What goes in a letter of intent to buy a business

At some point, after a few conversations with an owner and a first look at the numbers, one of you will ask the question: so what would you pay, and how? The answer goes in a letter of intent, often called an LOI. It's a short document, usually a few pages, that sets out the main terms of a purchase before anyone spends real money on lawyers and loan applications.

A good letter of intent saves both sides time and arguments later. A vague one creates both. Here's what belongs in it.

Where it fits

The letter of intent comes after you've signed a confidentiality agreement and reviewed the basic financial documents (the ones in our post on what to ask a seller for). It comes before due diligence (your full, detailed check of the company) and before the purchase agreement. It's the point where both sides agree they have a deal in principle, one worth the cost of checking properly.

Many lenders want to see a signed letter of intent before they'll commit much time to your loan, so it's often what gets the financing started too.

Mostly not binding, on purpose

Letters of intent for small business purchases are usually written so that the main business terms (price, structure, conditions) are not legally binding. Neither side has to close; you're agreeing on what you intend to do once you've checked the company and written the real contract.

A few parts usually are binding:

• Confidentiality. You'll keep what you learn private, often by referring to the agreement you already signed.
• Exclusivity, sometimes called a no-shop. The seller agrees not to negotiate with other buyers for a set period.
• Expenses. Each side pays its own lawyers and advisers.
• Governing law. Which state's law applies, often Florida's for a Florida company.

The letter should say clearly which paragraphs are binding and which aren't. When the language is unclear, a court can end up treating more of the letter as binding than either side intended, so this is one sentence you want your attorney to look at.

Price, and how it gets paid

State the price and how it will be paid. To a seller, the structure can matter as much as the price itself.

Here's a hypothetical. Say a company has owner earnings (its profit plus what the owner pays themselves, before loan payments and taxes) of $400,000 a year, and you offer $1.2 million, about 3 times that. A simple structure might be:

• About $120,000 from you at closing, the roughly 10% down payment an SBA loan for a purchase requires. You'd also need about 4% more, roughly $48,000, for closing costs.
• About $1.08 million from an SBA loan. At about 10.25% over 10 years, that's roughly $173,000 a year in payments. After a $100,000 salary for you, the $300,000 left would cover the payment about 1.7 times, above the 1.25 times SBA rules require.

Other pieces you might include:

• A seller note. The seller lends you part of the price and you pay it back over time. If you make no payments on the note for the life of the SBA loan (called full standby), the SBA lets it count for up to half of your required down payment. A note paid sooner can still be part of the deal, but it doesn't count toward the down payment, and the company has to be able to afford its payments too.
• A holdback. Part of the price set aside for a period after closing to cover problems that turn up later.
• An earnout. Part of the price paid later if the business hits targets. The SBA doesn't allow seller earnouts in deals financed with its 7(a) loans.

If you haven't read it, our guide to SBA loans for buying a business explains the loan side.

One more financing point belongs in the letter. When you use an SBA loan for a purchase over $350,000, the lender has to get an independent valuation of the business. If the price is higher than the valuation, the SBA requires the difference to come from equity: your own cash, or in some cases more seller financing on full standby. A sentence about what happens in that case saves an awkward conversation later.

What you're buying

Say what's included and what isn't. In many small purchases, you buy the company's assets (equipment, vehicles, customer contracts, the name, the phone number, the website) rather than the company itself, and the seller keeps the cash in the bank and pays off its own debts at closing. The alternative is buying the company's shares, which brings its history with it. Your attorney and CPA will advise on which suits the deal.

Also settle working capital: the inventory, money owed by customers and other short-term assets the business needs to run day to day. If you need a normal level of it on day one, say so, and say how it will be measured and adjusted at closing.

Conditions

List what has to happen before you're obliged to close. Typical conditions include:

• Due diligence you're satisfied with: financial, legal and operational.
• Your loan being approved on acceptable terms.
• A new lease or an assignment of the current one, if the business rents its space.
• Licenses in place for you to operate. In Florida, for a contracting company, that means a qualified license holder.
• Proof that the seller's state taxes are paid. In Florida, a buyer can be liable for a seller's unpaid sales and reemployment taxes unless the seller provides a certificate of compliance from the Department of Revenue or a state audit clears the seller. Holding back part of the price to pay them is another tool, though not a guaranteed release.
• No major change in the business before closing.

Timeline and exclusivity

Put dates on things: when due diligence should finish, when you expect loan approval, when the purchase agreement should be signed, and a target closing date. Then match the exclusivity period to that timeline, with a way to extend it if the lender or a third party is the reason for a delay. Don't set dates you can't meet, and ask your lender what's realistic before you sign.

The seller's role after closing

You'll probably want the seller's help for a while after closing: introductions to customers, training, handing over relationships with suppliers. Say how long, roughly how many hours, and whether they'll be paid.

If you're using an SBA loan, know the limits first. Under the SBA's current rules (SOP 50 10 8.1, effective October 1, 2026), the seller in a typical purchase can't stay on as an owner, officer or employee, but the business can hire them as a consultant for up to 24 months in total. Ask your lender which version of the rules applies to your loan.

You'll also want the seller to agree not to compete with you. Under Florida law, a court will generally presume such a promise from a business seller is reasonable in length if it's three years or less.

What to leave out

A letter of intent isn't the purchase agreement. Leave detailed warranties, legal remedies and long schedules for the lawyers. And don't promise things you aren't sure of, like keeping every employee at their current pay forever. Owners remember what you put in writing, from your first letter onward.

Before you sign

1. Show a draft to your lender. They can tell you whether the structure works for the loan before you commit to it.
2. Have your attorney review it, especially the binding paragraphs.
3. Ask your CPA about structure. Asset or share purchase, how the price is split among assets, and how a seller note or consulting payments affect taxes for both sides.
4. Give the offer an expiration date, so it doesn't sit open indefinitely.

A clear letter of intent doesn't guarantee a deal. It does make sure that if the deal falls apart, it's over something real, not a misunderstanding about what you meant.