Business Acquisition Letter of Intent: Free Template and Complete Guide

What an LOI Actually Does — and What It Does Not

An LOI is a non-binding letter that outlines the proposed terms of an acquisition. With two important exceptions — exclusivity and confidentiality — it creates no legal obligation to close. Either party can walk away before the definitive purchase agreement is executed. This non-binding nature is intentional: it lets both parties agree on the high-level framework quickly and cheaply before anyone knows whether the business will survive full due diligence.

The exclusivity provision is the LOI's most valuable element for a buyer. Exclusivity means the seller cannot market the business, negotiate with other buyers, or accept competing offers during the defined period. Without exclusivity, a buyer could spend weeks and thousands of dollars on due diligence only to have the seller accept a competing offer on Day 29. Exclusivity converts your serious intent into a protected window — which is why sellers push back on long exclusivity periods and buyers should push back on short ones.

Confidentiality in the LOI covers the terms of the letter itself, not just information shared under the NDA you presumably signed before seeing financials. This prevents the seller from using your LOI price as a floor in negotiations with competing buyers. Even though the LOI is non-binding on price, a seller who shops your terms to other buyers has effectively made your work free market research for their benefit.

Binding vs. Non-Binding — The Critical Distinction

Most provisions in a business acquisition LOI are non-binding — the purchase price, deal structure, diligence period, and closing conditions are all subject to change as you learn more during diligence. The provisions that are typically binding are exclusivity, confidentiality, and any break-up fee provisions (in larger deals).

This distinction matters for how aggressively you negotiate each section. The non-binding provisions should be set at levels you can realistically defend after diligence — not set aggressively low with the expectation of moving them. Sellers are sophisticated enough to understand that an LOI price that drops 15% after diligence reveals nothing material is a negotiating tactic, not a real discovery. That kind of move damages trust and often kills deals at the purchase agreement stage even when both parties want to close.

The binding provisions should be negotiated carefully because they are actually enforceable. Exclusivity language should specify exactly what the seller cannot do during the period: marketing the business, accepting LOIs from other parties, engaging a new broker, or even having exploratory conversations with prospective buyers. Vague exclusivity language creates disputes later. If the seller can technically argue that showing the financials to a prospective buyer is not negotiating, your exclusivity may be worthless.

How to Anchor Purchase Price in Your LOI

Your LOI price is the negotiating anchor for everything that follows. Set it based on your adjusted EBITDA calculation and a multiple derived from comparable transactions — not as a percentage of the seller's ask, not as a gut feel, and not as a deliberate lowball designed to leave room to move up. Each of those approaches signals something: the first signals passivity, the second signals you have not done the work, and the third signals you are not serious.

The right approach is to calculate your view of adjusted EBITDA (conservative, base, and optimistic scenarios), apply the appropriate multiple range for that industry and quality profile, and offer at the low-to-mid end of your resulting range with a brief explanation of your reasoning. A specific number with a clear rationale — even if slightly below the seller's ask — is more credible than a range, which signals uncertainty and invites the seller to hold out for the top.

When you are below the seller's ask, explain it in the LOI rather than waiting for the seller to ask why. Something concise: the multiple applied reflects the 35% customer concentration in the top three clients, and aligns with comparable transactions for businesses in this revenue range without long-term contract visibility. That sentence opens a negotiation where the seller is motivated to provide evidence that addresses your specific concern. It also makes your offer feel like a considered position, not an arbitrary opening bid. For industry-specific price anchoring examples, the LOI template for HVAC businesses and dental practice LOI guide show how deal-specific factors are incorporated into the purchase price rationale.

Deal Structure — The Section Most Buyers Get Wrong

Most sellers evaluate LOIs on two dimensions: total purchase price and cash at close. A $2.5M offer with 90% cash at close is meaningfully different from a $2.5M offer with 70% cash at close and 30% in a seller note on standby for 24 months — even though the nominal price is identical. Buyers who do not spell out the deal structure in the LOI create misunderstandings that damage trust when the full structure becomes clear during purchase agreement negotiation.

State the deal structure explicitly: how much of the purchase price is funded by an SBA loan (if applicable), how much is buyer equity at close, what percentage is a seller note and on what terms (interest rate, term, and any standby provisions), and whether any portion is contingent on post-close performance (an earnout). Sellers who have never sold a business before will not know about the SBA standby rule — explain it briefly rather than leaving it to surface as a surprise at the purchase agreement stage.

Also specify asset purchase versus entity purchase in the LOI. The default assumption for most small business acquisitions is asset purchase, and sellers who are not expecting this may be unpleasantly surprised to learn their legal entity is not transferring along with the business. Getting this structural question on the table at the LOI stage prevents a contentious negotiation mid-diligence. Industry-specific deal structures vary significantly — the deal structure guide for home health agencies and plumbing company deal structures illustrate how licensing, asset composition, and working capital affect how deals are structured at the LOI stage.

Exclusivity — How Long and How to Negotiate It

Sellers push back on exclusivity more than any other LOI provision because taking the business off the market while a buyer completes diligence has a real cost — foregone competing offers that might have been higher. Your job is to make exclusivity feel safe by being specific about what you will accomplish during the period and when.

For a deal financed by an individual buyer without SBA financing, 45 days of exclusivity is workable for a straightforward business. For an SBA-financed acquisition, ask for 60–75 days minimum — SBA underwriting alone takes 4–6 weeks after you submit your full package. Building milestones into the LOI — financial review complete by Day 14, management interviews scheduled by Day 25, legal review by Day 40 — demonstrates that you have a plan and helps the seller see the process moving even when they cannot see it directly.

