By John Levy
With recent support from the Small Business Administration, credit unions now have the ability to increase their lending programs to small businesses. Earlier this year, the SBA signed an agreement with the NCUA recognizing credit unions as viable lending options with the power to extend financing to creditworthy businesses.
The agreement also broadens awareness among credit unions of the SBA’s lending programs through webinars and other training materials.
SBA Administrator Maria Contreras-Sweet recently said that credit unions are a natural fit for these types of loans. “Millions of Americans have used their credit union to finance their car, home or children’s’ education,” she stated. “We want to empower credit unions to finance small business startups too.”
Along with supporting credit unions as financing options, the SBA has also welcomed the use of technology. It has mobilized efforts to enable complete transaction automation, likely in an effort to help any financial institution better compete with alternative lenders.
The Goal of the Program
To help take SBA loan transactions full circle, the Small Business Loan Simplification Act of 2014 was introduced last fall. The goal of the act is to expedite and simplify the application process by promoting the acceptance of electronic signatures and records. This legislation was created to allow SBA participants—borrowers and lenders—to use eSignatures to complete and deliver loan documents.
The act requires the SBA to accept electronic signatures and records in relation to the management of its financing programs. By October 2014, the SBA issued Procedural Notice 5000-1323 that outlined how to use eSignatures in connection with its programs, and that took effect in January.
eSignature solutions are already widely used across many credit unions, providing great benefits to varying parts of the industry. The same benefits that an eSignature solution provides can now translate to SBA loans as well, making them competitive with private agencies and some federal agencies.
Despite the success of eSignatures, some credit unions might still have hesitations. Credit unions need to be confident in their ability to accurately attribute the signer to the signature and prove intent to sign – primary tenants of a legally enforceable electronic transaction. We’re now 15 years past key legislation – UETA and ESIGN – that states if a law requires a record or signature that an electronic record or signature satisfies that law. The elements of industry standard, such as signer authentication, document tamper-evident seals, and comprehensive audit trails further promote legal enforceability.
Another Spoke in the Wheel
It is our belief that eSignatures limit risk and enable credit unions to benefit from offering SBA loans, capturing new business and providing members an experience that’s easy for them, and easy for you. Although the use of eSignatures remains optional for lenders, all SBA 7a and SBA 504 loan programs are eligible to use eSignatures from application to closing, servicing, and liquidation through guaranty purchase.
For a government agency such as the SBA to make such a progressive move with legislation further substantiates the industry’s movement toward a full electronic transaction environment. For years, advances in payments, remote deposit technologies, and self-service centers have laid the groundwork. eSignatures are another spoke in the wheel, yet crucial to creating truly paperless, electronic processes.
John Levy is executive vice president with IMM.