LOI Template + Annotated Terms: A Buyer-Friendly Starting Point
Executive Summary (TL;DR)
- This LOI (Letter of Intent) template is a buyer-friendly starting point to move from “interesting listing” to structured diligence—without accidentally making the wrong things binding.
- The goal is to lock process (timeline, exclusivity, access, confidentiality) while keeping price/structure flexible until diligence and lender underwriting are real.
- Buyers/investors should use this LOI when they have a credible target and want to: define the deal shape, request a data room, and set deadlines for decisions.
- If you anticipate financing (including SBA 7(a)), working capital disputes, or complex consents (landlord, customers, licenses), the annotated terms below help you surface them early.
Table of Contents
- What an LOI does (and what it should not do)
- What buyers/investors should do next
- Valuation lens: SDE, EBITDA, and add-backs (why LOIs go sideways)
- LOI template (buyer-friendly) + annotated terms
- Deal process overview (NDA → LOI → diligence → close)
- Due diligence checklist (with table)
- Myth vs. Fact (LOI edition)
- 30/60/90 execution plan for buyers
- CTA: next steps on BizTrader
What an LOI does (and what it should not do)
An LOI is a roadmap and filter, not the final contract. Used correctly, it:
- Creates a shared understanding of what you think you’re buying (asset vs. stock sale, included/excluded items, assumed liabilities).
- Defines the process: diligence access, exclusivity, timing, and who pays what.
- Forces early discussion of deal friction: working capital, liens, landlord consent, customer concentration, and transition.
Used poorly, an LOI:
- “Locks” a price before you’ve verified cash flow quality (and the add-backs that drive it).
- Leaves vague timelines that let momentum die.
- Treats “standard terms” as a shortcut—then diligence reveals the terms were never standard for this business.
If you’re actively evaluating opportunities, start with live deal flow so your LOI effort goes into real targets: browse active listings on BizTrader.
What buyers/investors should do next
Before sending an LOI, buyers/investors should do three things:
- Confirm fit and transferability
- Is this an asset deal or stock deal (or flexible)?
- Any required landlord consent, key vendor approvals, or license transfers?
- Any obvious customer concentration risk (one customer = one negotiation)?
- Define your “must-have” terms
- Financing path (cash, bank/SBA 7(a), seller note, earnout).
- Minimum diligence access (financials, payroll, tax, contracts, POS/CRM exports).
- A working capital mechanism (even a placeholder) so you don’t “win” the LOI and lose at closing.
- Set a real diligence plan
- Request a data room early, with named folders and owners.
- Decide whether you’ll commission a QoE (quality of earnings) review (or a lighter “proof of cash flow” review) based on deal size and complexity.
If you want a broader acquisition sequence (screening to closing), keep this nearby: How to Buy a Business in 2026: Step-by-Step Guide.
Valuation lens: SDE, EBITDA, and add-backs (why LOIs go sideways)
Most LOI tension isn’t “price.” It’s what the earnings really are.
- SDE (Seller’s Discretionary Earnings) is common in Main Street deals. It starts with profit and adds back certain discretionary or non-recurring expenses (owner comp, some one-time items, certain personal expenses if legitimate add-backs).
- EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is more common as deals get larger and management layers exist.
Buyer-friendly move: in the LOI, avoid pretending the earnings are final. Instead:
- Define the earnings basis as preliminary, subject to diligence.
- Require support for add-backs (documentation, not just a list).
- Consider a price structure that can adjust (working capital true-up, earnout tied to verified performance, seller note with covenants).
LOI Template (Buyer-Friendly) + Annotated Terms
Important: This is a practical template to help structure conversations. It’s intentionally written to keep most economic terms non-binding while making the process binding (confidentiality, exclusivity, costs, governing law, etc.). Your counsel should tailor it to your jurisdiction and deal.
