A letter of intent (LOI) is the document that converts a verbal offer into a structured written agreement — not the final purchase contract, but the framework that captures the deal terms both parties have agreed to before due diligence begins. Signing an LOI does three things: it establishes the key economic terms of the proposed transaction (price, structure, financing), it signals mutual commitment sufficient to justify investing time and money in due diligence, and it grants the buyer an exclusivity period during which the seller agrees not to negotiate with other buyers. Most deals either live or die by how well the LOI captures the terms — because the purchase agreement that follows is built on the LOI's framework, and terms that were left vague in the LOI become disputed in the final negotiation.
What an LOI Is — and What It Is Not
An LOI is a non-binding expression of intent to purchase — with a few specific binding exceptions. Understanding which parts are binding and which are not is essential before you sign or ask a seller to sign.
Non-binding provisions (typical): Purchase price, deal structure (asset vs. stock), financing conditions, working capital target, representations and warranties — all of these are subject to change based on due diligence findings and final negotiation. The seller cannot hold the buyer to a price if due diligence reveals material issues that justify a price reduction. The buyer cannot hold the seller to an asset purchase structure if the parties negotiate to a stock structure during the final drafting process.
Binding provisions (typical): 1. Exclusivity / no-shop: The seller agrees not to solicit, entertain, or negotiate with other buyers during the exclusivity period. This is the most critical binding provision for the buyer — without it, the seller can continue marketing the business while you invest 60–90 days in due diligence. 2. Confidentiality: Both parties agree to keep the terms of the LOI and any due diligence materials confidential. 3. Governing law: Specifies which state's law governs the LOI (and typically the final purchase agreement). 4. Expenses: Each party bears their own expenses in connection with the transaction (standard in most LOIs).
Always have an attorney review your LOI before signing — both to confirm the binding/non-binding delineation and to ensure the binding exclusivity provision is enforceable under the governing state's law.
For where the LOI fits in the full acquisition process, see the mergers and acquisitions beginner's guide.
The Essential Components of a Business Acquisition LOI
A complete LOI covers seven categories of terms. Buyers who leave any of these out create ambiguity that gets exploited in the final purchase agreement negotiation.
1. Purchase Price and Consideration The headline economic term. State the proposed purchase price clearly: $[X], payable as follows. If the consideration includes multiple components — cash at close, seller note, and/or earnout — specify each component's amount and structure in the LOI. Leaving the consideration components vague ("approximately $1.5M, structure to be determined") invites renegotiation at close.
2. Transaction Structure Asset purchase or stock purchase. This is a tax and liability consequence that both parties need to understand before spending money on due diligence. An asset purchase means the buyer acquires specified assets and assumes only specified liabilities; the seller retains the legal entity. A stock purchase means the buyer acquires the owner's equity interests and takes the entity — including all historical liabilities. In the small business market, asset purchases are the norm — but confirm it in the LOI. For the full breakdown of asset vs. stock purchase mechanics, see mergers and acquisitions basics.
3. Financing Conditions How the buyer intends to finance the acquisition. If SBA financing is required, state it — and state whether the LOI is conditioned on SBA approval. Sellers who do not understand SBA timelines may not give adequate exclusivity; addressing this in the LOI avoids the conflict. If a seller note is part of the consideration, state the principal amount, rate, and term — and address the SBA standby period if applicable (see the seller financing guide for SBA rules).
4. Due Diligence Period and Conditions The length of the exclusivity/due diligence period (recommend 60–90 days) and the conditions that must be satisfied for the deal to close. Standard conditions: satisfactory completion of financial due diligence, legal review, and operational review; SBA or lender financing approval; no material adverse change in the business between LOI and close.
5. Working Capital and Inventory Working capital (accounts receivable minus accounts payable, plus prepaid expenses and inventory) is often the most negotiated post-LOI item. The LOI should state whether the purchase price assumes a "normal" level of working capital (typically a trailing 12-month average) and whether deficiencies or excess will be adjusted at close. Leaving working capital out of the LOI is the most common source of price disputes at closing.
