If you’re selling your business, the letter of intent is the moment everything shifts from hypothetical to real. It’s the document that says a buyer is serious — serious enough to put terms on paper and ask you to stop talking to other buyers while they do their homework.

LOI stands for Letter of Intent. In a business sale, it’s a written proposal from a buyer that outlines the key terms of a potential deal: purchase price, deal structure, timeline, and conditions. It’s not a binding contract (with a few exceptions we’ll cover), but it is the framework that guides everything from due diligence through closing.

Most sellers have never seen an LOI before they receive one. That’s a problem, because how you respond to it — and what you negotiate before signing — has a direct impact on the final outcome.

What’s Actually in an LOI?

Every LOI is different, but the core elements are consistent across most lower middle market deals:

Purchase price. The headline number. This may be a fixed amount or a range, and it may include contingent components like earnouts or seller notes. Don’t fixate on this number alone — the structure matters just as much.

Deal structure. How the buyer plans to pay. Cash at close, seller financing, earnout, equity rollover — or some combination. A $3M offer with $2M at close and $1M in a three-year seller note is a very different deal than $3M in cash. We cover this in depth in our guide on price vs. terms.

Asset sale vs. stock sale. Most small business transactions are structured as asset sales, which generally favor the buyer on taxes. Stock sales transfer the legal entity and are more common in larger deals. See our breakdown of asset sale vs. stock sale.

Due diligence period. Typically 30–60 days. This is the window where the buyer verifies everything — financials, contracts, legal history, operations.

Exclusivity (no-shop clause). This is one of the binding provisions. Once you sign, you agree not to solicit or entertain other offers for a set period — usually 45–90 days.

Confidentiality. Also typically binding. Both sides agree to keep the terms and existence of the deal confidential.

Conditions to close. Financing approval, landlord consent, lease assignment, regulatory approvals, satisfactory due diligence — the things that must happen between LOI and closing.

Timeline. An estimated closing date. In practice, deals often take longer than the LOI suggests, but having a target keeps both sides accountable.

Is an LOI Binding?

Mostly no, but partly yes. Here’s the distinction:

Non-binding: The purchase price, deal structure, and most business terms are non-binding. Either party can walk away before the purchase agreement is signed. The LOI is an expression of intent, not a commitment to close.

Binding: Exclusivity, confidentiality, and the process for handling expenses are typically binding. These provisions survive even if the deal doesn’t close.

This nuance surprises many first-time sellers. The buyer can negotiate hard on price during diligence and potentially re-trade — lower their offer based on what they find. The LOI price is a starting point, not a guarantee. That’s why preparation before going to market is so critical — the better your books and documentation, the less room there is for re-trading.

What to Negotiate Before You Sign

Sellers often feel pressure to sign quickly — the buyer is excited, momentum is building. But the LOI is your highest-leverage negotiation point. Once you sign and enter exclusivity, your leverage decreases.

Negotiate price and structure now. Get the terms as close to final as possible before signing. It’s much harder to improve terms during due diligence.

Limit the exclusivity period. 45–60 days is reasonable for most deals. 90+ days gives the buyer too much runway with no accountability.

Define due diligence scope. What will the buyer access, and on what timeline? Setting expectations upfront prevents scope creep.

Clarify working capital and closing conditions. These terms most often cause problems between LOI and close. Define them now, when your leverage is strongest.

Have your advisor and attorney review it. Never sign an LOI without experienced eyes on both the business terms and the legal provisions.

What Happens After You Sign an LOI?

Signing kicks off the most intense phase of the deal:

Due diligence begins. The buyer’s team digs into your financials, contracts, legal history, operations, and team.

Financing is finalized. If the buyer is using SBA or bank financing, the lender completes their own review including an independent business appraisal.

The purchase agreement is drafted. Your attorneys negotiate the definitive legal document. This includes representations and warranties, indemnification provisions, and closing mechanics. See our seller’s guide to reps and warranties.

Closing. Documents are signed, funds are wired, ownership transfers. For a full walkthrough, see from LOI to closing.

LOI vs. IOI: What’s the Difference?

Before the LOI, some buyers submit an Indication of Interest (IOI) — a less formal expression that comes earlier in the process. The IOI typically includes a preliminary price range and the buyer’s qualifications, but it doesn’t trigger exclusivity. Think of the IOI as the buyer signaling serious interest versus the LOI’s concrete proposal.

We cover the full comparison in IOI vs. LOI: the difference explained.

Common LOI Mistakes Sellers Make

Signing too fast. If you’re running a competitive process with multiple interested buyers, let the process work. Signing the first offer can leave significant money behind.

Focusing only on price. A high price with aggressive earnout conditions and vague working capital terms may be worth less than a lower price with clean structure and cash at close.

Not understanding exclusivity. Once you sign, you’re locked in. If the buyer drags out diligence or re-trades, your only option is to walk — and that means starting over.

Skipping attorney review. An LOI looks simple, but the binding provisions have real consequences.

The Bottom Line

The letter of intent is one of the most important documents in any business sale — not because it’s binding, but because it sets the trajectory for everything that follows. A well-negotiated LOI leads to smoother diligence, fewer surprises at closing, and a final outcome that matches your expectations.

For the full picture on selling your business from start to finish, see our complete guide to selling a business.

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