Why Does a Solution Provider Want an MSA Signed Before the Bank Approves Me?

We hear this often, and the reasoning behind it is simple once you see the bank's side.

A solution provider with relationships at several banks sits between you and those banks. The bank only wants to see a case once everything is in place. It wants a complete packet, with the MSA signed and the basic work done, before it starts its review. The bank is telling the provider: "I know you have a client. Make sure they sign the MSA. Make sure the groundwork is complete. Then send me the packet. I will see the signed MSA, and only then will I spend three weeks of my time reviewing and approving your client."

The bank insists on this because it does not want you shopping around. A bank review takes real time, often three weeks or more. The bank does not want to finish that work and then hear, "Thanks, we'll think about it." From the bank's side that sounds like: "We just spent three weeks of our time approving you. What do you mean you'll think about it?" Banks will not invest their time in an applicant who might walk away after approval. The signed MSA removes that risk.

So understand what you are agreeing to. If the bank approves you, you start. There is no thinking it over. You do not have an option at that point. Approval means go.

If the bank denies your application, the MSA does not bind you. A denial ends the obligation. You walk away with only the cost of the application work.

There are two things you must settle with the provider before you sign.

First, consent before resubmission. Say the provider has relationships with three banks and submits your application to one or two of them. If those banks deny you, that should be the end of it. The provider must come back to you and ask for permission before taking your file to another institution. You should not find out after the fact that your application went somewhere you did not approve. Get this in writing.

Second, your exposure on denial. Work only with providers who do not charge you on denial beyond a small paperwork fee. A fee of a few hundred to a couple of thousand dollars to prepare and submit the application is normal. What you should not face is a long-term contract charge or ongoing fees for an application that failed. The logic is simple: the bank invests its time, you invest the application fee. If the bank says no, that fee is your only loss.

Before you sign, ask the provider directly:

• What are the commercial consequences if my application is denied? Do I owe you anything?
• What are the legal consequences? Does any part of the MSA survive a denial?
• Which bank or banks will you submit my application to?
• If those banks deny me, will you ask my permission before approaching another one?
• What is the application or paperwork fee, and is that the full extent of my exposure on denial?

If the answers are clear and the denial exposure is limited to a modest fee, signing the MSA before bank review is normal practice. It is how the provider keeps its bank relationships, and how the bank protects its time.