What an LOI should cover

What an LOI actually is — and isn't

A letter of intent is a written expression of serious interest in a deal on specific terms, signed by both buyer and seller before real diligence spending begins. Despite the name, most of an LOI is deliberately non-binding — price, structure, and most deal terms remain subject to change once diligence and final agreement drafting happen. What's typically binding instead: confidentiality, exclusivity (see the exclusivity periods guide), and sometimes a no-shop provision that keeps the seller from continuing to market the business elsewhere while you're under LOI.

That non-binding-but-serious status is the whole point. An LOI lets both sides commit enough, in writing and with real specificity, to justify spending real money on lawyers, a QoE, and lender underwriting — without either side being contractually locked into a final price before anyone has actually verified anything.

The core terms it needs to lock down

Price and structure: the purchase price, how much is cash at close versus a seller note or any earnout, and the basic allocation between assets and goodwill where it matters for the deal's tax treatment.

Financing assumptions: whether the deal is contingent on SBA financing, and a rough sense of the buyer's expected equity injection and lender, since a financing contingency materially changes how firm the LOI's price actually is (see the SBA 7(a) basics and lender pre-qualification guides).

Timeline: target dates for diligence completion, financing commitment, and closing. Vague timelines are one of the most common sources of frustration later, since neither side has a shared expectation of how long the process is supposed to take.

Any deal-specific term already known to be contentious — seller financing terms, an unusually long transition period, a specific escrow structure — is worth putting in the LOI rather than deferring. Deferring a known sticking point to the purchase agreement stage just moves the fight later, after both sides have sunk real diligence cost into the deal.

Why getting this right sets the frame for everything after

Every later negotiation — the purchase agreement, escrow terms, the working capital true-up — happens against the backdrop of what the LOI already established. A seller who agreed to a number and structure in writing has a much harder time renegotiating upward later without a real reason, like a diligence finding. A buyer who left too much unaddressed in the LOI gives the seller's attorney room to argue for seller-favorable terms on everything the LOI didn't specify.

Precision in the LOI also protects the relationship. Both sides will have spent real time getting to a signed LOI — reopening a term it clearly addressed reads as bad faith in a way that clarifying a term it genuinely left ambiguous does not.

What's commonly left too vague, and comes back to bite buyers later

Working capital: an LOI that doesn't mention a working capital peg at all (see the working capital pegs guide) leaves you negotiating it from scratch during purchase agreement drafting, with no anchor from the earlier agreement.

Seller involvement post-close: "seller will help with transition" without a defined period or compensation structure routinely turns into a dispute once the seller's actual time commitment and pay expectations diverge from what the buyer assumed.

What happens if financing falls through: an LOI silent on this leaves ambiguity about whether a buyer who can't get financed forfeits anything, or whether the exclusivity period simply ends with no consequence — worth spelling out explicitly rather than assuming it's obvious to both sides.