How to Write a Letter of Intent to Buy a Business (With Template)

A letter of intent is a short written offer in which you and the seller agree on price, structure, and process before either side pays for diligence and legal drafting. You write it, the seller (or the seller's advisor) marks it up, and both sides sign. Signing starts the clock on diligence, lender underwriting, and the purchase agreement.

The document has two layers. The commercial terms are non-binding: price, form of consideration, seller note, working capital, transition, and closing conditions. The binding terms are the ones you write as binding: exclusivity (the seller stops talking to other buyers), confidentiality, and who pays which expenses if the deal dies. A seller can still walk away from a non-binding price. What holds the deal together is the exclusivity window and how specific your terms are.

The LOI also becomes the lender's first real document. An SBA lender sizes the loan, the equity injection, and the seller note from your LOI. If the LOI promises a seller note that amortizes from day one, or a price the lender's valuation will not support, you will retrade with the seller after you have spent money on diligence. Retrades happen at that point because the LOI did not match the financing rules.

Write the LOI for three readers: the seller, who needs to see a clean number and a credible buyer; the lender, who needs terms that fit the SOP; and the attorney who will turn it into a purchase agreement. Send your lender the draft before the seller sees it, so every term has already cleared the SOP 50 10 8.1 rules that took effect October 1, 2026.

Five SBA rules in SOP 50 10 8.1 decide whether your LOI can be financed, and each one belongs in a specific clause.

Three details change how you draft. First, seller debt on full standby is excluded from debt service, and it stays on standby for the entire term of the 7(a) loan, documented on SBA Form 155. Interest may accrue and be added to the standby balance. A seller note that pays interest or principal during the loan counts against your coverage; an interest-only note is amortized over no more than 10 years for the test.

Second, the lender must see the cash. Bank statements must show the funds available for at least 30 days, and a promissory note or gift letter alone does not count. Fees you pay to educators, advisors, or agents do not count toward the injection.

Third, the rate is capped. For a loan above $350,000 the variable maximum is the base rate plus 3.0%. With WSJ prime at 7.00% since September 17, 2026, that cap is 10%. The maximum SBA loan is $5,000,000.

Run your own price and rate through the SBA 7(a) loan calculator to see whether debt service clears 1.25x before you put a price in writing.

On a $3,000,000 purchase with $650,000 of SDE, the LOI has to name the price, a $300,000 equity injection, and two lender-driven conditions that a smaller deal would not need. Here is the structure, assuming for clarity that total project cost equals the purchase price. Real project cost also includes closing costs, which raises the injection base.

Earnings basis. The price is quoted against SDE, which is net profit plus one owner's full compensation plus documented add-backs. The lender tests EBITDA, which is SDE minus a market-rate salary for a replacement manager. EBITDA sits below $650,000 by a market-rate manager salary even if you run the company yourself, and the lender measures coverage on that smaller number. Your LOI should say which earnings figure the price rests on. See what SDE is if you need the definition.

Quality of earnings. A $3,000,000 Business Purchase Price meets the threshold, so a QoE is required. If the sale includes owner-occupied real estate that is appraised, that value comes out of the Business Purchase Price for the test, and the deal may fall under $3,000,000. The report cannot be prepared by or for the seller, and the lender must use the QoE's normalized earnings in its coverage calculation. Your LOI should therefore tie the price to QoE-normalized earnings. Read what a QoE report covers before you scope it.

Valuation. The price is above $350,000, so the lender orders an independent valuation. If it comes in below $3,000,000, the portion of price above the valuation must be funded by equity or debt on full standby. Your LOI needs a clause that says what happens: a price reduction, a larger standby note, or more buyer cash.

Standby note. The $150,000 note makes no payments and is not refinanced early. It sits behind the SBA loan until that loan is repaid, and any accrued interest amortizes afterward. Draft it that way so the lender does not ask you to rewrite it.

A usable LOI has ten clauses, and each clause below carries the bracketed fields you fill in. Copy the structure, then replace every bracket with your deal's terms.

