Most buyers treat the LOI as a formality. A handshake on paper before the real work starts.

That is a mistake that costs people deals, money, and months of wasted time.

An LOI for an asset purchase does more than signal intent. It sets the terms your attorney drafts from, shapes how the seller behaves during exclusivity, and determines whether your SBA lender even gets to work on your file. And it anchors every dollar amount, every timeline, and every structural concession that follows. Getting it wrong here means renegotiating later, which is slower, more expensive, and more likely to kill the deal than most buyers realize.

What an LOI for an Asset Purchase Actually Is

A letter of intent for an asset purchase is a non-binding agreement between a buyer and seller that outlines the key terms of an acquisition before the final purchase agreement is drafted.

Non-binding is the critical phrase. Neither party is legally required to close. But that does not mean the LOI has no teeth. The exclusivity period, confidentiality obligations, and occasionally break fees are typically binding clauses even inside a mostly non-binding document. So while the headline says “non-binding,” specific provisions inside it absolutely are, and those are the provisions that protect you during diligence.

In an asset purchase specifically, the LOI needs to do more work than it would in a stock deal. You are not buying the company itself. You are buying selected assets, and in most cases, explicitly leaving behind liabilities. That distinction changes what belongs in the document, and it changes how much precision the language requires.

Asset Purchase vs. Stock Purchase: Why It Changes the LOI

In a stock purchase, you buy the entity. Everything inside it, good and bad.

In an asset purchase, you and the seller agree in advance on exactly what transfers. Equipment, inventory, customer contracts, intellectual property, the business name, real estate leases. Each of these gets listed or at least referenced in the LOI for an asset purchase.

Why does this matter at the LOI stage? Because vague language here creates expensive arguments during APA drafting. If the LOI does not address whether accounts receivable transfer, or whether existing customer deposits stay with the seller, you are setting up a negotiation inside a negotiation. Attorneys bill by the hour. We have seen APA redlines go back and forth for weeks over issues that should have been settled in two sentences at the LOI stage.

SBA lenders also want to see what assets are backing the loan. A clean asset list in the LOI helps the lender underwrite faster. Fewer delays, fewer surprises between the term sheet and close.

What to Include in an LOI for Asset Purchase

Here is what a well-constructed LOI for an asset purchase should address.

Purchase price. State the total consideration and how it breaks down. If there is seller financing, say so. If there is an earnest money deposit (and there probably should not be a large one), state the amount and conditions.

Assets included. Either list them explicitly or reference a schedule. At minimum, call out whether real estate, vehicles, equipment, inventory, and intellectual property are included.

Assets excluded. Equally important. Cash, accounts receivable, and real estate are commonly excluded in SBA deals. Say this clearly.

Liabilities assumed. Most asset purchases involve the buyer assuming zero liabilities. If you are taking on an equipment lease or a specific contract obligation, list it. If you are not assuming anything, say that too.

Deal structure. SBA 7(a) acquisition, all cash, seller-financed, or a combination. This signals your financing path and lets the seller know what to expect in terms of timeline.

Seller note terms (if applicable). On SBA deals, we typically structure a seller note at 10-year full standby, 0% interest. If that is part of your structure, include it in the LOI. Do not leave it for the APA. Introducing seller financing for the first time at the purchase agreement stage is one of the most reliable ways to blow up a deal that was otherwise on track.

Working capital provisions. This is one that buyers routinely leave out of the LOI, and it creates problems. If the deal requires 2 to 6 months of working capital post-close (and it almost always does), reference how that working capital will be funded. Whether it comes from a separate line of credit, is built into the SBA loan, or is funded from operating cash flow on day one, the LOI should at least acknowledge it. A deal that closes without adequate working capital is a deal that fails in month three.

Due diligence period. Specify how long you need. 30 to 45 days is standard on SBA acquisitions. Longer if the business is complex.

Exclusivity period. The seller agrees not to talk to other buyers during this window. 30 to 60 days is typical. Match it to your diligence timeline plus buffer for lender process.