If the seller pushes back hard on exclusivity, offer a shorter initial period (30–45 days) with a 15-day extension right at your discretion if the SBA process is actively in review. This structure limits the seller's exposure while protecting your SBA timeline. One provision worth including: if the seller communicates with other buyers or markets the business during exclusivity, the buyer has the right to terminate without liability for any due diligence costs incurred. This clause is rarely invoked but creates a meaningful deterrent.

The Due Diligence Period — What to Specify

The due diligence period is nested within the exclusivity period — it starts when the LOI is signed and the seller begins producing documents. Specify both the length and what you expect during it: the seller's obligation to produce a complete document list within a defined timeline (typically 5–10 business days), buyer's right to conduct site visits, interview key employees (with seller consent), speak with major customers (with seller consent), and engage third-party advisors.

State the specific categories of due diligence you intend to conduct: financial, legal, operational, HR, and any industry-specific categories (environmental, licensing, equipment). This is not a legally binding commitment to these specific items — it is a signal to the seller that you are organized and have a real process. Sellers who have run a sale process before will recognize the discipline and be reassured. Sellers who have never sold before will be educated about what to expect.

Include the right to adjust the purchase price based on material diligence findings. This is standard and sellers expect it — but the language matters. Vague language like adjusted based on any material findings gives you an argument to renegotiate for almost anything. More credible is specific language: purchase price is subject to adjustment if adjusted EBITDA as verified by buyer's accountant is more than 10% below the seller's represented figure, or if any material contract is found to include a change-of-control provision. Specific adjustment triggers are more defensible and more likely to be accepted.

Conditions to Closing

The conditions to closing section lists the events that must occur before the buyer is obligated to close the transaction. These are different from due diligence rights — they are the contractual prerequisites for funding. Including them in the LOI (rather than introducing them for the first time in the purchase agreement) prevents surprises late in the process when both parties have invested significant time and money.

For most acquisitions, the standard conditions to closing include: buyer completing due diligence to its satisfaction, receipt of SBA loan commitment if applicable, landlord consent to lease assignment, assignment or transfer of all material customer and vendor contracts, receipt of all required government licenses and permits, retention of key employees as agreed, and no material adverse change in the business between LOI signing and closing.

For licensed professional businesses, add: confirmation that all professional licenses can transfer or be re-issued in the buyer's name before or immediately at closing. Veterinary practice acquisitions and landscaping LOI guides both illustrate how licensing continuity provisions are typically drafted — in healthcare and licensed trade businesses, a licensing gap can mean the business is legally unable to operate for a period post-close, which creates real revenue risk that the conditions to closing should address.

The 8 Clauses Every LOI Must Include

A well-structured LOI for a business acquisition covers the following eight sections. Every one of them should be present in your draft — a missing section is not a sign of simplicity, it is a sign of incomplete thinking.

• Purchase price: a specific number with a brief rationale tied to adjusted EBITDA and multiple
• Deal structure: breakdown of cash at close, SBA loan amount, seller note percentage and terms, buyer equity injection
• Asset vs. entity purchase: specify asset purchase (or entity with rationale) to prevent downstream surprises
• Due diligence period: length, document request obligations, and buyer rights to inspect, interview, and verify
• Exclusivity: specific duration, what the seller cannot do, and extension provisions if SBA is in process
• Confidentiality: mutual obligation to keep LOI terms and all shared information confidential
• Conditions to closing: the specific events that must occur before the buyer is obligated to fund
• Target closing date: realistic timeline from LOI to close — 90 days for cash or seller-financed deals, 120 days for SBA

Common LOI Mistakes That Kill Deals

The mistakes that kill deals are almost never about the substantive terms — they are about signaling and process. Buyers who signal incompetence or bad faith in the LOI rarely recover the seller's trust even when they correct course.

Offering a wide price range is the most common mistake. A buyer who offers $1.8M–$2.4M is not being flexible — they are telling the seller they have not done the valuation work. Sellers anchor to the high end of the range and then experience every dollar below it as a concession. A specific offer with a rationale is more credible and more likely to produce a signed LOI than a range designed to seem open-minded.

Failing to address deal structure until the purchase agreement is the second most common mistake. If you are planning to use SBA financing with a seller note on 24-month standby, the seller needs to know that before they sign the LOI. Revealing the standby provision for the first time in the purchase agreement, after the seller has been off the market for 45 days, feels like bait-and-switch — even if it is standard SBA practice. A seller who feels surprised at the purchase agreement stage is a seller who is already reconsidering whether to close.

What Happens After the LOI Is Signed

Once both parties sign the LOI, the exclusivity clock starts. You have a defined window to complete due diligence, secure financing, and finalize the purchase agreement. The buyers who lose deals during this phase do not lose them because of what they find in diligence — they lose them because of poor project management.

Send your complete due diligence document request list within 48 hours of LOI signing. Engage your M&A attorney and CPA immediately — do not wait for the seller to provide documents before notifying your advisors. If you are using SBA financing, contact your lender the day you sign and begin assembling your loan package. SBA underwriting takes time regardless of how organized you are — starting Day 1 is the only way to prevent the SBA timeline from extending past your exclusivity period.

Communicate proactively with the seller throughout the process. Sellers who feel informed and respected are far more likely to work through diligence complications than sellers who feel ignored. A weekly check-in — even just a brief email noting what you have reviewed and what is still outstanding — does more to keep a deal alive than any legal protection. The due diligence phase is where deals die most often, and the reason is almost always people, not substance.