special Purpose in their credit memorandum and include an explanation of their conclusion", so it is a question to raise rather than assume. Our free SBA equity requirement calculator shows what each answer costs.
What must your scrap metal business plan contain?
- The environmental position first: the site's history, who is doing the Phase I, and your view on remediation exposure. On this sector it is the first thing a credit analyst looks for.
- Commodity price sensitivity, modeled through a downturn rather than asserted.
- Working capital, which is the real constraint. You pay at the scale and get paid on settlement.
- Volume sources named: contractors, demolition, manufacturing offcuts, municipal contracts. Public walk-in alone is not a plan.
- Permits held or applied for, with dates.
- A project cost schedule covering all costs required to become operational, with the equity injection identified and documented.
We write SBA business plans and financial models for exactly this kind of filing, including the project cost build-up and the monthly cash flow a credit memorandum is written from. Fees are fixed and published, and we never charge a percentage of anything you borrow or raise.
Frequently asked questions
Does a scrap yard need a Phase I environmental assessment?
For SBA financing, yes. Both "42393 RECYCLABLE MATERIAL MERCHANT WHOLESALERS" and "562 WASTE MANAGEMENT & REMEDIATION SERVICES" appear in Appendix 6, and for those industries the investigation "must begin with a Phase I, regardless of the amount of the loan".
Is it cheaper to buy an existing yard?
Often, in time and permitting terms, because zoning a new scrap operation is very difficult. But you inherit the site's contamination history, which is the thing to price before agreeing terms.
Is a scrap yard a special purpose property for SBA?
It is not named on the Limited or Special Purpose Property list, though sanitary landfills are. The SOP says that list is not all-inclusive and requires the CDC to record a conclusion, so raise it early.
What is the biggest funding obstacle?
Usually working capital rather than equipment. You pay sellers at the scale and are paid on settlement, so growth consumes cash even when the business is profitable.
Am I a start-up if I have worked in scrap for twenty years?
If the borrowing business has been generating revenue from intended operations for one year or less, yes. The test is the age of the business, not the experience of the owner.
This page summarizes what SBA SOP 50 10 8.1 says as at 4 October 2026. It is general information, not lending, legal or environmental advice, and it is not a commitment to lend. Scrap industry regulation, including seller identification and stormwater rules, differs by state and municipality and changes. Confirm every requirement with the relevant agencies and your lender before you commit capital.