Target close date. An estimate, not a guarantee. But having one anchors expectations and keeps both parties moving.

Contingencies. SBA financing approval, satisfactory due diligence, landlord consent to lease assignment. List them. If the deal falls apart because the SBA says no, you need a documented out.

How to Structure the Purchase Price in an SBA Deal

Say you are looking at a plumbing company with a listed SDE of $380K. Listed at $1.4M, roughly a 3.7x multiple.

Before you write the LOI, you do two things. First, you discount that SDE figure. The listing number is almost never the real cash flow number. SDE includes addbacks that may or may not hold up under scrutiny, and in our experience you need to discount it somewhere between 15% and 50% to get to what the business actually generates for an owner-operator. For this example, assume diligence confirms the cash flow is legitimately in the range of the listed SDE (which is the best-case scenario, not the norm). Second, you run the debt service model.

On an SBA 7(a) loan at a 10-year term and current rates, annual debt service on this deal comes in around $175K. Against $380K in confirmed cash flow, that gives you a DSCR of about 2.2x. That clears the 2x target we look for and sits well above the 1.5x floor. Clean.

Now the LOI structure might look like this:

  • Total purchase price: $1.4M
  • Equity injection (10%): $140K
  • SBA 7(a) loan: $1.12M
  • Seller note (full standby): $140K at 0% interest, 10-year term

A note on that equity injection. The 10% is the SBA minimum. It is where the math starts, not where it should necessarily stop. On deals where the DSCR is tighter, where the business has customer concentration risk, or where working capital needs are high, putting in more equity (15% or even 20%) can be the difference between a deal that closes and one the lender kicks back. We push for the lowest buyer cash at close possible, and 5% out of pocket is achievable with proper structuring on many deals, but the LOI should reflect the realistic equity position, not just the minimum the SBA allows.

The seller nets $1.26M at close. The remaining $140K via seller note is on full standby, meaning no payments during the SBA loan term. That is a real concession, but on 90% or more of deals where we negotiate it, sellers accept this structure when the overall terms are right. You meet on price, you win on terms.

And do not forget working capital. This deal needs cash on hand post-close to cover payroll, materials, insurance, and the dozen other expenses that hit before customer payments come in. Budget 2 to 6 months depending on the business. If the LOI does not address how that gets funded, you are setting yourself up for a scramble at close.

The Exclusivity Clause: Do Not Underestimate It

Exclusivity is the most practically valuable part of the LOI. Full stop.

Once signed, the seller cannot market the business, entertain other offers, or continue brokered listing conversations. For you, this is the window where you spend real money on diligence, attorney fees, and SBA underwriting. You do not want to do that without protection.

30 days is too short for most SBA deals. The lender alone can take 3 to 4 weeks to issue a credit approval after submitting the package. Aim for 45 to 60 days, with a written option to extend by 15 days if both parties agree.

One thing to watch: some brokers push back hard on long exclusivity windows. That pushback is usually not about protecting the seller (who the broker represents, not you). It is about keeping the listing active and the commission clock ticking. Push back on the pushback. If the seller wants to do the deal with you, 45 days of exclusivity costs them nothing if you are moving.

Common LOI Mistakes in Asset Purchases

Leaving assets vague. “All assets used in the operation of the business” sounds fine until someone argues about whether the company van or the owner’s personal laptop counts. Be specific.

Missing the liabilities excluded language. The default in an asset purchase is that liabilities do not transfer. But “default” is not a legal protection. Your LOI for an asset purchase should state explicitly that the buyer is not assuming seller’s pre-closing liabilities. One sentence. That is all it takes.

Skipping the seller note terms. If you intend to negotiate a seller note as part of the SBA structure, do not introduce that concept at the APA stage. By then the seller has already mentally spent the full purchase price in cash. Introduce seller financing at the LOI stage, when both parties are still in deal-making mode. We have watched this play out enough times to know: the later you bring it up, the harder the conversation gets.

