Most buyers treat the letter of intent like a handshake. Low commitment, easy to walk away from, just a starting point for conversation.

Then they hit the earnest money deposit clause and realize the deal has teeth.

The LOI earnest money deposit is one of the most misunderstood components of a business acquisition. How much you put up, when you put it up, and what happens to it if the deal falls apart can meaningfully shift your risk profile. And most buyers do not give it nearly enough attention before signing.

Here is what actually happens at the table.

What Is an LOI Earnest Money Deposit?

An LOI earnest money deposit is a sum of money a buyer submits alongside or shortly after a signed letter of intent. It sits in escrow as a show of good faith to the seller.

It signals that you are serious. It compensates the seller for pulling their business off the market during your exclusivity window. And it creates a real cost to walking away without cause, which is exactly the point.

The deposit typically lands in an escrow account held by a third-party escrow agent, an attorney, or sometimes the business broker. It does not transfer to the seller until closing. That distinction matters more than most people realize.

How Much Earnest Money Is Normal on a Business LOI?

This is where buyers get surprised.

On real estate deals, earnest money runs 1% to 3% of the purchase price. Business acquisitions do not follow the same playbook. We have seen everything from $5,000 on a $500K deal to $100,000 on a $3M deal. There is no universal standard, which is precisely why sellers (and their brokers) sometimes push for amounts that feel outsized relative to the transaction.

The most common range on SBA-financed deals between $500K and $3M is $10,000 to $50,000.

A few factors push that number up or down:

  • Seller’s market conditions. When deal flow is hot and sellers have multiple interested buyers, they ask for more.
  • Exclusivity period length. A 90-day exclusivity period costs the seller more than a 30-day window. Expect the deposit to reflect that.
  • Deal size. Larger deals carry larger deposits, though not always proportionally.
  • Broker involvement. Some brokers have informal standards they push sellers toward. Remember that brokers represent the seller, not you. Know who you are working with and what incentives are at play.

The earnest money amount is negotiable. If a seller asks for $75,000 on a $700K deal and you think that is disproportionate, push back. A reasonable seller will listen. An unreasonable one is telling you something about how the rest of the deal will go.

Refundable vs. Non-Refundable: The Clause That Actually Matters

This is the real question. Most buyers do not read it carefully enough.

Most LOIs structure the earnest money deposit as partially or fully refundable during the due diligence period, then non-refundable after a specific milestone. The mechanics of that transition determine your actual risk exposure.

A typical structure looks like this:

  • Deposit is fully refundable if the buyer terminates during the first 30 days of due diligence.
  • Deposit becomes non-refundable if the buyer terminates after that window without a material breach by the seller.
  • Deposit is always returned if the seller backs out, a material misrepresentation surfaces, or the SBA financing falls through for reasons outside the buyer’s control.

That last point matters a lot on SBA deals. If your lender declines the loan after a complete submission, a well-drafted LOI should return your deposit. Get that in writing. Not as a verbal understanding. In the document.

We always push for a financing contingency clause tied to the SBA commitment letter. If the loan does not fund, you get your money back. Sellers sometimes resist this, but it is a standard protection on financed acquisitions and any experienced broker or seller’s attorney will recognize it as reasonable.

What Happens to the Deposit at Closing?

If the deal closes, the earnest money deposit credits toward your equity injection or your total purchase price. It does not disappear. It is not a fee.

But here is where buyers need to think more carefully about total cash at close.

Say you are buying a $1.2M business with an SBA 7(a) loan. The minimum equity injection is 10%, or $120,000. If you submitted a $25,000 earnest money deposit, your remaining equity injection cash due at closing is $95,000, plus your share of closing costs.

That is not the whole picture, though. You also need working capital to operate the business from day one. We typically see buyers needing 2 to 6 months of operating expenses in reserve (sometimes more depending on the business model and seasonality). Buyers who plan only for the equity injection and forget working capital end up underfunded on day one. That is a problem the SBA loan will not solve for you.

One more thing worth flagging: while 10% is the SBA minimum for equity injection, we generally advise buyers to bring more to the table when possible. A 90/10 structure clears the SBA floor, but it leaves you with thinner margins, tighter debt service coverage, and less room to absorb any post-close surprises. Stronger equity positions make for stronger deals.

Your lender will want documentation of the deposit, when it was paid, and where it is held. Keep clean records from the start.

Common Mistakes Buyers Make with Earnest Money

Submitting too early. Some buyers wire the deposit before the LOI is even countersigned. Do not do this. The deposit should be contingent on a fully executed LOI, not a seller’s verbal agreement.

Ignoring the escrow terms. Who holds the deposit matters. If the broker holds it in their own account and the deal goes sideways, recovering that money becomes a headache you did not need. Use a neutral third party or have your attorney hold it in trust.

