The short answer: A Letter of Intent is a mostly non-binding proposal that states your price, deal structure, and terms, but with a few clauses that are binding, usually exclusivity, confidentiality, and expenses. Its real job is to lock the seller into an exclusive window (typically 30 to 90 days) so you can safely run due diligence. Start from our free LOI template and have a lawyer review the binding provisions before you sign.
What an LOI actually is
A Letter of Intent (also called a term sheet at this stage) is a short document, usually two to five pages, that summarizes the deal you and the seller have verbally agreed to. It is not the contract that transfers the business; that's the purchase agreement you'll sign later. The LOI's job is narrower and more important than it looks: it aligns both sides on the big terms before anyone spends real money, and it buys you exclusivity to do the work.
The LOI is cheap. The mistakes you prevent by writing a clear one are not.
Which parts are binding?
This is the single most misunderstood thing about LOIs. Most of the document is non-binding, a good-faith proposal, not a promise. But a handful of clauses are binding on purpose, and you need to know which is which before you sign.
| Clause | Usually… | Why |
|---|---|---|
| Purchase price & structure | Non-binding | Subject to diligence and the definitive agreement |
| Due diligence & financing conditions | Non-binding | Gives you the right to walk if things don't check out |
| Exclusivity / no-shop | Binding | Stops the seller from shopping your offer while you spend on diligence |
| Confidentiality | Binding | Protects the seller's sensitive information you'll see |
| Expenses | Binding | States each side pays its own costs (usually) |
Always label the binding sections
A well-drafted LOI has a "Binding Provisions" paragraph that names exactly which clauses survive and which don't. If that paragraph is missing or vague, a court could treat the whole thing as binding, or as nothing. Don't sign until it's explicit.
Section-by-section: what to include
A complete buyer's LOI covers these pieces. Use them as a checklist against any draft.
- Parties & the business. Who is buying, who is selling, and exactly what entity or assets are in scope.
- Purchase price & payment. The number, and how it's funded, cash at close, SBA financing, a seller note, or an earnout.
- Deal structure. Almost always an asset sale for small businesses, state it here.
- What's included / excluded. Equipment, inventory, IP, and the working capital you expect to be delivered.
- Exclusivity (no-shop). The window during which the seller can't negotiate with anyone else.
- Due diligence period. How long you have, and your right to walk if it's unsatisfactory.
- Key conditions. Financing approval, lease assignment, seller transition/training, non-compete.
- Confidentiality & expenses. The binding housekeeping clauses.
- Expiration. A date the offer lapses if the seller doesn't sign.
The exclusivity clause is the whole point
Diligence costs money, legal fees, accounting review, sometimes a Quality of Earnings report. You will not spend that if the seller can take a better offer the day before you close. The exclusivity (no-shop) clause is what protects that investment. For small deals it usually runs 30 to 90 days. Ask for enough time to finish diligence and get through SBA underwriting; sellers will push for less.
Price it off real numbers first
Don't anchor your LOI price to the seller's asking number. Pressure-test it with the valuation calculator and our valuation guide so the figure you write is one you can defend through diligence.
Use a template, then get it reviewed
You don't need to draft an LOI from a blank page. Start from our free Letter of Intent template, fill in your terms, and have a transactional attorney review the binding provisions before it goes out. Once the LOI is signed, you move straight into due diligence, and if you're not sure you're even at LOI stage yet, read IOI vs LOI first.
Grab the LOI template
A buyer-friendly Letter of Intent you can fill in today, binding clauses labeled.
Frequently asked questions
Mostly non-binding, the price and structure are proposals subject to diligence and a definitive agreement. But exclusivity (no-shop), confidentiality, and expense clauses are usually binding on purpose. Always state clearly which sections are binding.
Price and payment, deal structure (asset vs stock), what's included/excluded, an exclusivity period, a due diligence period, key conditions like financing and lease assignment, confidentiality, an expiration date, and a clear statement of which provisions are binding.
Usually 30 to 90 days, long enough to complete diligence and negotiate the purchase agreement. Sellers prefer shorter; buyers want room to finish diligence and secure financing.
Usually yes, the economic terms are non-binding and conditioned on satisfactory diligence and financing. But you can't violate the binding clauses (confidentiality, exclusivity) without potential liability. Read that section carefully first.
Sources
- LOI structure and binding-provisions guidance, DueDilio, Acquisition Stars (2025 to 2026).
- Exclusivity and no-shop norms in small-business deals, BizBuySell.
