Owner's Guides
Letter of Intent to Buy a Business: Template and Guide
A full sample LOI to buy a business, clause by clause, with current 2026 exclusivity, deposit, and working-capital benchmarks.
A real LOI template, explained clause by clause
A letter of intent to buy a business sets the price, structure, and ground rules before anyone pays for lawyers or accountants. It is not the purchase agreement, and treating it like one is how buyers and sellers end up arguing over things that were never actually settled. This guide gives you a full sample letter of intent to buy a business, walks through every clause, and flags where owners most often get burned.
Most of what's below applies whether you're an individual buyer using SBA financing, a self-funded searcher, or a lower-middle-market buyer offering rollover equity. The clauses are the same; only the numbers inside them change with deal size.
01
What an LOI Is, and What It Is Not
A letter of intent to buy a business is a preliminary document. Under US state contract law, there is no federal statute governing it, and courts generally treat the purchase itself as non-binding until a definitive agreement is signed and delivered. Nobody is obligated to close on the terms in the LOI.
But parts of it usually are binding, and this is where people get surprised. Confidentiality is almost always binding. Exclusivity, or the no-shop clause, is almost always binding. Expense allocation, access rights, publicity restrictions, governing law, and dispute resolution are commonly binding too. A well-drafted LOI states this explicitly: one paragraph making clear the deal terms are non-binding, and a numbered list identifying exactly which sections are the exception.
This distinction matters because detailed terms, a course of conduct, or a broad "good faith negotiation" clause can create liability even when everyone assumed the document was preliminary. Delaware's line of cases on express agreements to negotiate in good faith is the standard warning here: if you write it like an obligation, a court can treat it like one. The safest approach is to avoid mandatory language ("shall purchase," "will pay") in the economic sections and confine mandatory language to the sections you actually intend to bind.
02
A Full Sample Letter of Intent
Below is a usable letter of intent to buy a business, structured for a private, non-broker Main Street or lower-middle-market asset purchase. Adjust the bracketed terms to your deal. This is not a substitute for legal review before signature, but it is a complete, working document, not a fragment.
LETTER OF INTENT TO PURCHASE ASSETS
[Date]
[Seller Name / Entity] [Seller Address]
Re: Proposed Acquisition of Substantially All Assets of [Target Company Name]
Dear [Seller Name],
This letter sets forth the non-binding terms under which [Buyer Name / Entity] ("Buyer") proposes to acquire substantially all of the operating assets of [Target Company Name] ("Seller" or the "Company") from [Seller Name] (the "Transaction"). Except as expressly stated in Section 10 below, this letter does not constitute a binding obligation of either party.
1. Structure. The Transaction will be structured as an asset purchase, with Buyer acquiring the operating assets, and Seller retaining cash and excluded liabilities except as otherwise agreed.
2. Purchase Price. The proposed enterprise value is $[amount], payable as follows:
- Cash at closing: $[amount]
- Seller note: $[amount], [term] years, [rate]% fixed, subordinated to senior lender
- Escrow / holdback: $[amount] ([percent]% of price), held [term] months for indemnification claims
3. Cash-Free, Debt-Free Basis. The purchase price assumes the Company is delivered free of interest-bearing debt and with a normalized level of working capital as defined in Section 4. Funded debt, unpaid transaction expenses, accrued bonuses, and change-of-control payments will reduce proceeds at closing.
4. Working Capital. The parties will agree on a target working capital peg based on a trailing [6-12] month normalized average of [specify included accounts: accounts receivable, inventory, accounts payable, accrued expenses]. Estimated closing working capital will be trued up against actual closing working capital within [30-90] days after close, with any shortfall or surplus settled in cash.
5. Assumed and Excluded Liabilities. Buyer will assume [specify: trade payables incurred in the ordinary course, assigned customer contracts, assigned lease obligations]. Buyer will not assume [specify: pre-closing litigation, undisclosed liabilities, employee liabilities arising before closing, tax liabilities for periods before closing].
