While the law in most states has permitted the use of electronic signatures for some time now, their use in SBA lending has been sparse.

On a federal level, electronic transactions became acceptable when the Electronic Signatures in Global and National Commerce Act ("E-Sign") was enacted in 2000. E-Sign affects interstate or foreign commerce, but states were also encouraged to adopt their own form of an electronic signature law. To date, some variation of the Uniform Electronic Transactions Act ("UETA") has been adopted in 47 states and the District of Columbia. Illinois, New York and Washington have not adopted the UETA, but have adopted their own statues related to electronic transactions.

The primary purpose behind the UETA was to permit electronic agreements to be enforceable documents. It states:

"(a)  A record or signature may not be denied legal effect or enforceability solely because it is in electronic form. 

(b)   A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation. 

(c)   If a law requires a record to be in writing, an electronic record satisfies the law. 

(d)   If a law requires a signature, an electronic signature satisfies the law" Uniform Electronic Transactions Act, Section 7, 1999.

Among other things, the UETA discusses how such agreements can be delivered, that they can be notarized and that they must be retained.

The UETA did not address several issues, which may have impacted the rate at which commercial parties have utilized its provisions. The UETA does not "apply to a transaction to the extent it is governed by...The Uniform Commercial Code other than Sections 1-107 and 1-206, Article 2, and Article 2A" Uniform Electronic Transactions Act, Section 3(b), 1999. This does not necessarily mean that transactions related to the UCC cannot utilize electronic signatures, rather it means that the UETA does not override any provision in the UCC. The interplay of these two laws has been widely discussed and, over time, each state will ultimately determine what transactions may utilize electronic signatures in a commercial context. Additionally, the UETA did not clarify methods of obtaining or verifying electronic signatures. Questions surrounding what constitutes a digital signature, how parties can verify that they are signing the same document and how the identity of  the person digitally signing a document can be verified are not subject to a universal standard. While these open questions are being addressed by individual states at a varied rate, at this time, electronic signatures are not widely used on commercial transactions in the context of SBA lending.

Currently, legislation has been introduced that if passed, will bring electronic signatures into the SBA lending process. The Small Business Loan Simplification Act of 2014 would allow both lenders and borrowers to use electronic signatures to make certifications to SBA during the application process. It would also require SBA to accept electronic signatures in its management of the program. The representative that introduced this legislation hopes that this will help make the application process much quicker, thus making it easier for borrowers to access SBA loans. This legislation would not preempt state law, which means that loan  documentation executed at a closing would remain subject to the requirements of the state governing the loan transaction.

For more information about electronic signatures and SBA lending, please contact Jessica at 267-470-1188 or at jconn@starfieldsmith.com.