6. Transition and Non-Compete How long the seller will stay to transition the business (typically 90 days to 12 months), and whether that is paid or unpaid. Also: the non-compete agreement — what geography, what industry, and what duration the seller agrees not to compete. Most LOIs propose a 3–5 year non-compete in the business's operating geography.
7. Exclusivity Period The binding no-shop provision. State the duration clearly (90 days recommended for SBA-financed deals) and what happens if the buyer fails to close within the exclusivity period — either the exclusivity expires, or the parties can mutually agree to extend.
LOI Template: Copy-Paste Starting Point
The following is a simplified LOI template for a small business asset purchase. Have your attorney review and customize before sending.
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LETTER OF INTENT
Date: [Date]
Buyer: [Buyer Name / Entity Name]
Seller: [Seller Name]
Business: [Business Legal Name] (the "Business")
This Letter of Intent (this "LOI") sets forth the principal terms and conditions upon which Buyer proposes to acquire substantially all of the assets of the Business from Seller. This LOI is not a binding agreement to consummate the proposed transaction, except as expressly set forth in the "Binding Provisions" section below.
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PROPOSED TRANSACTION TERMS
1. Purchase Price. The total purchase price for the Business is $[PURCHASE PRICE] (the "Purchase Price"), payable as follows:
- Cash at close: $[AMOUNT] - Seller promissory note: $[AMOUNT], at [X]% per annum, payable over [TERM] years - Total: $[PURCHASE PRICE]
2. Structure. The transaction will be structured as an asset purchase. Buyer will acquire substantially all of the operating assets of the Business free and clear of all liens and encumbrances, except those specifically assumed by Buyer as set forth in the definitive purchase agreement. Seller will retain all liabilities of the Business not expressly assumed by Buyer.
3. Assets Acquired. The acquired assets shall include, without limitation: equipment, fixtures, furniture, inventory, customer lists and relationships, trade names, intellectual property, goodwill, assignable contracts, website and social media accounts, and all other assets necessary to operate the Business as a going concern. Real estate, if owned by Seller, is [included / excluded].
4. Assumed Liabilities. Buyer will assume only the following liabilities: [describe — e.g., obligations arising after close under assigned contracts; equipment leases listed in Schedule A]. Buyer will not assume any other liabilities.
5. Working Capital. The Purchase Price assumes the Business will deliver a working capital amount of approximately $[TARGET AMOUNT] at close, calculated as current assets minus current liabilities, excluding cash. Any surplus above the target shall be retained by Seller; any deficiency below the target shall reduce the cash payable to Seller at close.
6. Due Diligence. Buyer will conduct business, financial, and legal due diligence for a period of [90] days following the execution of this LOI (the "Due Diligence Period"). Seller will provide Buyer with reasonable access to the Business's books, records, facilities, personnel, and contracts. The transaction is conditioned upon Buyer's satisfactory completion of due diligence in Buyer's sole discretion.
7. Financing Condition. This transaction is conditioned upon Buyer obtaining [SBA 7(a) financing / conventional financing / [other]] on terms acceptable to Buyer. Buyer will apply for financing within [10] days of LOI execution.
8. Seller Transition. Seller agrees to remain actively involved in transitioning the Business to Buyer for a period of [90] days following close, at [no additional / $[X]/month] compensation.
9. Non-Compete. Seller agrees, for a period of [5] years following close, not to engage in any business that competes with the Business within [50 miles / the state of X].
10. Conditions to Close. Consummation of the transaction is conditioned upon: (a) satisfactory completion of due diligence; (b) execution of a definitive purchase agreement; (c) receipt of all required third-party consents; (d) financing approval; and (e) no material adverse change in the Business between the date of this LOI and close.
11. Closing. The parties will use good faith efforts to close the transaction within [120] days of execution of this LOI.
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BINDING PROVISIONS
The following provisions are legally binding upon execution:
12. Exclusivity. For [90] days following execution of this LOI (the "Exclusivity Period"), Seller agrees not to, directly or indirectly, solicit, initiate, facilitate, or participate in any discussions or negotiations with any other party regarding the sale of the Business or its assets, or provide information to any other party in connection with any such transaction. If the parties do not execute a definitive agreement within the Exclusivity Period, either party may terminate this LOI.