1. Parties and structure. [Buyer entity] proposes to acquire substantially all assets (or [100% of the equity]) of [Target company] from [Seller].
2. Purchase price. [Dollar amount], on a cash-free, debt-free basis, based on [SDE or EBITDA, labeled] of [amount] for [fiscal year or two-year average].
3. Consideration. Cash at closing of [amount], SBA 7(a) financing of [amount], and a seller note of [amount] on full standby for the entire term of the SBA loan, with interest [accruing or none].
4. Earnings adjustment. The price adjusts if the QoE's normalized earnings differ from the figure above, by the formula [formula].
5. Valuation clause. If the lender's independent valuation is below the price, the parties will [reduce price, increase the standby note, or add buyer cash] by the shortfall.
6. Working capital. Delivery of a normal level of working capital, set at [target], measured at closing.
7. Financing condition. Closing is conditioned on lender approval and SBA loan authorization on terms consistent with this letter.
8. Diligence and exclusivity. Seller grants exclusivity through [date], long enough to cover the lender's valuation, any QoE, and loan approval. Seller provides financials, tax returns, contracts, and lease documents within [days].
9. Transition and restrictive covenants. Seller provides [length] of transition support, with a non-compete of [term, radius] and employee and customer handling per [terms].
10. Binding provisions. Exclusivity, confidentiality, and expenses are binding. All other terms are non-binding and subject to a definitive purchase agreement. Signed by [buyer] and [seller] on [date].

Have your attorney review clauses 8 and 10 specifically, because the binding language is where a loosely worded LOI can leave you either bound to a deal you cannot finance or unprotected during diligence.

Some LOI terms are fixed by SBA rule and cannot be negotiated, and the rest go to whichever side has better alternatives.

On structure, the seller's tax result differs between the two forms. Read asset sale versus stock sale so you know what you are asking the seller to give up and what you can offer in exchange. Concede on the terms the SBA does not fix, and hold the line on the ones it does, because the lender will enforce them regardless of what you agreed.

The costliest LOI mistakes are drafting terms that conflict with the SOP, because the lender finds them after you have signed exclusivity and paid for diligence.

• Pricing off SDE and ignoring EBITDA. The lender's coverage test uses EBITDA, so a price that works on SDE can fail the 1.25x requirement once a replacement manager's salary comes out.
• Treating projections as support. The 1.25x must be met on historical results. Your growth plan does not count toward it.
• Writing a seller note that pays. Only a note on full standby is excluded from debt service and counts toward the injection. A paying note adds to debt service.
• No valuation clause. The lender orders the appraisal, and total acquisition debt cannot exceed it. Without a clause, the shortfall becomes a renegotiation from a weak position.
• No QoE clause at $3,000,000. Normalized earnings that come in lower than reported SDE move the price unless the LOI says how.
• Counting fees toward your injection. Education, advisory, and agent fees do not count, and a promissory note or gift letter does not prove cash. The lender wants 30 days of bank statements.
• Exclusivity that expires before approval. Munera's published range from signed LOI to close is 60 to 90 days, and it depends on financing and diligence. An exclusivity window set without that schedule leaves the final weeks unprotected.
• Making everything binding. A binding price with no financing condition can leave you liable for a purchase the lender declines to fund.

Before you sign, hand the draft to your lender and ask them to mark every term that conflicts with SOP 50 10 8.1, then fix those terms first.

After you write the LOI, the next step is a lender conversation, not a seller conversation. Take the draft to an SBA lender, confirm the structure fits the coverage, injection, and valuation rules, and then send it.

1. Test the numbers. Run the price, the $2,700,000 style loan, and the rate cap through the SBA loan calculator. Confirm EBITDA covers combined debt service at 1.25x.
2. Decide on the QoE. If the Business Purchase Price is $3,000,000 or more, budget for the report now. A buyer-ordered QoE can be reviewed by the lender through a qualified vendor if it meets SBA minimums, so ask which vendors the lender accepts before you hire one.
3. Season your cash. Move the buyer cash into the account that will fund the injection, because the lender wants at least 30 days of statements.
4. Send the LOI with a clear deadline. Set a response date and make the exclusivity period start on signature.
5. Calendar the post-signing work. Diligence requests, the lender's valuation order, the QoE, and the purchase agreement all run in parallel.

If you do not yet have a target, Munera's Acquisition Launch sources off-market deals for buyers and introduces lenders. For the SBA rules in one place, start at the SBA 7(a) acquisition financing index.