Last updated: March 2026
Letter of Intent (LOI): What It Means for Business Buyers
What Is a Letter of Intent?
A Letter of Intent (LOI) is a written document a buyer submits to a seller that outlines the proposed terms of an acquisition before deep due diligence begins. According to Regalis Capital's deal team, the LOI covers purchase price, deal structure, exclusivity period, contingencies, and a projected closing timeline. Most terms are non-binding. The exclusivity clause is not.
An LOI is the handshake before the handshake. It signals serious intent, locks in a negotiating framework, and, critically, gets the seller off the market while you do your work.
Think of it as a term sheet with a clock attached.
The binding versus non-binding distinction matters more than most buyers realize. The purchase price you put in an LOI is not a locked commitment. The exclusivity period, typically 30 to 60 days, usually is. If you walk away after signing, you owe no one money. But if the seller tries to sell to someone else during exclusivity, they are in breach.
What Goes Into an LOI?
A well-structured LOI covers six things: purchase price, deal structure, contingencies, exclusivity, timeline, and governing terms. Here is what each means in practice.
Purchase price. The headline number. For SBA deals, this should reflect a multiple of EBITDA or SDE (adjusted) that pencils at your target debt service coverage. A $500K offer on a business doing $150K in clean cash flow implies a 3.3x multiple. That is inside the SBA sweet spot of 3x to 5x.
Deal structure. How the purchase price is split between SBA loan, seller financing, and buyer equity. If you are using SBA 7(a), the default structure is roughly 80% SBA loan, 15% seller note on full standby, and 5% buyer cash. Your LOI should sketch this out because sellers need to understand what the seller note looks like before they agree.
Contingencies. The conditions that must be satisfied before you are obligated to close. Standard contingencies include financing approval, satisfactory due diligence, clean lien searches, and key employee retention (where applicable). These protect you.
Exclusivity period. The stretch of time during which the seller cannot market the business to other buyers or continue negotiations with other parties. Standard is 30 to 60 days. This is typically binding.
Timeline to close. A target closing date. For SBA acquisitions, 60 to 90 days from LOI signing is realistic. SBA processing alone takes 30 to 45 days in most cases.
Governing terms. Whether it is an asset purchase or stock purchase, which state law governs the agreement, and a note that the LOI is superseded by the final purchase agreement.
How Does an LOI Apply to SBA Acquisitions?
SBA lenders want to see the LOI early. Before a lender formally pre-qualifies a deal, they will review the proposed terms to confirm the structure is bankable. A seller note on full standby, correct equity injection structure, and a reasonable multiple all affect whether the lender will proceed.
The equity injection for SBA acquisitions is not a down payment. The 10% minimum equity requirement is typically structured as 5% buyer cash plus a 5% seller note on full standby acting as equity. That seller note carries 0% interest and requires no payments during the SBA loan term. Regalis Capital achieves full standby terms on more than 90% of deals. Your LOI needs to reflect this structure or the SBA lender will flag it.
Here is what the deal math looks like for a $500K acquisition as of Q1 2026:
| Item | Amount |
|---|---|
| Asking Price | $500,000 |
| Annual Cash Flow (EBITDA) | $150,000 |
| Implied Multiple | 3.3x |
| SBA Loan (80%) | $400,000 |
| Seller Note (15%, full standby, 0% interest) | $75,000 |
| Buyer Cash Injection (5%) | $25,000 |
| Standby Seller Note Acting as Equity (5%) | $25,000 |
| Total Buyer Equity Injection | $50,000 |
| Approx. Annual Debt Service (10-year, ~10.5%) | $65,000 |
| DSCR | 2.3x |
These are rough estimates based on Q1 2026 market data. Actual terms depend on individual qualification and lender.
A 2.3x DSCR clears the 2x target comfortably. If the seller balks at the full standby note and wants current payments, that changes the debt service calculation and may push your DSCR below 1.5x. That is a deal-breaker. Lock the standby terms in the LOI.
Common LOI Mistakes Buyers Make
Submitting an LOI too early is the most common error we see. Some buyers send an LOI after a single call with the broker, before they have reviewed financials or confirmed the cash flow story. The seller grants exclusivity, the buyer starts due diligence, and then they find a problem that kills the deal. Now the buyer has burned credibility, the seller has lost 30 to 60 days, and everyone is frustrated.
The right sequence: review 3 years of tax returns, confirm the cash flow supports your offer, do a preliminary lender conversation, then submit the LOI.
The second mistake is being vague on deal structure. Leaving the seller note terms out of the LOI or writing "seller financing to be negotiated" creates a fight in the purchase agreement stage. Nail down the standby terms, interest rate, and subordination requirements before the LOI is signed.
The third mistake is setting an unrealistic exclusivity window. Thirty days is not enough time to complete SBA processing plus due diligence. Ask for 60 days minimum. If a seller will not grant 60 days, that is a red flag about their willingness to cooperate through the process.
Related Terms
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Frequently Asked Questions
Is an LOI legally binding?
Most LOI terms are non-binding, including the purchase price and deal structure. The exclusivity clause is typically binding, meaning the seller cannot market the business to other buyers during the agreed period. Confidentiality provisions in the LOI are also usually binding. Always have an attorney review before signing.
How long does it take to go from LOI to closing?
For SBA 7(a) acquisitions, the typical timeline is 60 to 90 days from LOI signing to close. SBA processing alone takes 30 to 45 days in most cases, which is why Regalis Capital recommends requesting a minimum 60-day exclusivity period. More complex deals involving real estate or multi-unit operations can run 90 to 120 days.
Can LOI terms change before the final purchase agreement?
Yes. An LOI is a starting framework, not a final contract. Price adjustments after due diligence are common, particularly if financial records reveal discrepancies from what was initially represented. Deal structure can also shift. What matters is that your LOI reflects the best available information at the time of submission and clearly defines which terms are contingent on due diligence findings.
Thinking About Submitting an LOI on a Business?
Regalis Capital's deal team reviews 120 to 150 deals per week and handles the full LOI process for clients, from structuring the offer to locking in seller note terms that satisfy SBA lender requirements.
If you are looking at a business and want a second set of eyes before you put paper on it, start with a deal assessment at https://resource.regaliscapital.com/deal.
We will tell you whether the deal makes sense before you commit to exclusivity.
Reviewing a business and want help structuring your LOI before you commit to exclusivity? Start with a free deal assessment from Regalis Capital.
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