Restaurant & Food Service LOI Template: Structure Your Acquisition with Confidence

Parties and Business Identification

Identifies the buyer entity, seller entity, and the specific business being acquired. For restaurant deals, this section should specify whether the acquisition is an asset purchase or equity purchase, name the legal entity that holds the lease and liquor license, and identify all locations included in the transaction. Most lower middle market restaurant acquisitions are structured as asset purchases to allow buyers to avoid inheriting unknown liabilities, reset depreciation, and satisfy SBA lender requirements.

💡 Sellers operating as LLCs often prefer asset sales for simplicity; buyers almost always prefer asset purchases for liability isolation. If the seller holds the liquor license in the operating entity, clarify early whether the license transfers via asset assignment or requires a new application — this affects deal timeline by 30–120 days depending on the state. Multi-location sellers should clearly list each address and confirm whether all locations are included or if any are being retained.

Purchase Price and Valuation Basis

States the proposed total purchase price and the methodology used to arrive at it. Restaurant valuations in the lower middle market are typically based on a multiple of Seller's Discretionary Earnings (SDE), with multiples ranging from 1.5x to 3.5x depending on concept strength, lease quality, revenue trend, and owner dependency. The LOI should state the price, the SDE figure it is based on, and the trailing period used — typically trailing twelve months (TTM) or a weighted three-year average.

💡 Restaurant sellers frequently present add-backs that buyers and SBA lenders will scrutinize heavily — personal vehicle expenses, owner meals, family payroll, and non-recurring repairs are common. Build in explicit language that the price is contingent on verified SDE, not represented SDE. Sellers should pre-reconcile their POS data to tax returns before LOI signing to avoid surprises that allow buyers to retrade price. If a significant portion of revenue is cash, expect buyers and SBA lenders to apply a haircut on unverified cash income.

Deal Structure and Financing

Describes how the transaction will be funded, including the breakdown between buyer equity, SBA financing, and any seller financing component. Restaurant acquisitions are among the most common uses of SBA 7(a) loans in the lower middle market, with buyers typically contributing 10% equity, funding 70–80% via SBA debt, and negotiating 10–20% seller financing. Seller notes may be required on standby by SBA lenders, meaning no principal payments are made until SBA debt is satisfied.

💡 Sellers should confirm early whether they are willing to carry a note — many first-time sellers resist seller financing but it is often required to make SBA deals work and signals seller confidence in the business. Buyers should obtain an SBA pre-qualification letter before LOI to demonstrate credibility. Note that SBA lenders will independently verify financial performance, so any discrepancy between represented and actual SDE discovered during underwriting will surface and may kill the deal or require price renegotiation.

Lease Assignment and Landlord Cooperation

Addresses the existing commercial lease, assignment requirements, remaining term, renewal options, and the process for obtaining landlord consent to transfer the lease to the buyer. Lease issues are the single most common reason restaurant deals fail or are delayed after LOI. Many leases require landlord approval for assignment, and some landlords use the opportunity to renegotiate rent, impose personal guarantees, or decline the transfer entirely.

💡 Buyers must review the existing lease before LOI if possible — not after. Key items: assignment clause language, remaining term, renewal options, rent escalation schedule, permitted use clause (confirm it covers the buyer's intended operations including any alcohol service), and whether the landlord has a right of first refusal to purchase. Sellers should proactively reach out to their landlord early in the process, ideally before listing, to gauge cooperation level. A hostile or unresponsive landlord is one of the most common deal killers in restaurant M&A.

Liquor License and Permit Transfer

Addresses the status of the liquor license and other operating permits required to run the restaurant, and the process for transferring or re-applying for them as part of the transaction. Depending on state law, a liquor license may be assignable, require a new application, or be subject to a waiting period. This section protects the buyer from closing and then discovering a licensing gap that prevents alcohol service.

💡 Liquor license timelines vary dramatically by state — California ABC transfers can take 60–90 days; some states require 120+ days for new applications. Build realistic timelines into the LOI's closing deadline. In states where licenses are quota-based or geographically restricted, the existing license may carry significant standalone value. Sellers should confirm there are no open complaints or violations against the license before LOI, as these will surface in due diligence and may reduce price or require escrow holdbacks.

Due Diligence Period and Access

Defines the scope, timeline, and access rights for buyer's due diligence investigation of the business. Restaurant due diligence is uniquely intensive because of the need to reconcile cash revenue, verify equipment condition, review health department history, confirm lease terms, and assess staff retention risk. Buyers typically need 30–60 days for full restaurant due diligence.

💡 Sellers should resist open-ended due diligence windows — 45 days is standard, 60 days is reasonable for complex multi-location deals. Include a clear provision that if due diligence reveals material adverse information not previously disclosed, the buyer has the right to terminate or renegotiate. For sellers concerned about staff confidentiality, it is reasonable to limit staff interviews until late in the due diligence period or until LOI exclusivity is well established. Buyers should hire a restaurant-experienced CPA to perform the financial reconciliation — general business accountants often miss POS-to-tax discrepancies.

Exclusivity

Establishes a period during which the seller agrees not to solicit, negotiate, or accept offers from other potential buyers while the current buyer completes due diligence and moves toward a purchase agreement. Exclusivity is a critical protection for buyers who are investing significant time and money into restaurant due diligence.

💡 60 days is the standard exclusivity window for a restaurant acquisition involving SBA financing — lender processing alone can take 30–45 days. Sellers who resist exclusivity should understand that buyers will not invest in equipment inspections, attorney fees, and CPA reconciliation work without protection. Buyers should not agree to exclusivity without a simultaneous commitment to move promptly — sellers are entitled to restart marketing if the buyer goes dark. Build in a good-faith progress milestone or check-in requirement to keep both parties accountable.

Conditions to Closing

Lists the material conditions that must be satisfied before the transaction can close. For restaurant deals, these conditions go beyond standard business acquisition requirements and include industry-specific items like landlord consent, liquor license transfer, health department compliance, and staff retention thresholds.

💡 The material adverse change (MAC) clause is particularly important in restaurants because revenue can shift rapidly — a key chef departure, a bad health inspection becoming public, or a competitor opening nearby can materially change business value between LOI and close. Define MAC clearly — a 10–15% revenue decline over the trailing 60-day period compared to the same period prior year is a reasonable threshold. Staff retention conditions should name specific employees by role, not just a headcount requirement.

Transition and Training Period

Outlines the seller's obligation to remain involved in the business post-closing to ensure a smooth operational transition, including training the buyer in recipes, operations, vendor relationships, and staff management. This is especially critical in owner-operated restaurants where the seller is also the chef or the primary customer relationship holder.

💡 60 days of post-close training is standard; for chef-driven concepts where the seller's personal culinary identity is central to the brand, negotiate 90 days with a structured knowledge transfer protocol. The non-compete radius and duration must be reasonable and enforceable under state law — overly broad restrictions may be voided entirely. Buyers acquiring a restaurant where the seller is the primary chef should also negotiate a consulting arrangement beyond the transition period, compensated at market rate, to handle seasonal menus or special events.

Confidentiality

Binds both parties to maintain confidentiality of all information shared during the due diligence and negotiation process, protecting the seller's operational details, financial data, and staff information from disclosure to competitors, employees, or the public.

💡 Restaurant deals are uniquely sensitive to premature disclosure — if staff learn the business is for sale, key employees may begin job hunting immediately, vendors may change payment terms, and loyal customers may reduce frequency. Sellers should insist on strict confidentiality until closing is imminent and disclosed only to essential parties. Buyers should understand that the seller's caution about staff disclosure is a feature, not an obstacle, and should support information sharing protocols that protect operational continuity.