COVID-19 creates greater demand for e-signatures for equipment financing
The end of the second quarter was looming, and with it came the deadline for a $2.5 million draw an Ohio manufacturer needed to make from its line of credit to fund an assortment of equipment leases.
The transaction was complex, involving multiple banks, hundreds of payments and thousands of spread sheet line items, recalls a Commerce Bank regional vice president facilitating the process. To meet the June 30 funding deadline, his team needed to obtain multiple signatures on multiple documents from signatories and witnesses working remotely due to the coronavirus pandemic. And they had about 24 hours to collect them.
“There wasn’t time to identify all the parties’ locations and overnight them a package of documents,” the regional vice president said. “There was really only way to get the documents signed in time to meet the funding deadline. And that was with e-signatures.”
Electronic signatures, or e-signatures, rely on digital transaction platforms that let users send, sign and manage documents securely online. Using electronic authentication methods to verify the signer’s identify, e-signature programs are legally recognized as a viable way to indicate agreement to a contract.
While e-signatures cannot be used on commercial real estate leases and other contracts that require a hand-signed notary or have other limiting factors, they have provided a safe, secure and convenient way to complete many small-dollar contracts. E-signature program applications are now expanding.
In the two years since Commerce initiated an e-signature program for middle market equipment finance transactions, the bank has watched their use soar, with more than half of these transactions now relying on e-signatures. We expect two-thirds of these leases will use e-signatures will by the end of 2020. Here’s why.
E-signatures are secure. Documents sent through a reliable e-signature program are secure, thanks to robust encryption algorithms they use to protect document contents. To safeguard larger lease transactions, Commerce added other security features. For example, recipients are notified by email in advance of their documents’ pending arrival and asked to provide a one-time, time-sensitive personal identification number, which they will need to access the document. This step prevents third parties from accessing documents without the recipient’s consent. The document pages in an electronic submission cannot be tampered with either.
E-signatures are safe. The importance of safety has been elevated in the age of COVID-19. In-person meetings to sign paperwork pose health and safety risks that are avoided by the e-signature process. With e-signatures, signatories can be scattered throughout the country, with only an email address needed to locate them. A good e-signature platform lets them sign documents anywhere, anytime and on any device.
E-signatures are convenient. Lease documents sent by mail often tracking down the location of on-the-go signatories and may require express shipping fees. Funding delays can occur if a signature or shipping deadline is missed. Because documents with e-signatures are considered “originals,” they also eliminate the need for frantic, last-minute in-person meetings to obtain signatures if the original documents are inadvertently delayed in transit. As the Ohio manufacturer mentioned above discovered, e-signatures can also save time and money when urgent deadlines are looming. In that case, documents were sent, signed and loaded into the approval system in as little as 15 minutes. The rapid turnaround enabled the manufacturer to meet its deadline and avoid the financial repercussions of noncompliance with covenant requirements.
The bottom line: While certain legal documents will continue to require “wet signatures,” e-signatures have made many in-person closings a thing of the past. In the age of COVID-19, their use will continue to accelerate. As the value of the contracts they are used on continues to grow, so will the level of security of the best e-signature platforms and processes.Learn more about equipment financing and leasing solutions or contact us.