Some credit unions are originating business loans withdocumentation deficiencies that could result in unenforceablepromissory notes and collateral documents.

If notes and collateral documents are deemed unenforceable andthe credit union does not take steps to correct the situation,losses could result. For credit unions using automated loandocumentation programs that produce flawed notes or collateraldocuments, small dollar business loans could multiply intopotentially large losses.

A common cause of inappropriate documentation begins with themisinterpretation of business loan regulations that state businessloans of less than or equal to $50,000 and business loans fullysecured by a one-to-four family dwelling are not considered memberbusiness loans.