Last updated: June 2026
The Letter of Intent That Actually Closes (2026)
Reviewed by the Regalis Capital acquisitions team. Last updated June 2026.
The Letter of Intent is the document that turns a conversation into a deal. It is not a contract to buy, and it is not paperwork to rush through. A good LOI locks the seller off the market, sets the price and structure you will defend through diligence, and lines up cleanly with what an SBA lender will fund. A sloppy LOI does the opposite: it invites a re-trade, leaves the financing unworkable, and dies in week three. This guide shows you exactly what a closing-grade LOI contains, what is binding, and what quietly kills deals.
What Is an LOI When Buying a Business?
A Letter of Intent is a short written document, usually two to four pages, that a buyer submits to a seller to outline the proposed terms of an acquisition before deep due diligence begins. It comes after you have reviewed the business and decided you want it, and before the legal purchase agreement.
An LOI sets out the purchase price, the deal structure, the exclusivity period, the buyer's contingencies, and a target closing date. Most of those terms are non-binding, meaning either side can still walk away. A short list of clauses, exclusivity, confidentiality, and the cost-sharing terms, are binding the moment both parties sign. The LOI is the framework the rest of the deal is built on.
Think of the LOI as a term sheet with a clock attached. It signals serious intent, gives both sides a written framework to negotiate against, and most importantly, gets the seller off the market while you do your work. Without it, you spend money and weeks on diligence while the seller keeps taking other offers. The letter of intent glossary entry breaks down the binding-versus-non-binding line in more detail.
What Must a Closing-Grade LOI Include?
The difference between an LOI that closes and one that re-trades is specificity. A vague LOI ("buyer intends to purchase the business for a fair price subject to diligence") guarantees a fight later. A closing-grade LOI nails down the terms below so there is nothing left to renegotiate once diligence confirms the numbers.
| Term | Why it has to be in the LOI | Binding? |
|---|---|---|
| Purchase price and what it buys | Anchors the deal; states whether price is on a cash-free, debt-free basis | Non-binding |
| Deal structure (asset vs stock) | Drives taxes, liability, and SBA treatment; sets the whole financing path | Non-binding |
| Seller note and standby terms | Defines how much the seller carries and on what standby; affects the equity injection | Non-binding |
| Working capital included at close | Prevents the seller stripping cash and receivables before closing | Non-binding |
| Transition and consulting period | Sets how long the seller stays to hand off the business | Non-binding |
| Exclusivity (no-shop) period | Takes the business off the market while you spend on diligence | Binding |
| Confidentiality | Protects the seller's financials and your offer terms | Binding |
| Contingencies (financing, diligence, lease) | Your exit ramps if the numbers or the lease do not hold up | Non-binding |
| Target closing date | Sets the 60 to 90-day clock everyone works against | Often binding via exclusivity |
LOI term checklist and the binding split as Regalis structures buy-side LOIs (Regalis Capital client journey, 2026).
The pattern is clear. The economic terms (price, structure, seller note, working capital, transition) are non-binding so you can adjust them if diligence turns up something material. The procedural terms (exclusivity, confidentiality) are binding so the seller cannot use your offer to shop for a better one. Get this split wrong and you either lose your leverage or lock yourself into a price before you have verified a single number. See asset vs stock purchase for how the structure choice changes the LOI.
How Do You Set Price, Structure, and the Seller Note in the LOI?
The price in the LOI is not a final commitment, but it sets the anchor everything else negotiates against, so it has to be defensible. Base it on the business's verified cash flow times a market multiple, not the broker's asking number. Most Main Street businesses close between 2x and 4x SDE, with the median Q1 2026 sale at 2.7x cash flow (BizBuySell).
Structure comes next, and it is where the SBA financing lives. A standard SBA 7(a) acquisition runs on a 10% equity injection: at least 5% genuine non-borrowed cash, plus up to 5% from a seller note (SBA SOP 50 10 8, effective June 1, 2025). The seller note counts toward your injection only if it is on full standby for the life of the SBA loan, meaning no principal and no interest for the whole term, and it can cover at most half of the required injection.