6. Due Diligence. For a period of [30-45] days from the date both parties sign this letter, Seller will provide Buyer and its advisors reasonable access to the Company's financial records, contracts, customers (with Seller's consent to timing), employees, and facilities for the purpose of confirmatory diligence.
7. Exclusivity. From the date of this letter until [30-60] days later, or the earlier termination of this letter, Seller will not solicit, entertain, or negotiate any competing offer to sell the Company or its assets, and will promptly notify Buyer of any unsolicited inquiry. This section is binding.
8. Financing Contingency. Buyer's obligation to close is contingent on obtaining financing on terms reasonably satisfactory to Buyer, including [SBA 7(a) loan approval / senior debt commitment / equity funding], by [date].
9. Conditions to Closing. Closing is subject to: satisfactory completion of due diligence; negotiation and execution of a definitive asset purchase agreement and disclosure schedules; obtaining required third-party consents (landlord, key customer or supplier contracts, licenses); Buyer's board or investment committee approval, if applicable; and no material adverse change in the Company's business.
10. Binding Provisions. Notwithstanding anything else in this letter, the following sections are intended to be binding legal obligations regardless of whether a definitive agreement is signed: Section 6 (Due Diligence access), Section 7 (Exclusivity), Confidentiality, Expenses (each party bears its own), Governing Law, and this Section 10. All other sections, including price and structure, are non-binding expressions of intent only.
11. Expenses. Each party will bear its own costs, including legal, accounting, and advisory fees, whether or not the Transaction closes.
12. Confidentiality. The existence and terms of this letter, and all non-public information exchanged, will remain confidential and will not be disclosed except to each party's advisors, lenders, and as required by law.
13. Governing Law. This letter is governed by the laws of the State of [state], without regard to conflict of law principles.
14. Termination. This letter, other than the binding provisions in Section 10, terminates automatically if a definitive agreement is not signed by [date], or earlier by mutual written agreement.
If these terms are acceptable, please countersign below. We look forward to working toward a closing that works for both sides.
[Buyer signature block] [Seller signature block]
That's the full structure. The rest of this guide explains why each clause is written the way it is, and where the current market benchmarks in the brackets actually come from.
03
Clause by Clause
Price and the bridge. A headline number like "$5 million purchase price" is close to meaningless without the rest of Section 2 and 3. Say whether the number is enterprise value or equity value, define cash-free/debt-free, and list what counts as a debt-like item (unpaid transaction expenses, accrued bonuses, change-of-control payments, some deferred revenue). A quick illustration: enterprise value of $6,000,000, less $450,000 funded debt, less $150,000 debt-like items, with a working-capital shortfall of $150,000 against a $900,000 target, nets to an equity purchase price of $5,250,000 at closing. That's a $750,000 swing from the headline number, entirely from bridge mechanics most templates skip.
Exclusivity. 30 to 60 days is the common range in US private M&A practice. SBA-financed or QoE-heavy deals often need 60 to 90 days because the lender process alone can run 60 to 120 days. The mistake sellers make is granting a long no-shop to a buyer who hasn't proven they can fund the deal. Tie any extension to buyer milestones: lender contact confirmed, financing commitment received, draft purchase agreement delivered by a set date.
Deposit. No federal rule requires one. Many middle-market and PE-backed LOIs carry none at all; brokered Main Street deals sometimes ask for 1% to 5%. If there is a deposit, state the escrow holder, what triggers a refund, and whether any portion becomes non-refundable and when.
Working capital. This is the clause that causes the most post-signing arguments. "Working capital included" with no defined accounts or peg method lets either side game the number, a seller stripping receivables before close, or a buyer demanding a second bite at working capital after already pricing it in. Define included accounts, use a trailing 6 to 12 month normalized average (longer or seasonality-adjusted if the business is seasonal), and set a true-up window of 30 to 90 days after closing.
Consideration mix and seller note. Seller notes commonly run 10% to 30% of price, 3 to 7 year terms, 6% to 10% fixed. If SBA financing is involved, a seller note only counts toward the buyer's required equity injection if it sits on full standby, no principal or interest payments, for the life of the SBA loan. A seller note that doesn't meet that standard doesn't help the buyer qualify, and sellers should know that before they agree to hold paper expecting it to close the financing gap.
