Letter of Intent from Buyer: What to Expect

Most sellers treat the letter of intent like a finish line. The buyer showed up, the price looks right, and everything from here is just paperwork and signatures.

That is not how it works. The LOI is the starting line for the most consequential stretch of any deal.

Knowing what a letter of intent from a buyer actually contains, what it means legally, and what kicks off once you sign it is the difference between a sale that closes and one that collapses 60 days in with nothing to show for it. Here is what the LOI looks like from the other side of the table.

What a Letter of Intent From a Buyer Actually Is

A letter of intent from a buyer is a non-binding document that outlines the proposed terms of an acquisition before both parties move into formal due diligence and a definitive purchase agreement.

Non-binding is the key word. With a few exceptions (confidentiality and exclusivity clauses are typically binding), nothing in the LOI legally obligates either party to complete the transaction. The buyer can walk. The seller can reject a follow-on offer. Deal terms can shift.

What the LOI does is establish a framework. It says: if due diligence confirms what you told us, here is what a deal looks like. Both sides use it to confirm alignment before spending 30 to 45 days and real money on lawyers, accountants, and lender underwriting.

For sellers, the LOI is also a signal about the buyer’s sophistication. A well-structured letter of intent from a buyer who has done this before reads very differently from something thrown together by a person who found your listing online yesterday. The specificity of the terms, the financing language, the way the seller note is described. All of it tells you something.

What to Watch for Before You Sign Anything

Before getting into what the LOI contains, it is worth flagging the parts that trip sellers up the most. Signing an LOI is not the same as accepting an offer. But the exclusivity clause is binding, and the deal terms you agree to here set the baseline for every negotiation that follows.

Exclusivity length. 30 to 45 days is standard. If a buyer asks for 90-day exclusivity before you have seen anything from their lender, that is worth questioning. Longer windows benefit buyers, not sellers.

Financing contingency language. If the LOI says the deal is contingent on SBA financing approval, that is expected. But look at what happens if the financing falls through. Is there a deposit at risk? An obligation to renegotiate? Get clarity on what your position looks like if the lender says no.

Seller note terms in detail. A seller note described as “market rate” means nothing. Get the specific amount, interest rate (0% is standard on SBA standby notes), and repayment trigger clearly stated in the LOI itself.

Non-compete scope. Most LOIs reference a post-close non-compete, but scope and duration matter enormously. A 2-year non-compete in your county is very different from a 5-year non-compete across your entire industry nationwide. Push for specifics here, because what you accept becomes the baseline in the purchase agreement.

Indemnification exposure. Some LOIs include preliminary indemnification language. If yours does, have a lawyer look at it before you sign.

What a Buyer Includes in the LOI

Every LOI looks slightly different. But a serious buyer’s letter of intent will cover all of the following:

Purchase price. The headline number. This is the total consideration being offered, stated as a firm number or a range tied to a final EBITDA or SDE calculation after diligence.

Deal structure. How that price is getting paid. Most SBA-financed acquisitions break down to something like 75 to 85% SBA loan, 5 to 10% buyer equity injection, and the remainder as a seller note. The LOI should specify each piece.

Seller note terms. If a seller note is part of the deal (and on SBA deals, it almost always is), the LOI will specify the amount, interest rate, repayment schedule, and whether it is on standby. On SBA deals, seller notes are typically on full standby for up to 10 years at 0% interest. That is standard, not a negotiating concession.

Asset sale vs. stock sale. SBA lenders strongly prefer asset sales. Most transactions under $5M close as asset sales. The LOI will state which structure applies.

Due diligence period. Typically 30 to 45 days from signed LOI. This is the window for the buyer and their advisors to verify your financials, operations, and customer base.

Exclusivity period. A serious buyer will request an exclusivity window (usually matching the due diligence period) during which you agree not to negotiate with other buyers. This part is binding. Do not sign it unless you are genuinely ready to move forward.

Conditions to close. What needs to happen before the deal closes. SBA financing approval is almost always listed. Others might include lease assignment, landlord consent, or key employee retention agreements.

Target closing date. For SBA deals, 60 to 90 days from signed LOI is realistic.

Working capital adjustment. Buyers will often include a target working capital figure, with the final purchase price adjusted up or down depending on what is actually in the business at close.

What the Purchase Price in the LOI Actually Means

Sellers often assume the number in the LOI is the number that shows up at closing.

It usually is not.

First, the LOI price is almost always contingent on diligence confirming the financials. If your tax returns show $400K in SDE but the buyer’s accountant finds $340K after add-backs are reviewed, the buyer will come back to the table with a lower number. That is not bad faith. That is the process working as designed.

Second, working capital adjustments can move the effective price by tens of thousands of dollars in either direction. The working capital peg matters more than most sellers realize. If you strip cash and receivables before close, expect a downward adjustment.

Third, earnouts. Some LOIs include a portion of the purchase price as an earnout, meaning part of what you are promised depends on the business hitting certain performance targets post-close. Earnouts come up most often when the buyer and seller disagree on what the business will do next year. They are also a source of disputes, sometimes serious ones. If your LOI includes a significant earnout, pay close attention to how performance is measured and who controls the inputs.

From a pure valuation standpoint, we cap SDE multiples at 3.5x and EBITDA multiples at 5.0x on deals we work on. Most transactions close at 2.0x to 3.0x SDE and 2.5x to 4.0x EBITDA. If the letter of intent from a buyer lands in that range, you are looking at a real market offer.

How the Seller Note Fits Into the LOI

This deserves its own section because it trips up sellers repeatedly.