State the seller note and its standby terms in the LOI explicitly. If you write in a seller note expecting it to count as equity, but do not specify full standby, the lender will not credit it, and your deal structure breaks at underwriting. The full-standby seller note guide covers the exact standby language a lender needs to see.
Working capital and transition: the two terms buyers forget
Two Regalis standard terms belong in every LOI and routinely get left out. The first is working capital: state that the business is delivered with a normal level of working capital (cash, receivables, and inventory needed to operate) at close. Without it, a seller can drain the bank account and collect the receivables on the way out, leaving you to fund operations from day one.
The second is the transition and consulting period. The default in a clean deal is a full seller exit, with the seller staying on only to hand off relationships and systems. Regalis caps transition consulting at 12 months. There are no earnouts: SBA-financed deals prohibit seller earnouts, so do not structure the price as a bet on future performance (SBA SOP 50 10 8, effective June 1, 2025).
What Exclusivity and Timeline Should You Ask For?
Ask for a 60 to 90-day exclusivity period, which matches the time a clean deal takes to close once it is under agreement (industry aggregators). Exclusivity, also called a no-shop clause, stops the seller from taking or soliciting other offers while you spend real money on diligence, legal work, and a lender package.
The exclusivity window should mirror your realistic timeline to close, which is 60 to 90 days for a clean, financed deal. Too short and you run out of runway mid-diligence and have to beg for an extension from a position of weakness. Too long and the seller resists signing because it freezes them for months. 60 to 90 days is the window that protects the buyer without scaring the seller, and it is the period Regalis targets from a signed LOI.
Tie the closing date to the exclusivity clock. The LOI should name a target close date inside the exclusivity window so both sides are working to the same deadline. This is also the timeline you hand the lender: the SBA package, the appraisal, and underwriting all have to fit inside it, which is why the LOI and the financing process have to be built together, not in sequence.
What Contingencies Protect the Buyer?
Contingencies are your exit ramps, and an LOI without them is a trap. They let you walk away (or renegotiate) without penalty if a specific condition is not met. The three that matter most on a financed small business deal are below.
| Contingency | What it protects against | What happens if it fails |
|---|---|---|
| Financing | The SBA loan not coming through on the terms assumed | Buyer can exit or renegotiate price |
| Due diligence | Financials, customers, or operations not matching the seller's claims | Buyer can re-trade or walk away |
| Lease and licensing | Landlord refusing to assign, or a required license not transferring | Buyer can exit; the deal cannot close anyway |
The three core buy-side LOI contingencies and their failure outcomes (Regalis Capital client journey, 2026).
The financing contingency is the one that protects an SBA buyer most. If the lender's independent appraisal comes in below the agreed price, loan proceeds are capped at that appraised value, and any amount above it has to be financed subordinate to the 7(a) loan (SBA SOP 50 10 8, effective June 1, 2025). The financing contingency is what lets you reopen the price when that happens instead of being forced to cover the gap in cash. The due diligence contingency does the same job for everything the books do not show. The due diligence playbook lists what to verify before you waive these.
How Does the LOI Feed the SBA Package?
The signed LOI is the first document the SBA lender wants, and it shapes the entire credit package. The price, the structure, and the seller-note standby terms in the LOI become the inputs the lender underwrites against, which is why a vague or financially unworkable LOI stalls before underwriting even starts.
Here is the hand-off. The price sets the loan amount and triggers the independent appraisal that caps the proceeds. The equity-injection structure (5% cash plus a 5% full-standby note) has to match what the SOP allows, or the lender sends it back. The seller-note standby language has to say full standby for the life of the loan, or the note counts as zero equity and your injection falls short. The closing timeline in the LOI sets the schedule for the appraisal, the document requests, and underwriting.
This is the practical reason the LOI cannot be an afterthought. A clean LOI feeds a clean package; a sloppy one creates weeks of back-and-forth while the lender reworks a structure the SOP was never going to approve. Regalis builds the LOI and the lending package together so the terms the buyer signs are the terms the lender can actually fund.
