Most buyers treat the LOI like a formality. A handshake on paper. Something you fire off to show you are serious before the real work starts.

That framing will cost you.

The letter of intent is where deals get shaped. Price, structure, seller note terms, the exclusivity window. Every major lever gets set here. And what you put in the LOI follows you through due diligence, through SBA underwriting, and into the purchase agreement. Walk through it carelessly and you spend the next 90 days fighting to claw back ground you should never have given up.

Here is what a real letter of intent looks like when it is built for an SBA acquisition, what goes in each section, and why getting it right matters more than most buyers realize.

What Is a Letter of Intent in a Business Acquisition?

A letter of intent (LOI) is a non-binding agreement between a buyer and seller that outlines the key terms of a proposed business acquisition. It gets signed before due diligence begins and before anyone drafts a purchase agreement.

Non-binding on price and structure. Binding on exclusivity and confidentiality. That distinction matters more than people think.

The LOI accomplishes three things. First, it confirms both parties agree on the deal’s basic economics. Second, it gives the buyer an exclusive window to run due diligence without the seller shopping the business to other buyers. Third, it serves as the framework the attorneys use when drafting the final purchase agreement. Think of it as a term sheet for buying a Main Street or lower-middle-market business.

What a Letter of Intent Example Actually Contains

A clean LOI for an SBA-financed acquisition typically covers eight to ten core components. Here is each one and what you need to know about it.

Purchase Price

The headline number. State it clearly. “$1,500,000 total acquisition price.” No ambiguity.

If there is an asset purchase versus a stock purchase, note it here. SBA lenders strongly prefer asset purchases, and if the seller is pushing for a stock deal, flag it early so everyone knows what they are working with.

Deal Structure

Break down how the purchase price gets funded. A typical SBA 7(a) structure looks like this:

  • SBA loan proceeds: $1,275,000 (85%)
  • Buyer equity injection: $150,000 (10%)
  • Seller note (on standby): $75,000 (5%)

The seller note piece is where a lot of buyers leave money on the table. We achieve a 10-year full standby, 0% interest seller note on over 90% of our deals. That means the seller gets paid nothing on that note for the full life of the SBA loan. It reduces your monthly debt service and materially improves your DSCR.

Your LOI should specify that any seller note is subject to 10-year full standby at 0% interest. Lock this in early. It is much harder to negotiate after the seller has signed the purchase agreement.

Asset vs. Stock Purchase

State the purchase type explicitly. “This transaction is structured as an asset purchase.” SBA lenders are far more comfortable underwriting asset deals, and this one line can prevent a significant headache downstream.

Due Diligence Period

Specify the number of days. 45 to 60 days is standard for SBA deals. Include what triggers the start of the clock, which is typically seller delivery of complete financial records. Not “execution of the LOI.” The clock should start when you actually have something to diligence.

Exclusivity Period

This is the binding part. Once signed, the seller cannot entertain other offers during this window. 45 to 90 days is typical. Match it to your due diligence timeline with a buffer for SBA underwriting, because that process takes longer than most first-time buyers expect.

Financing Contingency

Your LOI should include a financing contingency that allows you to exit the deal if you cannot secure SBA approval. This protects your deposit. Some sellers push back on this. Hold firm.

Deposit

Good faith money. The amount varies, and frankly, the whole concept of requiring large earnest money deposits is more of a broker-created convention than a deal necessity. We push back on inflated deposit requirements regularly. Specify where the deposit is held (escrow), when it becomes non-refundable (typically after due diligence clears), and what happens if the deal falls apart. Keep it reasonable relative to the deal size and push back if the broker is anchoring to an inflated number.

Working Capital

State whether working capital is included in the purchase price or negotiated separately. Most SBA lenders require the seller to leave adequate working capital in the business at close. Define “adequate” in the LOI if you can. “Working capital included” means nothing if you do not put a number on it.

Non-Compete

The seller agrees not to start or join a competing business for a defined period (typically 3 to 5 years) in a defined geography. SBA requires a non-compete. Make sure it is in your LOI.

Transition Period

How long will the seller stay post-close to train the buyer? 30 to 90 days is standard. Some deals include a longer consulting arrangement. Nail this down here because it affects the seller’s calculus and SBA’s comfort with the transition.

A Simplified Letter of Intent Example

Say you are buying an owner-operated landscaping services company in the Southeast. The business does $2.1M in revenue and $520,000 in seller’s discretionary earnings (SDE). The seller is asking $1,950,000, which is roughly 3.75x SDE.

Side note: SDE is what the broker gives you. It is not what you should underwrite to. We typically discount SDE by 15% to 50% to get to real cash flow after you account for the adjustments that do not survive a change of ownership. But for this letter of intent example, we will use the seller’s SDE to show how the LOI structure works.

You run the debt service model. At $1,950,000 with a 10-year SBA loan at 10.5%, your annual debt service is approximately $320,000. On $520,000 in SDE, your DSCR is 1.625x. That clears the 1.5x floor we consider the absolute minimum, but it does not hit our preferred 2x target. Workable if the cash flow holds up under scrutiny, but leaves no room for surprises.

You come back at $1,700,000. The seller counters at $1,850,000. You agree on $1,780,000.

Your LOI structure:

  • Total purchase price: $1,780,000 (asset purchase)
  • SBA 7(a) loan: $1,513,000 (85%)
  • Buyer equity injection: $178,000 (10%)
  • Seller note (full standby, 0%, 10 years): $89,000 (5%)
  • Due diligence period: 60 days from receipt of complete financials
  • Exclusivity: 90 days
  • Good faith deposit: $15,000 (held in escrow, non-refundable after Day 30)
  • Financing contingency: Yes, deal terminates without penalty if SBA approval is not obtained
  • Non-compete: 4 years, 100-mile radius
  • Seller transition: 60 days post-close, then available as a paid consultant for 12 months at $5,000 per month

That is not a document cobbled together from a Google template. It reflects real deal mechanics, real SBA requirements, and a real negotiated position.