13. Confidentiality. Each party agrees to keep the terms of this LOI and all information exchanged in connection with the proposed transaction strictly confidential and not to disclose such information to any third party except their advisors, attorneys, and lenders on a need-to-know basis.
14. Expenses. Each party shall bear its own legal, accounting, and advisory fees in connection with the proposed transaction, whether or not the transaction closes.
15. No Binding Agreement. Except as provided in Sections 12, 13, and 14, this LOI is not a legally binding agreement. Neither party shall have any obligation to complete the transaction contemplated herein unless and until a definitive purchase agreement has been executed.
16. Governing Law. This LOI shall be governed by the laws of the State of [State].
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SIGNATURES
Buyer: _________________________ Date: _________
[Buyer Name / Authorized Representative]
Seller: _________________________ Date: _________
[Seller Name]
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*This template is provided for illustrative purposes only and does not constitute legal advice. Have an attorney review and customize before use.*
Generate Your LOI
The DealFlow OS LOI Generator builds a customized letter of intent from your deal terms — purchase price, structure, financing, and exclusivity period — in minutes.
Generate your LOI →Negotiating the LOI: What to Push For and What to Give On
The LOI negotiation is the first structured test of whether buyer and seller can work together. Most LOI negotiations take 1–3 weeks and cover a predictable set of terms.
Where buyers should push hard:
Exclusivity period length. The seller's broker often proposes 30–45 days. For SBA-financed deals, this is inadequate — SBA loans cannot close in 30–45 days. Push for 90 days with a 30-day extension option on mutual agreement. A motivated seller who understands SBA timelines will accept this. For the SBA timeline breakdown, see the SBA loan to buy a business guide.
Carving out the binding provisions. Some sellers push for fewer binding terms in the LOI, preferring to resolve everything in the purchase agreement. Resist this on exclusivity — an unenforceable no-shop provision is worthless. Make sure the exclusivity is clearly drafted as binding and that the remedy for breach is specified.
Working capital definition. Define it explicitly in the LOI. Both parties should agree on what is included, what the target is, and how deficiencies will be handled. Disputes about working capital are the most common source of last-minute price reductions at close.
Seller note terms. If seller financing is part of the consideration, negotiate the principal, rate, term, and standby provisions in the LOI — not after. A seller who agrees to a note at signing should know whether it is on 24-month standby before they sign. For the full seller note negotiation guide, see seller financing when buying a business.
Where buyers typically give:
Non-compete geography. Sellers often have community ties that make broad non-competes feel punitive. A geographic scope that matches the actual competitive threat (the business's operating territory) rather than a statewide or nationwide restriction is more enforceable and less contentious.
Transition period compensation. If the seller is asking for paid transition, consider it — a seller who is financially incentivized to stay and support the transition is more valuable than one who is obligated but resentful. For senior operator roles, 3–6 months of market-rate compensation during transition is reasonable.
After the LOI: What Happens Next
The LOI execution is the starting gun for due diligence, not the finish line. After both parties sign:
Day 1–5: Send the document request list to the seller or their broker. Request 3 years of tax returns, P&Ls, bank statements, payroll records, customer list, and all contracts. Set a deadline for delivery (2 weeks is standard). For the full document request list, see the financial due diligence checklist.
Day 1–10: Apply for SBA or conventional financing. Begin lender conversations. The exclusivity clock is running — every day matters. Provide the lender with the LOI, business financial statements, and your personal financial information simultaneously.
Day 15–45: Active due diligence. Verify the income statement against tax returns and bank statements. Conduct a customer concentration analysis. Review key contracts (particularly the lease). Evaluate staff structure and owner-dependency. Order a QoE report if warranted.
Day 45–75: Negotiate the purchase agreement. Your attorney drafts or reviews the purchase and sale agreement based on the LOI terms and any adjustments surfaced in due diligence. Material due diligence findings typically produce a price adjustment or a specific representation and warranty from the seller.