What Turns an LOI Into a Dead Deal?
Most dead deals trace back to a handful of avoidable LOI mistakes, not to bad businesses. The killers below show up over and over.
- A price set on the broker's asking number instead of verified cash flow, which collapses the moment diligence or the SBA appraisal comes in lower.
- A seller note written into the structure without specifying full standby, so the lender refuses to count it and the equity injection no longer works.
- No working-capital clause, so the seller drains cash and receivables and the buyer inherits an empty account.
- An exclusivity window too short to actually close in, forcing a weak-position extension request mid-diligence.
- Missing financing or diligence contingencies, leaving the buyer no clean way out when the numbers do not hold.
- A structure that hides a price bet as an earnout, which SBA-financed deals prohibit outright.
The common thread is that the LOI was written as a formality instead of as the spine of the deal. Every term that gets fuzzed over to "keep things moving" becomes a fight in week three, and most of those fights end the deal. The fix is to make the LOI specific enough that diligence confirms the deal rather than reopening it.
Frequently Asked Questions
What should a letter of intent include?
A closing-grade LOI includes the purchase price and what it buys, the deal structure (asset vs stock), any seller note and its standby terms, the working capital delivered at close, the transition period, a 60 to 90-day exclusivity window, confidentiality, the buyer's contingencies, and a target closing date. The economic terms are non-binding; exclusivity and confidentiality are binding from signing.
Is an LOI binding?
Mostly no. The price, structure, and contingencies in an LOI are non-binding, so either side can still walk away. A short list of clauses is binding the moment both parties sign: exclusivity (the no-shop), confidentiality, and any cost-sharing terms. This split is intentional, it keeps your economic flexibility while locking the seller off the market for the 60 to 90 days you spend on diligence.
How long is the exclusivity period?
Ask for 60 to 90 days, which matches the time a clean, financed small business deal takes to close once under agreement (industry aggregators). Shorter windows run out of runway mid-diligence and force a weak-position extension; longer windows make sellers resist signing. The exclusivity clock should mirror your realistic path to close and line up with the SBA appraisal, document, and underwriting timeline.
What contingencies should be in an LOI?
The three core buy-side contingencies are financing, due diligence, and lease or licensing. Financing lets you reopen the price if the SBA appraisal caps proceeds below the agreed number (SBA SOP 50 10 8, effective June 1, 2025). Due diligence lets you re-trade or exit if the financials do not match the seller's claims. Lease and licensing protects against a landlord or regulator that will not transfer.
Can I back out after signing an LOI?
Usually yes, because the economic terms are non-binding and the contingencies are your exit ramps. If a financing, diligence, or lease contingency is not met, you can walk away without owing the purchase price. What you cannot violate are the binding clauses: breaking exclusivity or confidentiality, or refusing to share agreed costs, can expose you. Read which clauses are binding before you sign.
What makes an LOI fall apart?
The usual killers are a price set on the asking number instead of verified cash flow, a seller note written without full-standby language so the lender will not count it, no working-capital clause, an exclusivity window too short to close in, and missing financing or diligence contingencies. Each one becomes a fight in week three. A specific, financeable LOI is what survives diligence instead of reopening it.
Ready to Put a Closing-Grade LOI in Front of a Seller?
A Letter of Intent is only as good as the deal underneath it. The terms have to be defensible in diligence, fundable by a lender, and tight enough that the seller cannot re-trade you in week three.
Regalis Capital reviews upwards of 20,000 deals a month. We source acquisition targets through BizBuySell, brokers, and off-market channels, vet and value each one against live market data, structure the financing (SBA 7(a) where it fits), and write the LOI and the lending package together so the terms you sign are the terms a lender can actually fund. Then we run the deal to close.
Start a deal assessment with Regalis Capital and we will help you structure an LOI that holds together from offer to close.
About Regalis Capital
Regalis Capital is a buy-side acquisition advisory firm that helps buyers find, value, and close small business acquisitions. Its team reviews upwards of 20,000 deals a month.
Structure an LOI that holds together from offer to close with Regalis Capital's buy-side acquisition team.
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