What Is a Letter of Intent When Selling a Business?

A letter of intent (LOI) is a short document — usually two to five pages — where a buyer puts their offer for your business in writing: the price, how it'll be paid, what has to check out before closing, and a target date. Most of it is deliberately non-binding; either side can still walk away. But two or three clauses usually are binding, and one of them — exclusivity — takes your business off the market while the buyer digs through your books. That's the trade at the heart of every LOI: the buyer commits to a price on paper, and you commit to negotiating with nobody else while they decide whether to honor it.

So the LOI isn't the finish line. It's the starting gun for due diligence and financing, the two stages where deals actually live or die. Handled well, it protects both sides from wasting three months. Handled carelessly, it hands the buyer every ounce of your leverage on page one.

What's actually in one

A typical Main Street LOI covers the purchase price and what it's based on (usually a multiple of your seller's discretionary earnings), the structure — how much cash at close, how much in a seller note, whether there's an earnout — the exclusivity period, the buyer's contingencies (financing approval, due diligence, lease assignment, sometimes a license transfer), an expense allocation if the deal dies, and a target closing date. Confidentiality is either restated or incorporated from the NDA you already signed.

The numbers being offered exist inside a fairly well-documented market. Here's what that market looked like last quarter:

Sources: BizBuySell Insight Report, Q2 2026; Axial, Dead Deal Report: Unpacking 2025's Broken LOIs.

The clause with teeth: exclusivity

Buyers won't spend $15,000–$50,000 on accountants, lawyers, and loan fees while you keep shopping their offer around. Fair enough. So every LOI asks for a no-shop window — commonly 45 to 90 days — during which you can't solicit or negotiate with anyone else. That clause is binding, and it's the single most expensive sentence in the document if the deal drags.

Here's why the length matters. When Axial studied 75 broken LOIs, the average deal spent 106 days under exclusivity before it fell apart. That's three and a half months of your business sitting off the market — momentum gone, other interested buyers moved on, and you're starting over with a listing that now looks stale. Median time on market is already 155 days per BizBuySell; a dead LOI can nearly double your calendar.

The fix isn't refusing exclusivity — you won't get a serious buyer without it. It's keeping the window short (45–60 days), tying extensions to milestones the buyer must actually hit (loan application filed within 10 days, diligence request list delivered within 5), and letting exclusivity lapse automatically if they stall. A buyer who objects to milestones is telling you something.

Run this math before you sign anything

An LOI price only counts if it survives underwriting. With roughly 78% of buyers leaning on SBA 7(a) loans, the quiet veto on your deal belongs to a bank's credit committee. They test one ratio above all: debt-service coverage — the cash the business generates against the payments on the new debt. SBA's floor is 1.15; most lenders want to see about 1.25 at today's rates (prime is 7%, and 7(a) loans over $350,000 cap out at prime + 3%).

Why deals die between LOI and closing

Axial's dead-deal data breaks down exactly what killed LOIs that had already been signed. The pattern is blunt: financing failures are shrinking, and problems found in your books are growing. Quality-of-earnings discrepancies — the buyer's accountant recalculates your earnings and gets a smaller number — more than doubled as a deal-killer between 2023 and 2025.

Read those top two bars together and the lesson writes itself: the LOI price is a hypothesis about your business, and due diligence is the experiment. If your add-backs are aggressive or your books are messy, the buyer's accountant will find out, and the price gets renegotiated or the deal dies. The cure happens months before any LOI exists — we walked through it in the 12-month preparation plan.

Negotiate before you sign, not after

Your leverage peaks the moment before your pen touches the LOI. At that point the buyer wants the deal locked and you still have alternatives. The day after, you're exclusive, the clock is running, and every open issue gets resolved in the buyer's favor because your alternative is starting over.

So the vague LOI is not your friend, even though it feels friendlier to sign. Pin down the structure (cash, note, earnout — in dollars, not adjectives), how working capital and inventory are treated, who pays what if the deal dies, and the exclusivity milestones above. One thing you usually shouldn't try to pin down: every representation and warranty. That's purchase-agreement territory, and negotiating it twice just burns goodwill.

This is also the stage where a good broker earns a chunk of the fee — pressure-testing the buyer's financing, running the DSCR math before you commit, and keeping backup buyers warm right up to the legal limit of the no-shop. If you're vetting brokers now, our guides on how they're paid and the red flags worth checking are the place to start. And if the timeline from LOI to closing is what worries you, the stage-by-stage calendar is in how long it takes to sell a business.

Frequently asked questions

Is a letter of intent legally binding when selling a business?

Mostly no, partly yes. The price and terms are statements of intent — either side can walk before the purchase agreement is signed. But exclusivity, confidentiality, and (sometimes) expense clauses are written to be binding, and courts enforce them. Have a deal attorney read even a "simple" LOI.

How long does it take to close after signing an LOI?

Plan on 60 to 120 days for a Main Street deal: 30–60 days of diligence, with SBA underwriting running partly in parallel. Broken deals drag longest — Axial's average was 106 days under exclusivity before the LOI died. Milestones in the LOI are how you keep the clock honest.

Can a seller back out after signing a letter of intent?

Before the purchase agreement, yes — sellers backing out accounted for about 13% of Axial's broken LOIs. You're still bound by exclusivity until it expires and by confidentiality after. Walking without a real reason costs the buyer their diligence spend and costs you your credibility with the next one.