Confidentiality. Nearly always binding, and should be. It protects the seller's employees, customers, and competitors from finding out prematurely, and protects the buyer's diligence findings from leaking.
Tail / survival. For uninsured private deals, general representation survival of 12 to 18 months is typical, with an indemnity escrow or holdback of 5% to 10% held over that period. Deals using representations and warranties insurance increasingly move to shorter or no survival periods, but that's a middle-market pattern, not the norm for a $1 to $10 million deal.
04
The Traps
Exclusivity too long, with no proof of funds. A 90-day no-shop granted to a buyer who hasn't shown funded equity, a lender contact, or an investment-committee sign-off can take a business off the market for a full quarter for nothing. Ask for bank or brokerage evidence, lender prequalification, and the exact acquisition entity before granting exclusivity, and put a termination right in the letter if the buyer misses its own milestones.
Vague working-capital language. "Normal working capital will be included" is not a clause, it's a placeholder for a future fight. Every LOI should name the accounts, the calculation window, and the true-up date.
Wrong earnings basis. SDE and EBITDA are not the same number; SDE includes one working owner's compensation as an add-back, EBITDA doesn't. A "3x" offer means something completely different depending on which one it's applied to. State which basis the price uses and how add-backs will be verified.
Vague earnout. "Up to $1 million based on performance" with no metric, accounting method, operating covenants, or dispute mechanism is a common source of post-closing litigation. Define the metric (revenue, gross profit, or EBITDA), the accounting standard, payment schedule, and what happens if the buyer's post-close decisions affect the number.
Accidentally binding the whole deal. Mandatory language in the price or structure sections, paired with a broad good-faith negotiation clause, can undercut the non-binding paragraph entirely. Keep obligation language confined to the sections you actually mean to bind.
05
When to Involve Counsel
Get transaction counsel to review the LOI before you sign it, not after. The reasons: state law governs enforceability and it varies; the binding-provisions list has to be drafted correctly for it to hold up; non-compete enforceability depends on state statute and the sale-of-business context, not a generic 3 to 5 year clause; and asset versus equity structure changes who inherits which liabilities, which licenses need reissuing, and how the deal is taxed under Section 1060 and Form 8594. A template gets you to a strong first draft. It doesn't replace a lawyer who knows your state's rules on successor liability, bulk-sale procedures, and non-compete treatment.
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FAQ
Usually not as to the purchase price and structure. Confidentiality, exclusivity, expense allocation, and dispute resolution provisions are commonly drafted to be binding regardless. The exact answer depends on the wording and the governing state's law.
Yes. It fixes your negotiating leverage for the rest of the deal and usually contains at least a few binding clauses. Have counsel review the price mechanics, exclusivity scope, deposit terms, and the non-binding carve-out before you sign.
No. There's no federal rule requiring one, and many LOIs, especially in the lower middle market, have none. Brokered Main Street deals sometimes request 1% to 5%. If there is a deposit, the escrow terms and refund triggers need to be explicit.
30 to 60 days is standard US private-M&A practice. SBA-financed or more complex deals often need 60 to 90 days to accommodate lender timelines. Extensions should be tied to the buyer hitting agreed milestones, not open-ended.
Confirmatory diligence (30 to 60 days), financing (45 to 90 days conventional, 60 to 120 days for SBA), negotiation of the definitive purchase agreement and disclosure schedules, consents and licenses, closing, and a post-closing working-capital true-up 30 to 90 days out. A signed LOI to close typically runs 60 to 120 days for a clean cash deal, and 90 to 150 days when SBA financing is involved.
Yes, if the price terms are non-binding, which they usually are. A legitimate repricing normally follows a specific diligence finding, lower normalized earnings, a lost customer, undisclosed debt, or a working-capital shortfall. Precise assumptions in the LOI make it easier to tell a legitimate retrade from an opportunistic one.