1) Parties, Target, and Transaction Form
Proposed Language
- Buyer: [Legal Name], or its designated affiliate (“Buyer”)
- Seller: [Legal Name] (“Seller”)
- Target: [Business Name] (“Business”)
- Transaction Form: Buyer proposes to acquire [substantially all assets] of the Business, free and clear of liens, except as expressly assumed. (Alternatively, a stock/equity acquisition may be considered subject to diligence.)
Annotation (buyer-friendly)
- Start with asset sale as default unless there’s a strong reason for stock (licenses, contracts, tax, simplicity). Asset deals can reduce inherited liabilities, but they increase consent/assignment work.
- Keep flexibility: “stock may be considered” prevents dead-ends if assignment/consents become impossible.
2) Purchase Price and Structure (Framework, Not Final)
Proposed Language
- Indicative Purchase Price: $[___] (the “Purchase Price”), subject to adjustment based on diligence findings, working capital, and final definitive agreements.
- Structure (initial concept):
- Cash at closing: $[___]
- Third-party financing (if applicable): $[___]
- Seller note: $[___] (terms to be agreed)
- Earnout (if applicable): up to $[___], based on defined performance metrics to be agreed
Annotation (buyer-friendly)
- Don’t “hard commit” price until you’ve verified cash flow and risks. Use “indicative” + “subject to adjustment.”
- If you expect lender underwriting, build the right to restructure (e.g., more seller note if lender proceeds change).
- If you include an earnout, flag now that it must be measurable (definition of revenue/profit, reporting, and control rights).
For deeper structuring considerations on seller financing, see: Seller Notes: How to Structure and Secure Them.
3) Included/Excluded Assets; Assumed Liabilities
Proposed Language
- Included Assets: inventory, equipment, fixtures, furniture, intellectual property (trademarks, domains, phone numbers), customer lists, assignable contracts, and goodwill, as mutually agreed.
- Excluded Assets: cash on hand, Seller’s personal assets, and any excluded items to be listed in schedules.
- Assumed Liabilities: only those expressly set forth in definitive agreements.
Annotation (buyer-friendly)
- “Only expressly assumed” is key. Avoid accidental liability assumptions.
- If inventory matters, define how it’s counted and valued (or treat it as separate from price).
4) Working Capital (Prevent the #1 Closing Surprise)
Proposed Language
- Transaction will include a normalized working capital level to be delivered at closing, with a post-closing true-up based on agreed definitions and a target to be established during diligence.
Annotation (buyer-friendly)
- Working capital disputes kill deals late. This clause forces the conversation early without guessing a number.
- “Normalized” means not the seller’s best month or worst month—use trailing periods and seasonality logic.
5) Due Diligence Access, Scope, and Cooperation
Proposed Language
- Diligence Period: [__] days from LOI acceptance (extendable by mutual written agreement).
- Seller will provide customary access to financial, tax, operational, legal, and commercial information, including a structured electronic data room.
- Buyer may conduct confirmatory reviews including customer/vendor calls (with Seller coordination), site visits, and third-party diligence.
Annotation (buyer-friendly)
- Put diligence in days and include extension logic (especially if lender/SBA timelines exist).
- Require a data room, not “we’ll send what you ask for.” The difference is speed and consistency.
For a practical data room blueprint, reference: Data Room Checklist for Small Business Exits.
6) Exclusivity (Process Protection)
Proposed Language
- In consideration of Buyer’s diligence time and expense, Seller agrees to an exclusivity period of [__] days from LOI acceptance, during which Seller will not solicit, negotiate, or accept proposals relating to a sale of the Business, and will pause marketing efforts.
Annotation (buyer-friendly)
- Exclusivity should match your diligence plan. If the seller won’t grant exclusivity, shorten your diligence spend and tighten your deadlines.
7) Confidentiality (and NDA Confirmation)
Proposed Language
- The parties reaffirm that all exchanged information is confidential and governed by the existing NDA (Non-Disclosure Agreement) dated [__], or, if none exists, agree to confidentiality terms consistent with customary practice.
Annotation (buyer-friendly)
- Ideally, sign the NDA before the LOI. LOI confidentiality can backstop gaps.
