An LOI is a short agreement, often three to six pages, that sets out the intended terms of the sale before the lawyers draft the real contracts. Price, structure, what is included, how long diligence runs, when closing happens. Most of its terms are expressly non-binding, a statement of mutual intent. The exclusivity provision is the standard exception: for a defined window, typically 60 to 90 days, you agree to stop marketing the business and negotiate with this buyer alone.
That trade defines the whole document. The buyer gets certainty before spending five figures on diligence and legal work, which is fair. You give up the one thing that creates price competition, which is everything. So the seller's rule for LOIs is simple to state: settle every term that matters while the leverage still exists, because after signing, every open question gets resolved in the buyer's favor by default. "We'll work that out in the purchase agreement" is how sellers lose the deal they thought they made.
This guide is education, not legal advice; an LOI deserves an attorney's read before you sign it, and at Main Street deal sizes that review is hours, not weeks. Here is what to look at before it gets to them.
What the LOI actually decides
The purchase agreement is longer and lawyered, but its skeleton is set here. The terms below are the ones a seller should insist are specific, in writing, before signing.
Price, and the structure behind it. Not just the headline number, but its parts: cash at closing, any seller note with its face amount, rate, term, and standby expectations, and any contingent structure spelled out completely. A price without its structure is not a price. Our guides on seller financing and earnouts and the SBA cover what the pieces mean and which ones can actually finance.
Asset sale or stock sale. The choice moves your taxes by real money and the buyer's risk by real exposure, and it should be in the LOI, not discovered in the first draft of the purchase agreement. Our guide on asset versus stock sales covers the trade.
What is included. Inventory, working capital, vehicles, equipment, the name, the phone number. The single most common closing-table fight on Main Street is whether the price includes inventory and normal working capital, and it is a fight because the LOI was silent. Put the sentence in: our guide on working capital adjustments shows what happens when nobody does.
Exclusivity, with an expiration and milestones. The window should be as short as the deal honestly needs, 60 to 90 days for an SBA-financed purchase, and it should be conditional: the buyer's loan application filed within ten business days, diligence requests delivered within a defined window, evidence of progress at defined points. A buyer who misses milestones releases you. Exclusivity without milestones is a free option on your business.
Deposit. Not universal on Main Street, but worth asking for. A modest earnest-money deposit, even $10,000 to $25,000, held in escrow and credited at closing, changes buyer psychology more than its size suggests.
Transition expectations. Scope and duration of your post-closing involvement, consistent with the SBA's twelve-month cap on consulting agreements if the deal is 7(a)-financed.
Confidentiality and non-solicitation. The other terms that should bind: the buyer keeps what they learn confidential and does not hire your people or approach your customers if the deal dies.
The screen most sellers never run: does this LOI finance?
Here is the P4-specific failure pattern. A buyer, often advised by material written for larger deals, proposes terms that a conventional acquirer could sign but an SBA lender cannot fund. Nobody catches it, the LOI gets signed, and in week three of underwriting the lender flags the structure. The deal then gets rebuilt under time pressure, with your business off the market, and every rebuilt term somehow lands a little worse for you.
If your buyer is using an SBA 7(a) loan, and on Main Street most are, run the LOI through this screen before signing:
An earnout anywhere in the document fails; the price must be fixed at closing, and contingent structures have to be rebuilt as fixed-principal seller notes measured against history. You staying on as an employee, officer, or minority owner fails in a complete change of ownership; the sanctioned role is a consulting agreement capped at twelve months. A seller note counted toward the buyer's down payment carries full standby for the life of the loan and can cover at most half the required injection; if the LOI's structure quietly depends on your note being repaid sooner, it does not work. Rollover equity, where you keep 10 or 20 percent, converts the deal to a partial change of ownership with different rules entirely, including a personal guarantee from you on the buyer's loan; our guide on management buyouts covers when that trade can make sense. And a purchase price above what the business's cash flow can service will fail regardless of drafting, which is a DSCR question you can check yourself before anyone signs anything.
Five minutes with that list, before signature, is how you avoid learning SBA rules from the lender's rejection letter.
Negotiating it without a broker
The LOI negotiation is mostly a sequencing problem. Respond to a weak LOI with your own term sheet rather than a redline; it resets the anchor. Negotiate structure and inclusions at the same time as price, never after, because a $1.4 million offer that excludes inventory can be worth less than a $1.3 million offer that includes it. Ask directly for the buyer's financing plan and pre-qualification before signing; our guide on SBA pre-qualification covers the standard to hold them to. And take the LOI seriously as a document even though it is short. Non-binding does not mean unimportant; walking back a term you accepted in the LOI costs trust and often costs the term.
The pace matters too. A serious buyer can get from accepted offer to signed LOI in a week or two. A buyer who needs six weeks to produce a three-page letter is showing you their diligence speed in advance.
Common questions
Can I keep talking to other buyers after signing an LOI?
Not while exclusivity runs; that is the binding part, and violating it has real consequences. What you can do is drafted beforehand: keep the exclusivity window short, condition it on milestones so a stalling buyer releases you early, and let it expire cleanly rather than extending by default. Extensions should be earned with visible progress, a filed loan application, completed diligence items, a scheduled closing, not granted because the calendar ran out.
The buyer wants six months of exclusivity. Is that normal?
It is high for a Main Street deal. An SBA-financed purchase realistically needs 60 to 90 days from LOI to close when both sides are prepared, and diligence plus underwriting is the long pole. Six months is a buyer buying themselves a free option on your business. If a buyer credibly needs longer, say for a license transfer, grant it in stages with milestones rather than in one block.
Should the price in the LOI be exact or a range?
Exact, along with its structure. A range in the LOI is an invitation to close at the bottom of it after diligence. If the buyer cannot commit to a number before exclusivity, they have not finished valuing the business, and the place to finish that work is before your business comes off the market, not during.
What deposit should I ask for, and is it refundable?
On Main Street deals a $10,000 to $50,000 earnest deposit is a reasonable ask, held in escrow, credited against the price at closing. Fully non-refundable deposits are rare and buyers resist them; the common middle is a deposit refundable if the buyer's financing is declined or diligence reveals a material problem, and forfeited if the buyer simply walks. Even a modest at-risk deposit filters the browsers from the buyers.
Before you sign anything
Walk into the LOI knowing what finances.
BizTender runs SBA feasibility on your business and price before buyers arrive, organizes the diligence buyers will run during exclusivity, and pre-qualifies the buyers who reach you. The exclusivity window you grant gets spent closing, not discovering.