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Deal Stage

Letter of Intent (LOI) Guide

The LOI sets the framework for the deal. What goes in it, what to negotiate, and how to use it to protect yourself.

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In plain words

A letter of intent (LOI) is a short letter where buyer and seller agree on the main terms before spending money on lawyers and checks. Most of it is not binding, but it sets the plan for the deal.

Step by step

  1. 1

    Talk first

    Have a phone call with the seller. If you both want to continue, exchange email addresses and share information directly.

  2. 2

    Agree on price and how it is paid

    Cash at closing, an SBA loan, seller financing, or an earn-out.

  3. 3

    Choose what you are buying

    An asset purchase (the business's things and customers) or a stock purchase (the whole company, including its history).

  4. 4

    Set the timeline

    How long due diligence lasts, the target closing date, and any exclusivity period.

  5. 5

    Plan the handover

    How long the seller helps after closing (the transition period) and a non-compete.

  6. 6

    Have your attorney review it

    Your attorney marks which parts are binding (usually confidentiality and exclusivity) before you sign.

In more detail

The Letter of Intent (LOI) sets the framework for the deal. It's the moment you move from browsing to negotiating, and the language in it shapes everything that follows — price, structure, exclusivity, and timeline.

What an LOI is and isn't

An LOI is a written outline of the deal's major terms — most of it non-binding. It signals serious intent without locking either side into a final agreement. A few provisions are typically binding: exclusivity (no-shop), confidentiality, and sometimes a deposit or break-fee. Read every clause and confirm with your attorney which are binding.

What goes in the LOI

A useful LOI covers price, structure (asset vs. stock), what is included and excluded, financing terms (seller note size, interest rate, term), working capital target, real estate (if any), transition support from the seller, the diligence period length, exclusivity period, and the closing timeline. Vague LOIs lead to disputes during the purchase agreement drafting.

  • Purchase price and how it is paid (cash, note, rollover, earnout)
  • Asset sale vs. stock sale
  • Working capital target and how it's calculated
  • Seller financing terms if applicable
  • Real estate treatment (purchase, lease, or excluded)
  • Transition / consulting period
  • Exclusivity (no-shop) period — usually 60–90 days
  • Confidentiality and treatment of information
  • Conditions to closing (financing, lease assignment, etc.)

Binding vs. non-binding provisions

Confidentiality and exclusivity are typically binding. Price, structure, and operational terms are typically non-binding pending diligence. A well-drafted LOI states clearly which is which — a poorly drafted one creates uncertainty about what either side has actually committed to.

Exclusivity and no-shop

Sellers give buyers exclusivity so the buyer is willing to invest in diligence. Buyers want enough time (60–120 days) to complete diligence and finalize financing. If you're a buyer, push for a longer window; if you're a seller, shorter is better. Either way, the period should match the deal's complexity.

When to use an attorney

Always. The cost of an attorney reviewing an LOI before you sign is small relative to the cost of a poorly worded LOI. Most deal disputes trace back to ambiguous or missing language in the LOI.

Frequently asked

Is the LOI legally binding?

Most of it isn't, but some provisions (confidentiality, exclusivity, break-fees) typically are. Always confirm with your attorney before signing.

Can the price change after the LOI?

Yes — if diligence uncovers material issues, the buyer can renegotiate or walk. But major price changes after LOI signal either poor pre-LOI work or bad-faith negotiation.

How long should the exclusivity period be?

60–90 days is standard. Larger or more complex deals (SBA-financed, regulated industries) often need 120 days.

Should I include earnest money?

Sometimes — especially in competitive seller's markets. Earnest money signals seriousness and can be refundable subject to diligence findings.

Find help near you

BPM does not accept or store any paperwork. After your first phone call, buyer and seller exchange email addresses and share documents directly.

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