How to Write a Letter of Intent to Buy a Business (with Template)

What is a letter of intent?

A letter of intent (LOI), sometimes called an indication of interest, term sheet or memorandum of understanding, is a document a buyer sends to a seller setting out the main terms of a proposed acquisition. It usually comes after initial conversations and a review of summary financials, and before full due diligence and the definitive purchase agreement.

Most of an LOI is non-binding: it records the intended deal without obliging either side to complete it. A few provisions are usually binding, such as exclusivity, confidentiality and who pays which costs.

Why the LOI matters

• It aligns expectations on price and structure before both sides spend money on lawyers and accountants.
• It grants exclusivity so the buyer can do diligence without being outbid mid-process.
• It frames the purchase agreement: surprises later are harder to negotiate if key terms were already agreed.
• It signals credibility: a clear, financeable LOI often beats a higher but vague offer.

What to include in a letter of intent

Binding vs non-binding provisions

The LOI should clearly state which provisions are binding. Ambiguity can create legal risk in some jurisdictions. Typically binding: exclusivity, confidentiality, expenses, governing law, and the non-binding statement itself. Typically non-binding: price, structure and the other commercial terms, which only become binding in the definitive agreement. Have an attorney review your LOI before you send it.

How to set the price in an LOI

Base your offer on your own valuation, not the asking price.

1. Normalize earnings and choose SDE or EBITDA. See business valuation.
2. Apply a defensible multiple range.
3. Check that the deal can be financed with a healthy DSCR using the acquisition financing calculator.
4. State the earnings figure the price relies on, so a material difference found in diligence gives grounds to revisit the price.

Free letter of intent template

Copy, adapt and have counsel review this illustrative template. Replace everything in [brackets]. It is a starting point for discussion, not legal advice or a document fit for every jurisdiction or deal.

[BUYER NAME / ENTITY]
[Address] | [Email] | [Date]

[SELLER NAME]
[Business legal name]
[Address]

RE: Non-binding letter of intent to acquire [Business Name]

Dear [Seller],

Thank you for the information and time you have shared. This letter sets out
the principal terms on which [Buyer] ("Buyer") proposes to acquire [Business
Name] (the "Business") from [Seller] ("Seller").

1. Structure. Buyer proposes to acquire substantially all of the operating
   assets of the Business [OR: 100% of the shares/membership interests of
   (Entity)], free of liens, on a cash-free, debt-free basis.

2. Purchase price. $[amount], based on [trailing twelve-month SDE/EBITDA] of
   $[amount] as presented by Seller.

3. Consideration.
   a. Cash at closing: $[amount].
   b. Seller note: $[amount] at [rate]% interest, amortized over [x] years,
      [with/without] a balloon at [y] years, subordinated to senior lender
      requirements [and subject to standby terms required by the lender].
   c. [Earnout: up to $[amount] payable if (metric) exceeds (target) during
      (period), measured as (definition).]

4. Working capital. The Business will be delivered with normalized net working
   capital of $[amount] [or: inventory of at least $[amount] at cost].

5. Financing. Closing is subject to Buyer obtaining [SBA 7(a) / bank /
   investor] financing on terms acceptable to Buyer.

6. Due diligence. Seller will provide reasonable access to books, records,
   contracts, employees, customers (at an agreed stage) and premises. Buyer
   expects to complete due diligence within [x] days of signing.

7. Transition. Seller will provide up to [x] weeks of full-time and [x] months
   of part-time transition support [at no additional cost / at $(amount)].

8. Employees. Buyer intends to offer employment to [key staff/all staff] on
   substantially similar terms, subject to due diligence.

9. Restrictive covenants. Seller agrees to a [x]-year non-compete within
   [territory] and non-solicitation of customers and employees, to the extent
   enforceable under applicable law.

10. Conditions. Closing is subject to: a definitive purchase agreement;
    satisfactory due diligence; financing; landlord consent to lease
    assignment [or new lease]; transfer of [licences/permits/key contracts].

