How to Write an LOI for a Small Business (With an Annotated Template)

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A buyer I know lost a deal to a lower offer.

Same business, two interested buyers. The seller chose the buyer who offered $50K less. When the broker explained why, the answer was simple: the other buyer's LOI was specific. It referenced the seller's business by name, acknowledged the transition risk, proposed a seller note, and included a realistic closing timeline. It read like it was written by someone who understood what they were buying.

My friend's LOI was a template he found online. Generic terms, no specifics, nothing that signaled he'd done the work.

The seller chose the buyer who seemed more prepared. That's almost always how it goes.

An LOI is not primarily a legal document. It's a first impression in writing. The terms matter, but so does what your terms signal about you as a buyer.

This guide covers both.

What an LOI actually is

A Letter of Intent is a non-binding document that outlines the key terms of a proposed acquisition. You submit it to the seller (usually through the broker) before due diligence begins.

Non-binding means neither party is legally committed to the deal. The seller can still walk away. So can you. The LOI is an agreement to negotiate in good faith, not a contract.

What it does accomplish:

It starts the exclusivity clock. Once a seller accepts your LOI, they typically agree to stop showing the business to other buyers for a defined period (usually 30 to 60 days). That gives you time to complete due diligence without competing with other offers.

It sets the terms of the negotiation. The price and structure in your LOI become the baseline. Everything that comes out of due diligence is a negotiation from that baseline.

It signals who you are. A specific, well-structured LOI tells the seller you've done your homework. A generic one tells them you haven't.

What goes in an LOI

Every LOI should cover these elements:

Purchase price. The total amount you're offering to pay for the business.

Deal structure. How the purchase price is funded. Typically a combination of buyer equity, SBA financing, and a seller note. The structure matters as much as the price.

What's being purchased. Asset purchase or stock purchase. For most small business acquisitions, asset purchases are standard. They let you avoid inheriting unknown liabilities.

Due diligence period. How long you have to verify the financials, operations, and legal standing of the business before you're committed to closing. Typically 30 to 60 days.

Exclusivity period. How long the seller agrees not to show the business to other buyers. Usually runs concurrent with due diligence.

Closing timeline. A target date for closing. Gives both parties a shared expectation.

Transition period. How long the seller agrees to stay on after closing to help with the handoff. Typically 30 to 90 days, sometimes longer for complex businesses.

Key conditions. Any conditions that must be met for the deal to close. Financing contingency is the most common: if you can't secure SBA financing, you're not obligated to close.

Non-binding language. A clear statement that the LOI is not a binding contract, except for specific provisions like exclusivity and confidentiality.

How to think about price and structure

Most buyers focus on the price. Sellers often care more about the structure.

A seller who built a business over 25 years is not just optimizing for the highest number. They're thinking about whether the deal will actually close, whether the buyer will take care of their employees, and whether they'll get paid everything they're owed.

The structure of your offer speaks to all three.

Seller note. A seller note is when the seller agrees to finance a portion of the purchase price themselves. You pay them back over time, typically 3 to 7 years, at a negotiated interest rate. Standard seller notes are 10 to 20% of the purchase price.

Most buyers treat the seller note as a financing tool. It is, but it's also something else: a trust signal.

When you ask a seller to carry a note, you're saying: I believe in this business enough to let you share in the downside if I'm wrong. If the business fails, you don't get paid. Sellers who are confident in their business will accept this. Sellers who aren't will resist it.

A seller who refuses any seller note, insists on all cash at closing, and won't explain why is telling you something about how they feel about the business's future performance. Pay attention.

Ask directly: "Is there a reason you're not comfortable carrying a note?" The answer is usually revealing. A seller who says "I need the cash for a specific reason" is different from one who deflects or gets defensive. The deflection usually means they don't believe the business will perform as well under new ownership as it did under theirs. They want to get paid before they find out.

SBA financing. Most small business acquisitions are financed with an SBA 7(a) loan, which covers up to 90% of the purchase price. If you're planning to use SBA financing, say so in the LOI and include a financing contingency. This protects you if the loan doesn't come through.

Earnout. An earnout ties a portion of the purchase price to the business's future performance. Use them carefully. A small earnout (5 to 10% of the price) tied to a specific, measurable metric can bridge a valuation gap. A large earnout is usually a sign that the buyer and seller disagree about what the business is worth, and that disagreement will resurface after closing.

