How to Write a Letter of Intent (LOI)

What a letter of intent (LOI) covers in a small business acquisition, what's typically binding vs. non-binding, and what to include before signing.

A letter of intent, or LOI, is usually the first written agreement in a small business acquisition -- the document where a buyer and seller put the broad deal terms on paper before investing serious time and money into due diligence and legal drafting. Getting the LOI right sets the tone for the rest of the deal.

What an LOI typically includes

Most small business LOIs cover: the purchase price (or a price range/formula), the proposed deal structure (asset sale vs. stock sale, cash vs. seller financing vs. earnout), key transition terms (will the seller stay on, for how long, and under what arrangement), a proposed timeline for due diligence and closing, and any major conditions the deal depends on, such as financing approval or lease assignment.

Binding vs. non-binding provisions

Most of an LOI's substantive deal terms -- price, structure, timeline -- are typically non-binding, meaning either party can walk away if due diligence uncovers problems or terms need to change. However, certain provisions are commonly binding regardless: confidentiality obligations, an exclusivity or "no-shop" period during which the seller agrees not to negotiate with other buyers, and sometimes an expense-reimbursement clause if one party walks away without cause. It's critical to understand exactly which parts of your LOI are binding before you sign.

Why exclusivity matters -- to both sides

For buyers, an exclusivity period is valuable because it prevents the seller from shopping the deal to other buyers while you spend time and money on due diligence. For sellers, agreeing to exclusivity is a real commitment -- it takes the business off the market for a period, so sellers should only grant it to buyers who appear serious and capable of closing (financially and otherwise).

Common mistakes in LOIs

Vague pricing language that different parties interpret differently, missing timelines that let due diligence drag on indefinitely, no clear conditions for what happens if financing falls through, and skipping legal review because "it's not binding anyway" are all common pitfalls. Even non-binding terms shape the negotiating leverage and expectations for the rest of the deal, so treat the LOI seriously.

Should you use a template?

Generic LOI templates can be a useful starting point to understand the typical structure, but every deal has its own quirks -- real estate involved, an earnout tied to future performance, a partial rollover of equity, licensing considerations. Have an M&A attorney review or draft your LOI rather than relying solely on a generic template, especially for anything beyond a simple, straightforward deal.

What happens after the LOI is signed

Once signed, the deal typically moves into due diligence, financing (if applicable), and drafting of the definitive purchase agreement. The LOI isn't the finish line -- it's the starting gun for the most detailed and time-intensive phase of the transaction.