What Is a Letter of Intent (LOI) in a Business Acquisition?
A Letter of Intent — commonly called an LOI — is a written document that outlines the proposed terms of a business acquisition before both parties commit to a binding purchase agreement. It’s the bridge between “I’m interested in buying your business” and “Let’s do this deal.”
In SBA-financed acquisitions, the LOI serves a dual purpose. It formalizes your offer to the seller and signals to SBA lenders that you have a real deal in progress. Most lenders won’t begin serious underwriting until a signed LOI is in place.
At GoSBA Loans, we’ve guided buyers through thousands of LOIs as part of over $320 million in SBA-funded deals in 2025. This guide covers everything you need to know about crafting an LOI that protects your interests and sets your SBA loan up for success.
Why the LOI Matters More Than Most Buyers Think
Many first-time buyers treat the LOI as a formality — a quick handshake document before the “real” negotiations begin. That’s a costly mistake. Here’s why the LOI is critically important:
- It locks in the deal framework: Price, structure, and timeline are established before you invest thousands in due diligence, legal fees, and accounting reviews.
- It triggers exclusivity: A well-drafted LOI includes a no-shop clause, preventing the seller from entertaining other offers while you’re doing your homework.
- It starts the SBA lending process: Lenders use the LOI to begin their preliminary assessment of the deal.
- It reveals deal-breakers early: If you and the seller can’t agree on basic LOI terms, you’ve saved yourself months of wasted effort.
- It protects confidential information: The LOI typically includes confidentiality provisions governing what you learn during due diligence.
Key Terms Every SBA Acquisition LOI Must Include
A strong LOI is specific enough to be meaningful but flexible enough to allow for adjustments based on due diligence findings. Here are the essential terms:
Purchase Price and Structure
This is the centerpiece of any LOI. Be clear about:
- Total purchase price: The headline number for the business.
- What’s included: Specify whether the price includes inventory, equipment, goodwill, accounts receivable, real estate, or other assets.
- Asset sale vs. stock sale: Most SBA acquisitions are structured as asset purchases. This should be stated explicitly.
- Allocation of purchase price: How the price is allocated across assets (goodwill, equipment, inventory, etc.) affects taxes for both parties.
Financing Structure
For SBA deals, outline:
- SBA loan amount: Typically 80-90% of the total project cost (including working capital).
- Buyer’s equity injection: SBA requires a minimum of 10% (sometimes more) as a down payment.
- Seller financing: Many SBA deals include a seller note, often 5-10% of the purchase price, on full standby for the SBA loan term. Specify the amount, interest rate, term, and standby requirements.
Timeline and Key Dates
- Due diligence period: Typically 30-60 days from LOI execution.
- Financing contingency period: Allow adequate time (60-90 days) to secure SBA loan approval.
- Target closing date: A realistic closing date, usually 90-120 days from LOI signing for SBA deals.
- Transition/training period: How long the seller will stay to help transition the business (SBA lenders often want 2-4 weeks minimum).
Contingencies
Contingencies are your escape hatches — conditions that must be met for the deal to proceed:
- Financing contingency: The deal is contingent on the buyer securing SBA loan approval.
- Due diligence contingency: The buyer can terminate if due diligence reveals material issues.
- Lease assignment contingency: The deal is contingent on the landlord agreeing to assign or enter a new lease.
- Regulatory/license transfer contingency: Particularly important in industries like healthcare, food service, or professional services.
- Third-party valuation contingency: Some SBA lenders require an independent business appraisal.
Non-Compete Agreement
The LOI should address the seller’s non-compete obligations post-closing:
- Geographic scope
- Duration (typically 3-5 years)
- Activities covered
SBA lenders view a strong non-compete as essential — without it, the seller could open a competing business and destroy the value you just purchased.
Exclusivity (No-Shop) Period
This prevents the seller from marketing the business or negotiating with other buyers during your due diligence period. Standard exclusivity periods run 60-120 days.
Confidentiality
Reinforce confidentiality obligations regarding any proprietary information disclosed during due diligence — customer lists, financial details, trade secrets, and employee information.
Binding vs. Non-Binding Provisions
This is one of the most misunderstood aspects of LOIs. Most LOIs are intentionally non-binding in their major terms, but contain specific binding provisions. Understanding the distinction is critical.
