What should a letter of intent to buy a business include?

What are the core terms every LOI needs?

1. Parties and what is being bought. The buyer entity, the seller and the business.
2. Price and its basis. State the earnings figure and year the price is based on, and that the price adjusts at the same multiple if verified earnings differ.
3. Structure. Asset purchase or stock purchase. This drives taxes, liabilities and lender requirements.
4. Payment. Cash at closing, SBA loan amount, your equity, any seller note with amount, rate, term and standby status, and any rollover equity.
5. What is included. Inventory, receivables, equipment, working capital and how each is measured. See what the asking price includes.
6. Diligence. Length, what you will review, and the seller's duty to provide access.
7. Exclusivity. Length, and an extension while the lender is processing the loan.
8. Target closing date. SBA deals typically take 60 to 120 days from LOI to closing.
9. Seller transition and non-compete. Length, role, pay and geographic scope. Non-compete rules vary by state.
10. Key conditions. Lease assignment or new lease, license transfers, key employee retention, no material change before closing.
11. Binding and non-binding sections. Exclusivity, confidentiality and expenses are usually binding. The deal terms usually are not. Confirm with your lawyer.

Which SBA-specific contingencies should you add?

Under SBA SOP 50 10 8.1, which applies to loans that receive an SBA loan number on or after October 1, 2026, several rules belong in the LOI. Putting them in now prevents a renegotiation when the lender reads the deal.

• Financing contingency. Closing is conditional on SBA loan approval on stated terms.
• Valuation contingency. Every change-of-ownership loan needs an independent business valuation. Total debt is capped at the appraised value. Say what happens if the valuation comes in below price: renegotiate, or either side may end the LOI.
• QoE contingency. For initial acquisitions and business expansions with a business price of $3 million or more, the lender commissions an independent quality of earnings report and uses its earnings. Tie the price basis to the QoE result.
• Seller-note terms that fit SBA. A note on full standby (no principal or interest for the life of the SBA loan) can count toward up to half of the 10% injection. A note not on full standby is included in debt coverage at a maximum 10-year amortization. Say which it is.
• No earnout. SBA rules prohibit seller earnouts. Do not promise one.
• Transition within the limit. The seller can stay as a consultant or employee for up to 24 months in total after closing.
• Partial purchases. If the seller keeps some equity, the deal must be a stock or membership-interest purchase, and the seller must give a full personal guaranty for at least 2 years after disbursement. Sellers should know this before they sign.
• Injection and eligibility. Make sure you can show the injection, seasoned about 30 days or documented as to source, and that you meet the SBA citizenship rule in effect since March 1, 2026.

What should you leave out?

• Price ranges."Between $1.8 million and $2.1 million" invites the seller to hear the top number.
• Terms the lender cannot approve. Earnouts, seller notes with payments that break coverage, transition periods longer than 24 months.
• Full representations and warranties. Those belong in the purchase agreement. Note only the ones that matter to price.
• Vague conditions."Subject to buyer satisfaction" with no detail reads as a free option. Name what you will review.

Worked example: the capital stack in an SBA LOI

You offer $2.3 million for a business. You add an assumed $200,000 for working capital, fees and closing costs.

1. Total project costs: $2.5 million.
2. Required equity injection at 10%: $250,000.
3. Limited sources, including a seller note on full standby, can supply no more than half: $125,000.
4. Your cash: at least $125,000. Seller note on full standby: $125,000. SBA loan: $2.25 million.
5. Annual SBA payment at 10% over 10 years: about $356,800. At 1.25x, the business needs at least about $446,000 of cash flow after your salary.
6. Because the price is under $3 million, no QoE is required, but the independent valuation must support $2.3 million.

The LOI would state each line: the price, your cash, the SBA loan, and the seller note "on full standby for the life of the SBA loan, with no principal or interest payments." A seller who reads that sentence before signing will not be surprised in week six.

Where these numbers come from: SBA rules on injection, limited sources, valuation, QoE, seller notes, earnouts and transition from this guide to SBA SOP 50 10 8.1 and FunderIntel. Partial change-of-ownership rules from Starfield & Smith. Citizenship rule from Cantrell Firm. Timelines from BizBuySell's SBA loan timeline and Big Ideas DB on LOIs. Rate cap from NerdWallet; check current prime. SOP 50 10 8.1 applies to loans numbered on or after October 1, 2026; lender practice under it is still settling and these are secondary summaries, so confirm current terms with your SBA lender.

Related questions

Who writes the LOI, the buyer or the seller?

Usually the buyer, often from a template the buyer's lawyer adjusts. Ask your lender to read it before you send it.

Should the LOI include a working capital target?

At least state whether working capital is included and how it will be measured. The exact target can be set in diligence. See what a working capital peg is.

How long should an LOI be?

Long enough to settle every term that drives price and financing, and no longer. Detail on SBA terms is worth the space.

What comes next

Once the LOI is signed, the clock starts. The next question is what happens after you sign a letter of intent. The buyers who end up with the most valuable companies decide what the business goes into before they buy it, so name the right buyer entity in the LOI from the start.

Related articles

• Is a letter of intent binding?
• Should you offer the asking price in your letter of intent?
• How do you compete when other buyers want the same business?
• Can a seller note count toward the SBA 10% down payment?
• What kind of entity should you buy a business through?

Meraki Dealmakers is a service of Meraki Partners, LLC, an advisory firm. It is not a broker-dealer, investment adviser, business broker, law firm or accounting firm. This article is general information, not legal, tax or investment advice.