11. Exclusivity (binding). For [x] days from signing, Seller will not solicit,
    negotiate or accept any offer for the Business or its assets from anyone
    other than Buyer.

12. Confidentiality (binding). Both parties will keep the terms of this letter
    and all information exchanged confidential.

13. Expenses (binding). Each party pays its own costs.

14. Non-binding nature. Except for sections 11, 12, 13 and this section 14,
    this letter is not binding. A binding obligation will arise only on
    signing a definitive purchase agreement. Governing law: [jurisdiction].

15. Expiration. This offer expires if not signed by [date].

Sincerely,
[Buyer signature, name, title]

Accepted and agreed:
[Seller signature, name, title, date]

Common LOI mistakes

• Leaving working capital undefined, which creates a fight at closing.
• An exclusivity period too short to complete financing and diligence.
• Vague seller note or earnout terms that unravel later.
• Not stating the earnings figure the price relies on.
• Forgetting key conditions such as landlord consent or licence transfers.
• Signing without an attorney's review.

After the LOI is signed

Once signed, move quickly into due diligence and lender underwriting. Keep a running issues list and communicate early if findings affect price or terms. Read the full how to buy a small business guide for the remaining steps.

Download the LOI template

The template above is also available as a file you can edit and adapt with your lawyer. It is a starting point for discussion, not a finished legal document.

• Download the LOI template (.docx)
• Download the LOI template (plain text)

You can link to this page if you reference the template in your own writing.

Clause-by-clause drafting notes

Purchase price and basis. State the earnings figure and period the price relies on, for example a trailing-twelve-month figure. This gives you a principled reason to revisit price if diligence shows the earnings were lower.

Structure of consideration. Break down how the price is paid: cash at close, senior debt, seller note and any earnout. For each non-cash element, summarise the key terms. A vague line such as "seller financing to be agreed" defers the hardest negotiation to the worst possible moment.

Working capital. Say whether a normal level of working capital is included in the price, and how it will be measured. Disputes about inventory, receivables and payables at closing are common and avoidable.

Assets included and excluded. Name anything that is not obvious: vehicles, real estate, personal items, cash, specific contracts, intellectual property and domains.

Due diligence scope and access. Describe what you will need, including financial records, customer data, contracts, premises access and conversations with key staff at an agreed point.

Conditions. List the conditions to closing, typically satisfactory diligence, financing approval, a definitive agreement, lease assignment and any licence transfers.

Exclusivity. Set a defined period during which the seller will not negotiate with others. Long enough to finish diligence and financing; short enough that the seller is comfortable. Consider an extension mechanism if the lender is the cause of delay.

Transition. Specify the seller's post-closing role: length, hours, compensation and whether a consulting agreement will be signed.

Non-compete and non-solicit. Give scope, geography and duration. Enforceability varies by jurisdiction, so have a lawyer check it.

Binding provisions. Clearly mark which sections bind the parties: usually exclusivity, confidentiality, costs and governing law.

How sellers evaluate competing LOIs

When a seller has more than one offer, the highest headline price does not always win. Sellers and their advisors usually compare:

• Certainty of closing: financing already discussed with a lender, evidence of equity, a clear diligence plan.
• Cash at close: how much of the price arrives on the closing date versus later.
• Risk retained: the size and terms of seller notes and earnouts.
• Timeline: how fast the buyer can realistically close.
• Fit: how the buyer intends to treat employees, customers and the business's reputation.

A buyer who presents a clear, financeable structure can often compete with higher but vaguer offers.

Negotiating after diligence

If diligence uncovers a material issue, return to the LOI's stated basis for price. Explain the finding, show its effect on earnings or risk, and propose a specific change: a price reduction, more seller financing, an earnout or a specific indemnity. Re-trading without evidence damages trust, so only reopen price for findings that genuinely change value.