What Is an LOI? How to Write a Letter of Intent That Protects You Without Killing the Deal

The LOI is where the deal actually gets shaped. By the time the lawyers are drafting the purchase agreement, the price, the structure, and your right to walk are mostly settled already.

Most buyers treat it as a handshake on paper before the real work starts. That's exactly how they give away the standing they'll wish they'd kept.

What the letter really does

A letter of intent in a business purchase is a short written document that states the price, the deal structure, and the major conditions a buyer proposes before drafting a binding purchase agreement. Most of it is non-binding and exists to signal serious intent and frame the deal, though a few clauses, usually exclusivity and confidentiality, do bind both sides.

So it does two jobs. It tells the seller you're serious enough to put terms on paper, and it sets the frame every later document negotiates inside.

Sellers read the LOI as the offer. Once a number and a structure are on the page, moving off them later reads as retrading, and retrading is what kills small deals.

Which means the terms you write are terms you intend to hold, with room to verify them in diligence.

Four things to pin down

Everything else in the letter is packaging around these.

1. Price and how it's paid. State the purchase price and break it into parts: cash at close, the number you negotiated before it was written down, any seller note, and any earnout. One headline number with no payment structure hands the seller an anchor and tells you nothing about your own cash position.
2. Deal structure. Say whether it's an asset or a stock purchase, because that one choice changes your tax basis, your liability exposure, and what transfers. Name the financing too. Most small deals run on an SBA 7(a) loan, and the lender will want the structure spelled out early.
3. Exclusivity. Set a no-shop period where the seller takes the business off the market and stops entertaining other offers. Without it, you're paying for diligence while the seller shops your price to someone else.
4. Contingencies. List the conditions your offer depends on: satisfactory diligence, financing approval, a clean lease assignment, and verified earnings. These let you walk or adjust without breaching, and they're the clauses buyers most often leave vague.

Each of these ties back to one question. Does the structure protect cash flow, downside, and the working capital the business needs after close?

A price with no payment structure fails that test. So does a deal with no contingency for the diligence you haven't run yet.

Which parts hold you, and which don't

The most common LOI mistake is not knowing which parts of your own letter actually bind you. Most of it doesn't, and that's on purpose.

The commercial terms (price, structure, closing timeline) are non-binding. They're subject to diligence and to the purchase agreement, so signing the LOI doesn't commit you to buy at that number.

Two clauses bind both sides the moment they're signed, and a third often does:

• Exclusivity: the seller is now legally committed to the no-shop window.
• Confidentiality: you can't disclose the deal or the seller's information.
• Expense and fee allocation: often binding too, setting who pays for what if the deal dies.

That split is where your position lives. The seller has agreed to stop shopping, while your price and terms stay open to whatever diligence turns up. Use that on purpose.

So pin what sets your floor: the price basis, the structure, the no-shop window, and diligence access. Those are hard to get back once the letter's signed.

Leave open what diligence hasn't answered yet, like the final price adjustment and the conditions you can't test until the books are in front of you. Pin a number you can't defend yet and you'll end up retrading. Pin nothing and the seller keeps shopping the deal.

That right to verify is why you can offer close to the seller's number and still protect your downside.

Protecting yourself without spooking the seller

Here's where most advice goes sideways. It tells buyers to load the letter with protections, and you end up with a document the seller reads as a buyer already eyeing the exit.

What works is survivability. Every clause you add should protect the business's cash flow, your downside, or your right to verify, and you should be able to explain it to the seller in one sentence.

A reasonable LOI that keeps the deal alive does a few specific things:

• Ties the price to verified earnings, not the broker's headline. Make the diligence contingency explicit, then read the books behind the seller's number inside the exclusivity window. If the earnings hold up, the seller keeps the price.
• Names what the contingency period covers. Point to the due-diligence checklist the contingency runs against so the seller sees a defined process with a start and an end.
• Sets a fair exclusivity period with an end date. A no-shop window long enough to finish diligence, with a stated end, is easier for a seller to grant.
• Keeps the financing honest. Lay out the financing structure of the deal up front. A seller who learns about your loan contingncy at closing feels ambushed, and an ambushed seller walks.

The number in your LOI is usually yours to defend. 86% of small business owners have no professional valuation or only a rough estimate, so the price you write is often the first real number the business has ever been priced at.

That cuts both ways. It gives you room to anchor on verified earnings, and it means a pushy, poorly reasoned number makes you look like a buyer who hasn't done the work.

So protect the downside and keep the price defensible. If you're careful about it, the seller gets a letter from a serious buyer, and that's the one that gets signed and survives diligence.

FAQ

What is a letter of intent (LOI) in a business purchase?

A letter of intent in a business purchase is a short, mostly non-binding document stating the price, deal structure, and conditions a buyer proposes before a binding purchase agreement. It signals serious intent and frames the deal, while a few clauses, usually exclusivity and confidentiality, do bind both sides.

What should a letter of intent include?

A strong letter of intent locks down four things: the price and how it is paid, the deal structure (asset or stock purchase and the financing), an exclusivity window, and the contingencies that let the buyer walk or adjust. Each clause should protect cash flow, downside, or the right to verify earnings in diligence.

Is a letter of intent binding?

Most of a letter of intent is non-binding, including the price and the commercial terms, which stay subject to diligence and the final purchase agreement. A few clauses do bind on signing, typically exclusivity, confidentiality, and how deal expenses are split if the purchase falls through.

You cannot protect a number you have not verified.

Keystone would give you that verification, but it's closed right now while the build finishes. Once it opens, 18 questions and about four minutes return three scores and a value range with the most likely figure locked, calibrated against 10 years of BizBuySell Insight Reports and 1.6M+ SBA 7(a) loan records, so you'd know what a business is actually worth before the number goes into an LOI.

You can join the waitlist at https://app.trykeystone.io.

When the deal gets serious, Keystone Command ($199/mo, $1,990/yr) runs the Deal Analyzer: the cash-flow math, the SBA affordability check, and the red-flag report that tell you whether the structure in your LOI survives after close.