Typically Non-Binding Provisions
- Purchase price
- Deal structure
- Closing timeline
- Financing terms
- Transition arrangements
These are non-binding because both parties need flexibility to adjust terms based on due diligence findings, lender requirements, and ongoing negotiations.
Typically Binding Provisions
- Exclusivity/no-shop clause: The seller is bound not to entertain other offers.
- Confidentiality: Both parties are bound to protect disclosed information.
- Expense allocation: Who pays for what during due diligence (each party typically bears their own costs).
- Governing law: Which state’s laws govern the LOI.
- Deposit/escrow terms: If an earnest money deposit is required.
Pro tip: Clearly label which sections are binding and which are non-binding. Ambiguity here has led to expensive litigation.
Common LOI Mistakes That Cost Buyers
Based on our experience facilitating SBA deals through our 50+ lender network, here are the LOI mistakes we see most often:
1. Being Too Vague on Deal Structure
“I’ll buy your business for $500,000” isn’t enough. Without specifying what’s included, how it’s financed, and what’s contingent, you’ll spend months arguing over details that should have been settled upfront.
2. Omitting Seller Financing Terms
Many SBA deals require seller financing. If you wait until the purchase agreement to discuss this, the seller may resist — killing your deal or your SBA approval.
3. Insufficient Due Diligence Period
Thirty days sounds reasonable on paper, but SBA due diligence is complex. If you need professional valuations, environmental assessments, or complex financial analysis, 45-60 days is more realistic.
4. No Financing Contingency
Never sign an LOI without a financing contingency. SBA loans can take 60-90 days to process, and approval isn’t guaranteed. Without this contingency, you could lose your earnest money deposit.
5. Ignoring the Lease
Many buyers focus on the business and forget about the real estate lease. If the landlord won’t cooperate, the deal dies. Address lease assignment or new lease terms in the LOI.
6. Skipping the Non-Compete
A seller who won’t agree to a reasonable non-compete is a red flag. SBA lenders may decline to finance the deal without one.
7. Not Involving Your SBA Lender Early
Before finalizing LOI terms, run them by your SBA lender. Certain deal structures won’t qualify for SBA financing, and it’s better to know before you sign.
How the LOI Connects to SBA Lender Requirements
Your LOI is essentially a preview of your SBA loan application. Lenders use it to evaluate:
- Deal viability: Is the purchase price reasonable relative to the business’s cash flow?
- Structure compliance: Does the deal structure meet SBA requirements (minimum equity injection, standby seller note terms, etc.)?
- Risk assessment: Are there adequate contingencies and protections?
- Borrower commitment: A well-crafted LOI signals a serious, capable buyer.
At GoSBA, we review LOIs with our buyers before they’re signed to ensure the terms align with what SBA lenders will accept. This proactive approach has saved countless deals from avoidable complications.
LOI Template: What a Strong SBA Acquisition LOI Looks Like
While every deal is unique, a strong LOI typically follows this structure:
- Introduction: Identify buyer, seller, and the business being acquired.
- Purchase price and allocation: Total price and how it’s allocated across asset categories.
- Deal structure: Asset vs. stock purchase, included/excluded assets.
- Financing: SBA loan, equity injection, and seller financing details.
- Contingencies: Financing, due diligence, lease, licenses.
- Timeline: Due diligence period, financing period, target closing date.
- Non-compete: Scope, duration, geography.
- Training/transition: Seller’s post-closing involvement.
- Exclusivity: No-shop period and terms.
- Confidentiality: Obligations of both parties.
- Binding vs. non-binding: Clear identification of which provisions are enforceable.
- Expiration: How long the LOI offer remains open (typically 5-10 business days).
Get Your LOI Right the First Time with GoSBA
The LOI sets the tone for your entire acquisition. Get it right, and you’ll negotiate from a position of strength with both the seller and your lender. Get it wrong, and you’ll face costly delays, renegotiations, or deal collapse.
At GoSBA Loans, our service is completely free to borrowers. We provide:
- LOI review and guidance to ensure your terms align with SBA lender expectations
- A professional business plan and financial projections valued at $2,500-$5,000 — at no cost to you
- Access to 50+ SBA lenders who compete for your deal
- Over $320 million funded in 2025 — we know what works
Contact GoSBA today for a free consultation and let us help you craft an LOI that leads to a successful close.