The seller note is not evidence that the buyer cannot afford the business. On SBA deals, it is a structural requirement. The SBA (and the lender) want to see the seller retain some skin in the game post-close. It signals that you believe the business will continue to perform after you leave.

On the deals we work on, seller notes almost always go on full standby. No principal or interest payments during the standby period, which runs up to 10 years. The note only becomes payable after the SBA loan is retired or under agreed conditions. We achieve these terms on roughly 90% of our transactions.

For a $1.5M deal, a seller note in the range of $150K to $225K on full standby is typical. You receive the rest at close. You receive the seller note balance years later when the SBA loan is paid down.

Go in expecting that structure and the LOI will read clearly. Be surprised by it and you will waste time renegotiating something that is standard across almost every SBA acquisition.

All of That Covers the Terms. The Harder Part Is What Comes Next.

The signed LOI kicks off three things simultaneously: due diligence, lender underwriting, and purchase agreement drafting.

Due diligence is where the buyer’s team verifies everything. Expect requests for 3 years of tax returns, profit and loss statements, bank statements (the SBA’s preferred verification method, sometimes called proof of cash), customer contracts, lease agreements, and employee records. The cleaner your records, the faster this goes.

Lender underwriting runs in parallel. On SBA deals, the lender reviews the same financials the buyer is reviewing, but through a different lens. They are looking at DSCR, collateral, business stability, and the buyer’s qualifications. We target a 2.0x DSCR minimum on deals we work on. If the business’s EBITDA does not support the debt load at the agreed purchase price, this is where issues surface.

Purchase agreement drafting usually starts in the background while diligence is running. The purchase agreement is the binding contract. It incorporates everything in the LOI plus significant additional detail on representations and warranties, indemnification, closing conditions, and post-close obligations.

And here is the part that makes sellers uncomfortable: if due diligence turns up material issues, the buyer may come back to retrade the LOI price. The best way to protect yourself against that is straightforward. Disclose known issues before the LOI is signed, not after. Buyers who discover undisclosed problems lose trust. The deal often dies right there.

The LOI Is a Test of the Buyer

Here is something sellers rarely hear: the letter of intent tells you as much about the buyer as it tells you about the deal.

A buyer who submits a well-structured LOI with specific terms, realistic valuation, clear financing language, and a reasonable exclusivity window has done this before. Or is working with advisors who have.

A buyer who submits a two-paragraph LOI with a vague price range, no mention of financing structure, and a 90-day exclusivity ask? Probably not ready to close.

One of the things we focus on as buy-side advisors is making sure the LOIs our clients submit are clear, properly structured, and realistic for the seller to evaluate. Sellers dealing with our buyers know exactly what they are looking at and why. That clarity cuts the back-and-forth that stalls deals.

At Regalis, we review 120 to 150 deals per week. When we work with a buyer, that buyer comes to the table pre-qualified, properly funded, and advised by a team that has closed over $200M in transactions. The letter of intent from a buyer we represent reflects that.

What Sellers Pay in This Process

Nothing.

Regalis represents the buyer. Sellers pay no fees, no commissions, and have no financial obligation. You evaluate the offer, decide whether the terms work, and if you want to move forward, you move forward. If not, you walk away.

The reason to understand how the letter of intent works is not to protect yourself from buyers like ours. It is to make sure you know what you are looking at when the LOI arrives, regardless of who the buyer is or who advises them.

Frequently Asked Questions

Is a letter of intent from a buyer legally binding?

Most provisions in a letter of intent are non-binding, meaning either party can walk away without legal penalty. The exceptions are typically the exclusivity clause and the confidentiality agreement, both of which are usually binding. Do not sign an LOI without understanding which sections carry legal weight and what your obligations are during the exclusivity period.

How long does a letter of intent take to negotiate?

Most LOIs are negotiated and signed within one to two weeks of the buyer submitting the initial draft. Straightforward deals sometimes move faster. Complex deals with earnouts, working capital disputes, or significant seller note disagreements can take three to four weeks. The longer the LOI negotiation drags, the harder it becomes to maintain deal momentum.

What happens if the buyer tries to retrade after signing the letter of intent?

Retrading means the buyer comes back with lower terms after due diligence, usually citing issues discovered during the review period. It is legal (the LOI is non-binding) and relatively common. If the retrade reflects a genuine discovery, that is part of the process. If the buyer is simply using diligence as leverage to grind the price down, you can walk. Having organized financials and disclosing known issues upfront reduces the likelihood of a retrade significantly.

How is the letter of intent different from the purchase agreement?

The letter of intent is a preliminary, mostly non-binding document that outlines the deal framework. The purchase agreement is the definitive, binding contract that incorporates all the LOI terms plus detailed representations, warranties, indemnification provisions, and closing conditions. The purchase agreement is what actually closes the deal. You need an attorney reviewing the purchase agreement before you sign it.

Should I hire an attorney before signing a letter of intent?

At minimum, have an attorney review the exclusivity clause and any binding provisions before signing. For the full purchase agreement, attorney involvement is essential. Legal fees for a business sale typically run $5,000 to $15,000 on the seller’s side depending on deal complexity. Worth spending.

Ready to See What a Serious Offer Looks Like?

Regalis Capital works with pre-qualified buyers who are properly funded through SBA 7(a) financing and advised by a team that has completed over $200M in acquisitions. When a buyer we work with submits a letter of intent, the terms are clear, the financing is structured, and the deal is built to close.

There is no cost to you as the seller. No commissions. No obligation to move forward.

If you want to understand what a well-structured offer on your business might look like, start the conversation here.