Earnest money is a good-faith deposit a buyer places after signing the LOI to show serious intent, typically held in escrow and credited toward the purchase price at closing, or forfeited if the buyer walks without a contractual reason.
Worked example
| Line | Amount |
|---|---|
| Purchase price | $945,000 |
| Earnest money at LOI | $15,000 |
| Held by | Escrow agent |
| At closing | Credited to price |
If a diligence contingency isn't met, a well-drafted LOI returns the deposit; a no-cause walk-away may forfeit it.
Why it matters when buying a business
Earnest money buys you exclusivity and signals credibility, but the terms decide your risk. Keep it in escrow, tie its return to clear due-diligence and financing contingencies in the LOI, and never wire it directly to the seller.