Day 75–90: Close. Wire transfer, document execution, entity filings. SBA loans have specific closing document requirements — your lender's closing coordinator will manage this checklist.
Deals that fail between LOI and close typically fail because: (1) due diligence found material misrepresentations that the parties could not agree to adjust; (2) SBA financing was declined or took longer than the exclusivity period; or (3) a key due diligence item — customer contract, lease, license — could not be resolved. Addressing these risks explicitly in the LOI conditions protects both parties.
Frequently Asked Questions
What is a letter of intent (LOI) in a business acquisition?
A letter of intent (LOI) is a written document that outlines the key terms of a proposed business acquisition — purchase price, deal structure, financing, due diligence period, and exclusivity. Most LOI provisions are non-binding (subject to change based on due diligence), but key sections — exclusivity (no-shop), confidentiality, and expense allocation — are binding upon signature. The LOI is signed before due diligence begins and before a formal purchase agreement is drafted.
What should be included in a letter of intent to buy a business?
A complete LOI for a business acquisition should include: (1) purchase price and consideration breakdown (cash, seller note, earnout); (2) transaction structure (asset vs. stock purchase); (3) financing conditions and lender; (4) due diligence period and conditions; (5) working capital target and adjustment mechanism; (6) seller transition period and compensation; (7) non-compete scope and duration; (8) exclusivity period (binding); (9) confidentiality obligations (binding); and (10) expense allocation. Missing any of these creates ambiguity that typically surfaces as a dispute during purchase agreement negotiation.
Is a letter of intent binding in a business sale?
Most LOI provisions are non-binding — including the purchase price, deal structure, and due diligence conditions. The buyer can walk away if due diligence reveals material issues; the seller cannot force the buyer to close at the LOI price. However, specific sections are binding: the exclusivity / no-shop provision (the seller cannot negotiate with other buyers during the exclusivity period), confidentiality obligations, and expense allocation. Always have an attorney confirm which provisions in your specific LOI are intended to be binding.
How long should the exclusivity period in an LOI be?
For deals financed with SBA 7(a) loans, the exclusivity period should be at least 90 days. SBA business acquisition loans take 60–90 days to close from application — and the clock doesn't start until the LOI is signed and the lender receives the application package. Many brokers propose 30–45 days of exclusivity. This is adequate for all-cash deals but consistently inadequate for SBA-financed acquisitions. Negotiate 90 days with a 30-day mutual extension option before signing.
What is the difference between an LOI and a purchase agreement?
An LOI outlines the proposed terms of a deal before due diligence — it is a framework, mostly non-binding, used to align both parties and kick off the exclusivity period. A purchase agreement (also called a purchase and sale agreement or PSA) is the final, binding legal contract that governs the transaction. The purchase agreement is drafted and negotiated after due diligence is complete, incorporates the LOI terms (with any adjustments from diligence findings), and includes representations, warranties, indemnification provisions, and closing conditions. An LOI is signed in days or weeks; a purchase agreement takes weeks to months to negotiate.
The LOI is where deals are made or complicated — not just documented. The buyers who negotiate strong LOIs (sufficient exclusivity, defined working capital terms, stated seller note terms, clear financing conditions) arrive at closing with far fewer surprises than those who push to get a seller signature quickly on a bare-bones document. Invest the time to get the LOI right. After the LOI is signed, the two most important workstreams are financial due diligence and financing. For the due diligence verification process — what to request, what to verify, and what red flags to watch for — see the [financial due diligence checklist](/blog/financial-due-diligence-checklist). For the SBA financing that closes most individual business acquisitions and the timeline you need to plan around, see the [SBA loan to buy a business guide](/blog/sba-loan-to-buy-a-business).
Generate a Customized LOI in Minutes
The DealFlow OS LOI Generator builds a letter of intent from your deal terms — purchase price, structure, seller note, exclusivity period — formatted for professional delivery.
Generate Your LOI →Acquisition Guide
Ready to buy a Business Coaching Practice business? See EBITDA multiples, deal structures, SBA eligibility, and active targets in our full buyer guide.
Business Coaching Practice Acquisition Guide