8) Financing and Underwriting Contingency (If Applicable)
Proposed Language
- Buyer’s obligation to close may be contingent upon obtaining financing on terms reasonably acceptable to Buyer, including any required lender diligence and approvals.
Annotation (buyer-friendly)
- If you need financing, say it. Otherwise you risk being treated as “no-excuses cash.”
- Keep “reasonably acceptable” so you’re not trapped in uneconomic loan terms.
9) Key Consents and Third-Party Approvals
Proposed Language
- Closing is contingent upon obtaining all material third-party consents, including landlord consent for lease assignment/renewal, and assignment/novation of material customer/vendor contracts as required.
Annotation (buyer-friendly)
- Call out landlord consent explicitly. Leases are often the real “asset” in location-based businesses.
- “Material contracts” prevents endless consent chasing for trivial agreements.
10) Liens, UCC, and “Free and Clear” Transfer
Proposed Language
- Seller will deliver the purchased assets free and clear of all liens and encumbrances, and will cooperate in providing payoff letters and releases. Buyer may conduct a UCC/lien search and related searches as customary.
Annotation (buyer-friendly)
- This protects you from buying “assets” that are already pledged.
- It also signals you’ll require clean releases before funds move.
11) Reps & Warranties (Preview, Not Full Draft)
Proposed Language
- Definitive agreements will include customary representations and warranties (reps & warranties) regarding authority, ownership, financial statements, taxes, compliance, litigation, contracts, employees, IP, and other matters appropriate to the Business.
Annotation (buyer-friendly)
- The LOI shouldn’t attempt to write the full rep package, but it should eliminate the “we don’t do reps” surprise.
12) Transition Period and Training
Proposed Language
- Seller agrees to provide a commercially reasonable transition period including training and introductions to key customers, vendors, and employees, as detailed in definitive agreements.
Annotation (buyer-friendly)
- Transition is where value gets preserved or lost. Make it a real LOI term, not an afterthought.
13) Allocation and Taxes (High-Level Flag)
Proposed Language
- The parties will cooperate in good faith on tax and accounting matters customary for the transaction structure, including any required purchase price allocation filings.
Annotation (buyer-friendly)
- You’re not negotiating tax law in an LOI. You’re preventing the later surprise of “we require a specific allocation.”
14) Definitive Agreements and Binding/Non-Binding Nature
Proposed Language
- Except for Sections [Confidentiality], [Exclusivity], [Costs/Expenses], [Governing Law], and [No-Shop Remedies], this LOI is non-binding and intended solely as an expression of mutual interest. No obligation exists unless and until definitive agreements are executed.
Annotation (buyer-friendly)
- This is the “seatbelt.” Make sure your LOI clearly separates binding process from non-binding economics.
15) Costs, Fees, and Advisors
Proposed Language
- Each party bears its own costs and expenses unless otherwise agreed in definitive agreements.
Annotation (buyer-friendly)
- Simple is fine. If you need seller to share QoE costs, you can add that—but it’s a negotiation lever.
16) Timeline and Target Closing
Proposed Language
- The parties intend to proceed expeditiously with a target closing on or before [__], subject to diligence, financing, and consents.
Annotation (buyer-friendly)
- Deadlines create motion. Even if it moves, it forces weekly decisions.
17) Signature
Proposed Language
- If the above reflects your understanding, please indicate acceptance by signing below no later than [date/time].
Annotation (buyer-friendly)
- Put an expiration date on your offer. Open-ended LOIs invite shopping.
Deal process overview (NDA → LOI → diligence → close)
A clean buyer workflow looks like this:
- NDA signed → you receive a teaser and often a CIM (Confidential Information Memorandum) or listing package.
- LOI submitted → you define structure, request a data room, and secure exclusivity.
- Diligence begins → financial validation (bank statements, tax returns, payroll), operational reality checks, legal/contract review, lien searches, and (if warranted) QoE.
- Definitive agreements negotiated → asset purchase agreement (APA) or stock purchase agreement, schedules, closing deliverables.