Ignoring working capital. A deal closes, the buyer has the keys, and then realizes there is no cash to run the business for the first two months. This is not hypothetical. It happens. The LOI should reference working capital so it gets built into the financing plan, not treated as an afterthought.

Agreeing to too-short due diligence. Sellers and brokers push for speed. You need time to validate the actual cash flow (not the SDE from the listing, the real number after you run proof of cash analysis and tie bank statements to tax returns), review customer concentration, confirm lease terms, and get through SBA underwriting. Do not let urgency compress your diligence window below 30 days.

Forgetting contingencies. If your SBA financing falls through, you need a documented right to exit. An LOI without a financing contingency leaves you exposed to earnest money disputes.

All of That Covers What Goes Into the LOI. Here Is What Happens After You Sign It.

Signing the LOI starts the clock on several things simultaneously.

Your due diligence process begins. Tax returns, P&Ls, bank statements, customer lists, lease agreements, equipment schedules. You are verifying that the business is what the seller represented. And the most important part of that verification is proof of cash. If the bank deposits do not tie to the revenue on the tax returns, the SDE number is unreliable and the deal may not be what it looks like.

Your SBA lender starts the credit package. They will want the signed LOI, 3 years of business tax returns, the seller’s financial statements, and a business valuation in most cases. (Side note: some lenders also want a personal financial statement and resume from the buyer at this stage, so have those ready before the LOI is even signed.)

Your attorney begins drafting the APA based on the terms in the LOI. This is why clean LOI language saves money. Every ambiguity that was not resolved in the LOI becomes a negotiating point during APA drafting, and those conversations happen at $400 to $600 per hour.

The exclusivity period is running. Use it aggressively. Dead time between the LOI and the close is where deals fall apart. Nobody gains anything from waiting.

Frequently Asked Questions

What is an LOI for an asset purchase?

An LOI for an asset purchase is a preliminary, mostly non-binding document that outlines the key terms of a deal before the formal asset purchase agreement is drafted. It covers purchase price, which assets transfer, what liabilities are excluded, deal structure, due diligence period, and exclusivity terms. Certain provisions like exclusivity and confidentiality are typically binding even though the overall document is not.

Does an LOI need to specify every asset being purchased?

Not necessarily in the LOI itself, but the document should reference how the asset list will be determined. Commonly, the LOI describes categories of assets included (equipment, contracts, IP, goodwill) and explicitly excludes cash and receivables. A complete schedule of included assets is then attached to or drafted alongside the asset purchase agreement during the due diligence phase.

Can you include a seller note in an LOI for an asset purchase?

Yes, and you should if seller financing is part of your deal structure. Introducing a seller note for the first time at the APA stage causes friction. State the seller note amount, interest rate, term, and standby conditions in the LOI so there are no surprises. On SBA deals, the typical structure is a 10-year full standby note at 0% interest.

How long should the exclusivity period be in an LOI?

For SBA-financed acquisitions, aim for 45 to 60 days. The SBA underwriting process alone typically takes 3 to 4 weeks after package submission. Combined with due diligence, attorney coordination, and lender back-and-forth, 30 days is rarely enough. Build in a 15-day extension option to protect yourself if the timeline slips.

What happens if the SBA loan falls through after the LOI is signed?

If your LOI includes a financing contingency, you have a documented right to exit the deal without penalty if the SBA approval does not come through. Without that contingency, disputes over earnest money become much harder to resolve. Always include a financing contingency in any LOI for a business acquisition involving SBA 7(a) lending.

Ready to Put a Deal Under LOI?

Writing the LOI correctly is one piece of this. Finding the right deal, running the debt service math before you sign, negotiating the seller note structure, and managing the SBA process from submission to close is the rest of it.

Regalis Capital runs a done-for-you acquisition advisory service. We review 120 to 150 deals per week, run the numbers before a client commits to anything, and negotiate deal terms on behalf of buyers who are serious about closing.

If you are at the stage where an LOI is the next step, start here and we will walk you through how we approach it.