While we are all waiting to move forward with the new “normal,” don’t forget to revisit what is fundamental and original - signatures. While wet-ink signatures are the most favorable in secured transactions, other options may now be considered. During the pandemic, there have been a number of changes to what is considered an acceptable signature for a secured transaction, specifically regarding 7(a), 504, or other SBA loans (PPP and EIDL included).
Pre-Pandemic E-Signatures. Pursuant to the E-sign Act, UCC Article 3, Uniform Electronic Transactions Act (UETA), electronic signatures are generally acceptable. While there are a few states that do not accept the UETA (New York, Illinois, and Washington), the UETA provides the framework for use of electronic signatures within the United States. When wet-ink signatures are not available, it is best practice for a bank to ensure that the documents that are e-signed are done so in an authenticated, unchangeable form documenting proof of control over the transferable record.
The SBA has an additional set of requirements for electronic signatures, namely SOP 50 10 6, Appendix 10. Except as prohibited by law or noted in the Appendix, SBA Lenders may use electronic signatures on Application, Loan Closing, Secondary Market Sales, Servicing, and a number of other documents (See SOP 50 10 6. P. 583-584). SOP also states that an electronic signature may not be used for transactions that require filing of security or other documents with a jurisdiction that does not have electronic filing capabilities.
How has the pandemic affected these regulations? The pandemic has made it difficult for lenders to meet with borrowers in person; lenders that did not already have an established e-signature process needed to find an alternative solution. Where electronic signatures are not feasible, SBA Procedural Notice 5000-20089 (following 5000-20042 and 5000-20071) allows for lenders to accept scanned copies of 7(a) and 504 SBA forms and other loan documents provided the lender also obtains a copy of the borrower’s driver’s license (front and back) at the same time that a scanned copy is submitted and obtains a valid original signature on the applicable document within 6 months of the date of the note. The Procedural Notice effectively allows for scanned copies of applications, promissory notes, and other SBA forms including, but not limited to, agent’s signature on SBA Form 159, Form 148 Guarantees, and Borrower’s signature on SBA Form 1506 for 504 loan Servicing Agent Agreements.
What do lenders need to consider right now?
- Once a valid signature has been obtained within 6 months of the loan closing, the documents MUST be sent to the appropriate servicing center, or else the SBA may deny liability on the guaranty in full, and for 504 loans, SBA may pursue a CDC recovery claim under 13 CFR § 120.938 and/or a claim against the 504 Closing Attorney;
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SBA Procedural Notice 5000-20089’s allowance of accepting scanned copies of signatures is currently effective until April 30, 2021; and
- Given the current uncertainty surrounding in-person loan closings, it may be wise for lenders to implement an e-signature platform in order to prepare for whatever is to come.
To conclude, signatures are vitally important for secured transactions. In a world of fast pace, electronic use, do not forget the value of a one-of-a-kind, wet-ink signature either on original loan documents or to support the use of scanned loan documents. Where a pandemic has made that challenging, lenders should follow the correct procedures to authenticate and control a borrower’s electronic or original signature to ensure the validity of the applicable loan documents.
If your lending institution has any questions about securing electronic signatures, please contact Your SBA Legal Department® at SBAQuestions@AJ-Law.com.
This article is provided for general information and educational purposes only. It does not solicit, establish, or continue an attorney-client relationship. The contents should not be construed as legal advice or opinion. If you have matters or questions to be resolved for which legal advice may be indicated, you are encouraged to contact a lawyer authorized to practice law in the state for which you are investigating and/or seeking legal advice. We understand that there are many specific scenarios that need to be considered with PPP loans. It is our intention to provide general facts related to guidance and encourage readers to reference SBA guidance to apply to each specific loan situation.