Common LOI Mistakes First-Time Buyers Make

Not specifying the seller note terms. You write “seller financing: $89,000” with no standby terms. The seller assumes they get paid monthly from day one. You assume standby. Now you have a fight on your hands in the middle of SBA underwriting. We have seen this play out enough times to know it is almost always avoidable.

Letting the exclusivity period run too short. 30-day exclusivity on an SBA deal is not enough time. SBA underwriting alone can take 30 to 45 days after you submit a complete package. Ask for 75 to 90 days minimum.

Omitting the financing contingency. If you cannot get SBA approval and the LOI has no contingency, you could lose your deposit. Always include it. Non-negotiable.

Agreeing to a stock purchase to make the seller happy. Some sellers want a stock sale for tax reasons. That is understandable. But SBA lenders are far more comfortable with asset purchases. If you agree to a stock deal in the LOI, you may find your lender options narrow significantly.

Being too vague on working capital. “Working capital included” means nothing if you do not define it. Specify a dollar amount or a formula (for example, 30 days of revenue in accounts receivable net of payables). Otherwise you are setting up a disagreement at the closing table that could have been resolved in five minutes during LOI negotiations.

How the LOI Connects to SBA Underwriting

All of that matters, but here is the part most buyers skip: the LOI is not just a negotiation document. It is the first thing your SBA lender reads.

Your SBA lender will ask for the signed LOI early in the process. It is one of the first documents they review, and they are reading it with specific criteria in mind.

Lenders use it to verify the deal structure, confirm the seller note terms are acceptable, and assess whether the purchase price is defensible relative to the cash flow. If the LOI structure does not match what the lender needs for their credit policy, they will tell you before you spend 60 days in due diligence. That is actually a good thing, because the alternative is finding out after you have already burned your exclusivity window.

This is why the LOI should be drafted with the SBA process in mind, not just the seller negotiation. We draft LOIs with lender requirements baked in from the start. That means no surprises at underwriting.

One specific lender requirement worth knowing (and the SBA Standard Operating Procedures spell this out): the SBA requires seller notes to be on full standby for the life of the guaranteed loan. If your LOI has the seller getting paid during the SBA loan term, the lender will make you restructure it. Do it right in the LOI and save yourself the renegotiation.

Before You Send Your LOI

A few things to handle before that LOI hits the seller’s inbox.

Run the debt service model. Confirm your DSCR at the proposed purchase price and structure. Our target is 2x. Our floor is 1.5x. If the deal does not clear 1.5x, renegotiate the price or restructure before locking in the LOI. And to be clear, 1.25x (which is the SBA’s stated minimum) is not a number we are comfortable building a deal around. That is razor-thin.

Get a soft confirmation from your lender. Share the deal summary with your SBA lender before you execute the LOI. Make sure they are comfortable with the business type, the industry, and the basic structure. Some industries face SBA restrictions that are not obvious from the listing. Better to know before you are in exclusivity.

Have an attorney review it. The LOI is non-binding on price but binding on exclusivity and confidentiality. A one-hour attorney review on a $1.5M deal is cheap insurance.

Align on your due diligence list. Know what documents you are going to request from the seller the day the LOI is signed. You do not want to burn two weeks of your exclusivity window getting organized.

The letter of intent example above is not theoretical. It is the structure we use on real acquisitions. How carefully you draft your LOI signals to the seller, the broker, and your lender exactly how serious and prepared you are.

Frequently Asked Questions

What should be included in a letter of intent for buying a business?

A business acquisition letter of intent should include the total purchase price, deal structure (SBA loan, equity injection, and seller note breakdown), asset versus stock purchase designation, due diligence period, exclusivity window, financing contingency, good faith deposit terms, non-compete agreement, working capital definition, and a seller transition period. Each component shapes your SBA underwriting and final purchase agreement.

Is a letter of intent legally binding when buying a business?

Most LOIs are partially binding. The exclusivity period and confidentiality provisions are typically binding, meaning the seller cannot shop the deal during that window and both parties must protect shared information. The purchase price and deal terms are generally non-binding, which allows for adjustment after due diligence. Your attorney should confirm which sections carry binding obligations before you sign.

How long should a letter of intent exclusivity period be for an SBA deal?

For SBA-financed acquisitions, 75 to 90 days is the right range. SBA underwriting alone can take 30 to 45 days after you submit a complete loan package. If your LOI only provides 30 to 45 days of exclusivity, you may run out of time before the loan closes, leaving you exposed to the seller reopening discussions with other buyers.

What is a standby seller note in a letter of intent?

A standby seller note is a portion of the purchase price the seller agrees to defer with no payments made during the life of the SBA loan. We structure these at 0% interest for 10 years on the majority of our deals. Including standby seller note terms in your letter of intent is critical because it affects DSCR calculations, SBA eligibility, and the seller’s net proceeds timeline.

Can you negotiate a letter of intent after it is signed?

Technically the price and structure terms are non-binding, so adjustments after due diligence are common. But changes post-LOI create friction. The seller feels the deal is moving backward. Brokers get involved. Momentum slows. Use the period before signing to get the structure right. Post-diligence price reductions should be reserved for material findings, not routine adjustments.

Ready to Structure Your First Acquisition Offer?

Regalis Capital handles the full acquisition process, including deal sourcing, financial modeling, LOI drafting, lender coordination, and due diligence management.

If you are approaching a deal and want experienced advisors who draft LOIs with SBA underwriting in mind from day one, start here.