Not reading the release conditions. Every LOI spells out what conditions trigger deposit release in either direction. Read them. Then read them again. Then have your attorney read them.

Missing the SBA financing contingency. On any deal being financed with an SBA 7(a) loan, you need explicit language that a lender decline outside of your control returns your deposit. This is non-negotiable.

Underestimating the leverage it creates. A buyer who has $30,000 sitting in escrow gets taken more seriously in negotiations. Sellers know you have skin in the game. That is worth something.

All of That Covers Your Downside. Now Think About the Negotiation.

The LOI earnest money deposit is not a fixed number a seller dictates. You negotiate it like every other deal term.

Here is how we approach it:

Start by anchoring on the due diligence timeline. If you need 60 to 75 days to run a proper quality of earnings review, negotiate for a refundable period that covers that window. Do not agree to a 30-day refundable period if your QoE process takes 45 days.

Next, tie the non-refundable trigger to specific milestones, not just calendar days. A better structure: the deposit becomes non-refundable when the buyer receives the lender’s conditional approval letter, not 30 days after signing the LOI. That way, you are not bearing risk while you are still waiting on underwriting decisions you cannot control.

Finally, negotiate the release mechanism. If the deal falls apart, who controls the release of escrow? A neutral escrow agent with clear written release instructions protects both parties. Avoid any structure where the seller controls the escrow unilaterally. We have seen that go poorly enough times to be definitive about it.

LOI Earnest Money Deposits and SBA 7(a) Deals

SBA lending adds a layer of complexity that all-cash or seller-financed deals do not have.

The SBA loan process takes time. From LOI to close, the average SBA deal runs 60 to 120 days. During that window, you are paying for due diligence, coordinating with your lender, and waiting on underwriting. A lot can happen.

The earnest money deposit sits at risk during this entire period unless your LOI includes proper protections. Two clauses matter most:

SBA financing contingency. If your lender declines the loan after a full underwriting review, you get your deposit back. Period. Get this in the LOI before you sign anything.

Seller cooperation clause. Sellers are required to provide documents for SBA underwriting. Tax returns, financial statements, equipment lists, lease assignments. If a seller drags their feet on document delivery and the deal dies because of it, your deposit should be protected. Put that in writing. (Side note: this cooperation requirement is also where proof of cash comes into play. If the bank statements do not match the tax returns the seller provides to your lender, you have a bigger problem than the deposit.)

We have seen deals fall apart in SBA underwriting through no fault of the buyer. The buyer who had the right LOI language walked away with their deposit intact. The buyer who did not lost tens of thousands of dollars. Same scenario, different outcomes, entirely because of how the LOI was drafted.

Frequently Asked Questions

How much is a typical earnest money deposit for a business acquisition LOI?

On SBA-financed business acquisitions in the $500K to $3M range, earnest money deposits typically run $10,000 to $50,000. The exact amount depends on deal size, exclusivity period length, and market conditions. It is negotiable, and unlike real estate, there is no universal standard. Push back if the amount feels disproportionate to the deal size.

Is an LOI earnest money deposit refundable?

It depends on the terms you negotiate. Most deals structure the deposit as fully refundable during due diligence, then non-refundable after a defined milestone. On SBA-financed deals, you should always include a financing contingency clause that returns your deposit if the lender declines the loan after a full review. Without that clause, you are exposed.

Does the earnest money deposit count toward the purchase price?

Yes. In almost all business acquisitions, the earnest money deposit is credited at closing against your total purchase price or equity injection. It is not a separate fee. On an SBA deal with a 10% equity injection requirement, your deposit reduces the remaining cash you need at closing, though you will still need working capital reserves on top of that.

What happens if the seller backs out after the LOI is signed?

If the seller terminates without cause after signing the LOI, your earnest money deposit should be returned in full. Most well-drafted LOIs include this protection explicitly. You may also have legal recourse depending on the LOI language and your jurisdiction. Have an attorney review the document before you sign.

Can a seller keep my earnest money deposit if the SBA loan falls through?

Only if your LOI does not include a financing contingency clause. Without that language, a seller could argue the deposit is non-refundable regardless of why the deal died. This is one of the most important clauses to negotiate before you put your name on anything. Any buyer using SBA 7(a) financing should have this protection written into the LOI, no exceptions.

Thinking Through Your Next Acquisition?

The earnest money deposit is one term in a document full of them. Each one carries leverage implications, risk exposure, and downstream effects on your SBA loan and your total cash position at close.

Regalis Capital works with buyers through every step of this process. From structuring the LOI to negotiating with sellers to managing the SBA 7(a) timeline from submission to close.

If you are serious about acquiring a business and want a team that has done this across hundreds of deals, start here.