- Close → funds, releases, assignments/consents, and handover plan executed.
Due diligence checklist (with table)
Use diligence to validate three things:
- Earnings are real (and transferable)
- Risks are bounded (legal, tax, compliance, liabilities)
- Operations can transition (people, customers, vendors, systems)
Diligence checklist table (buyer-focused)
| Area | What to request | What you’re trying to confirm | Red flags to escalate |
|---|---|---|---|
| Financials | Year-to-date P&L, balance sheet, bank statements, revenue detail | Cash flow quality; consistency vs. story | Unexplained add-backs; revenue that doesn’t tie to deposits |
| Taxes | Business returns, payroll filings, sales/use tax filings (if applicable) | Tax compliance and exposure | Unfiled returns; unresolved notices; tax liens |
| Customers | Top customers, contracts, renewal terms | Customer concentration; retention risk | One customer dominates; contracts non-assignable |
| Vendors | Key vendor agreements, pricing history | Supply stability; margin durability | Single-source vendor; sudden price hikes |
| Employees | Org chart, pay rates, benefits, contractor list | People risk; misclassification exposure | Key person dependency; undocumented comp arrangements |
| Legal | Litigation list, permits/licenses, material contracts | Transferability and obligations | Licenses non-transferable; missing consents |
| Assets | Equipment list, maintenance records, inventory method | Condition; replacement capex | Deferred maintenance; inventory not tracked |
| Liens | UCC/lien search inputs, payoff letters | Clean title transfer | Secured lender won’t release; hidden encumbrances |
| Lease/Real Estate | Lease, amendments, estoppels, landlord consent process | Site control and assignability | Short remaining term; landlord refusal risk |
| Systems & Data | POS/CRM exports, accounting file, cybersecurity basics | Operability; reporting integrity | Owner-only access; weak controls; missing backups |
Myth vs. Fact (LOI edition)
- Myth: “LOIs are just formalities.”
Fact: LOIs set the process physics—timeline, exclusivity, and diligence access. That determines whether you can verify the deal before you’re committed. - Myth: “Price is the only thing that matters in an LOI.”
Fact: Price without structure (working capital, seller note, earnout, consents) is how buyers “win” the LOI and lose at closing. - Myth: “Exclusivity is always bad for sellers, always good for buyers.”
Fact: Exclusivity is good when it matches a real diligence plan and deadlines. Endless exclusivity is bad for everyone. - Myth: “Diligence starts after the LOI.”
Fact: The best buyers do pre-LOI diligence (what they can) and use the LOI to unlock the rest—especially data room, lien checks, and consent pathways.
30/60/90 execution plan for buyers
First 30 days (pre-LOI to LOI acceptance)
- Shortlist targets; sanity-check transferability (lease, licenses, contracts).
- Validate the earnings bridge (SDE/EBITDA drivers and add-backs).
- Draft LOI with clear diligence scope, data room request, and deadlines.
Days 31–60 (diligence sprint)
- Build diligence tracker (owners, deadlines, open items).
- Verify revenue and margins with third-party evidence where possible.
- Run UCC/lien search inputs; begin landlord consent process.
- Decide whether you need QoE (full or targeted) based on findings.
Days 61–90 (paper + close readiness)
- Negotiate definitive agreements and schedules (don’t ignore the schedules).
- Lock down consents (landlord, customers, vendors) and payoff letters.
- Finalize transition plan: training, introductions, and access handoff.
- Align financing conditions with closing deliverables (don’t let underwriting surprise you).
CTA: next steps on BizTrader
- Start with live opportunities and filter fast: explore active listings.
- If you want to build a location-based shortlist (then diligence for transferability and cash flow quality), use: BizTrader state hubs.
- Tighten your LOI terms around financing and seller participation: seller note structuring guidance.
This article is for educational purposes only and does not constitute legal, financial, tax, or business brokerage advice. Always consult qualified professionals before making decisions, and verify all requirements with the appropriate authorities and counterparties.