An annotated LOI template

Here's a simplified LOI structure with notes on why each section is written the way it is.

[Date]

[Seller Name] [Business Name]

Dear [Seller Name],

[Opening paragraph] I am pleased to submit this Letter of Intent to acquire substantially all of the assets of [Business Name] (the "Business"). This letter outlines the principal terms under which I propose to complete this acquisition. This letter is non-binding except as specifically noted below.

Why: State clearly that it's non-binding upfront. Sellers and their attorneys will look for this. Ambiguity here creates problems later.

Purchase Price The proposed purchase price is $[X], representing approximately [X]x the Business's trailing twelve-month Seller Discretionary Earnings of $[X], as represented by the Seller.

Why: Reference the SDE multiple explicitly. It shows you understand how small business valuations work and anchors the price to a verifiable number. "As represented by the Seller" protects you if the SDE turns out to be different than stated.

Deal Structure The purchase price would be funded as follows:

Buyer equity: $[X] ([X]%)
SBA 7(a) financing: $[X] ([X]%)
Seller note: $[X] ([X]%), payable over [X] years at [X]% interest

Why: Showing the full capital structure signals that you've thought through the financing. Including a seller note shows you're proposing a standard deal structure, not trying to minimize your own risk at the seller's expense.

Assets Purchased This offer is for an asset purchase of substantially all business assets, including equipment, inventory, customer relationships, intellectual property, and goodwill. Specific assets and liabilities to be included or excluded will be defined in the definitive Purchase Agreement.

Why: Asset purchase is standard for small businesses. Stating it clearly avoids confusion later.

Due Diligence Buyer will have [45] days from the execution of this letter to complete due diligence. Buyer will have reasonable access to the Business's financial records, customer contracts, employee information, and operational documentation during this period.

Why: 45 days is standard. Don't agree to less than 30. More than 60 can signal to the seller that you're not serious.

Exclusivity During the due diligence period, Seller agrees not to solicit, negotiate, or accept offers from other parties for the purchase of the Business. This exclusivity provision is binding.

Why: This is one of the few binding provisions in an LOI. Make sure it's clearly stated.

Closing The parties will target a closing date of approximately [90] days from the execution of this letter, subject to completion of due diligence and financing.

Why: 90 days is realistic for an SBA-financed deal. Setting a target date creates shared urgency.

Transition Seller agrees to remain available for a transition period of [60] days following closing to assist with customer introductions, employee transitions, and operational handoff.

Why: Transition terms matter to sellers. Acknowledging them in the LOI signals that you've thought about the handoff, not just the acquisition.

Conditions This offer is contingent upon: (1) satisfactory completion of due diligence; (2) Buyer securing SBA financing on acceptable terms; (3) execution of a definitive Purchase Agreement.

Why: The financing contingency is essential. Without it, you could be obligated to close even if your loan falls through.

Sincerely, [Your Name] [Your Contact Information]

What not to put in an LOI

Keep it short. An LOI is not a purchase agreement. If you try to negotiate every detail in the LOI, you'll slow down the process and signal that you don't trust the seller. Save the detailed terms for the purchase agreement.

Don't include anything you're not prepared to stand behind. If you put a 45-day due diligence period in the LOI and then ask for an extension, you've started the relationship with a broken commitment.

Don't lowball dramatically. A price that's 40% below asking without a clear rationale doesn't start a negotiation. It ends one. If your SDE reconstruction produces a number significantly different from the seller's, explain the gap before you submit the LOI. And understand that a dramatically low offer doesn't just insult the seller. It signals to the broker that you don't understand the market. Brokers remember this. Your credibility with a broker is a shared resource across every deal they show you. Undermine it on one deal and you've made every future deal harder.

What happens after you submit

The seller will respond in one of three ways: accept, reject, or counter.

An acceptance means you move into due diligence. The exclusivity clock starts.

A rejection usually means the price is too far off, or the seller has a better offer. Ask the broker for feedback. Sometimes a rejection is an invitation to revise.

A counter is the most common outcome. The seller accepts the structure but wants a higher price, a smaller seller note, or different terms on the transition period. This is normal. Respond within 48 hours. Deals die when momentum stalls.

One thing worth knowing: the seller's response to your seller note proposal is often more informative than the response to your price. A seller who pushes back hard on carrying any note is worth paying attention to.

AcquiPilot's LOI builder pre-populates your deal structure from your financial analysis and seller meeting notes, so you're not starting from a blank page. Start for free.