How to Write a Letter of Intent to Buy a Business: The Buyer’s LOI Playbook (2026)

This guide walks every section of a buyer’s LOI, gives a sample template, flags three mistakes first-time buyers make, and closes with a worked example for an SBA-financed buyer pursuing a $2M EBITDA plumbing company. Sellers looking for the other side should read our seller LOI guide.

Why the letter of intent to buy a business matters

The LOI is the first document in an acquisition that puts numbers on paper. Up to that point you’ve had conversations, exchanged a teaser and CIM, and maybe signed an NDA. The LOI moves the deal from chemistry to commitment. Once a seller signs, they typically agree to stop talking to other buyers for 60 to 90 days, which gives you a clean runway to diligence the business and negotiate definitive documents.

An LOI is not a contract for the business itself. Most of it is non-binding by design. What it does is anchor the economic terms, set the rules of engagement, and create a shared document both sides can point to when memory drifts. When sellers later try to renegotiate price or strip out a working capital peg, the LOI is what you go back to.

For a deeper comparison of LOI variants and templates, see our letter of intent business purchase reference page.

Anatomy of a buyer’s letter of intent to buy a business

A clean buyer LOI runs 3 to 5 pages and contains 13 to 15 standard sections. Anything longer invites the seller’s attorney to redline every line and turns the LOI into a mini purchase agreement negotiation. Anything shorter and you’ll leave economic terms unsettled, which becomes a problem in week six of diligence.

1. Purchase price

Lead with a single, clean number. Round to the nearest $100K or $250K. Decimal pricing like $4,275,000 reads as over-engineered and signals to the seller’s banker that you’ve built a model with no room to move. Bracket your number with two short qualifiers: that it assumes a cash-free, debt-free transaction, and that it assumes a normalized working capital target which you’ll define in the next section.

Anchor your number 5 to 10% above your true reservation price. The seller will counter higher. You’ll concede some during PSA negotiation. If you anchor at your reservation, you have nowhere to go.

2. Deal structure: asset vs stock purchase

State your preference clearly. Buyers almost always prefer asset purchases. You get a depreciation step-up, you leave behind unknown liabilities, and you can cherry-pick which contracts and employees transfer. The downside is that asset deals are tax-disadvantaged for sellers because the seller pays ordinary income tax on a portion of the gain rather than long-term capital gains across the board.

For an S-corp target, you can split the difference by proposing a stock purchase with a Section 338(h)(10) election. The election lets you treat a stock sale as an asset sale for tax purposes. Sellers often want a 5 to 10% price gross-up to compensate for the tax hit, which is usually still cheaper than litigating unknown liabilities later.

For a C-corp target where 338(h)(10) isn’t available, you face a real trade-off. Asset purchase means double taxation for the seller, which will show up as price pressure. Stock purchase means you inherit every skeleton in the closet. R&W insurance and a meaningful escrow are how you make a C-corp stock deal work.

3. Working capital peg

This is where most first-time buyers leave money on the table. The LOI needs to specify both methodology and a target dollar amount. The methodology options are TTM (trailing twelve months) average, three-month average, or same-month-prior-year for seasonal businesses. Pick the one that reflects how the business actually operates.

Then state the target. “Working capital target of $480,000, calculated as the trailing twelve month average of current assets minus current liabilities, excluding cash, debt, and intercompany balances.” Specify what counts as a current asset and what doesn’t. Pre-paid expenses in? Deferred revenue out? Inventory at cost or at lower of cost or market? Define it now or fight about it in week ten.

Include a dispute resolution mechanism. The standard is that if the parties can’t agree on the closing working capital calculation, a mutually agreed independent accounting firm decides, with costs split based on how the final number compares to each side’s last best offer.

4. Earnout

Use an earnout when there’s a real reason. Customer concentration that needs to ride through transition. Recent rapid growth you don’t fully believe. An owner who has to stay involved post-close for the business to function. Don’t use an earnout because the bid-ask gap is too wide and you can’t think of another way to bridge it. Earnouts written that way breed lawsuits.

Standard sizing is 15 to 25% of total consideration. Tie it to revenue or gross profit, not EBITDA. EBITDA earnouts give the buyer too many levers to suppress the number (capitalize repairs, allocate corporate overhead, change accounting policies). Period: two to three years. Anything longer and the seller has lost interest. Set a clear payment trigger and write down what happens if the buyer sells the business mid-earnout.

5. Escrow

2026 market is 6 to 8% of purchase price held in escrow for 12 to 18 months. Lower middle market deals with a clean diligence profile often hit the low end. Deals with material customer concentration, environmental exposure, or pending litigation push toward the high end and sometimes carve out additional special indemnity escrows on top.

State the percentage, the survival period, and whether the escrow is the sole and exclusive remedy for breach of representations (most sellers want this; you should resist for fundamental reps and for fraud). Name the escrow agent or commit to mutual selection within 15 days.

6. Representations and warranties treatment

Decide whether you’ll use rep and warranty insurance. In 2026, RWI is standard at $5M+ enterprise value, increasingly common down to $3M, and starting to appear in smaller deals. Premiums sit at 2.8 to 3.5% of policy limits, with retentions of 0.5 to 0.75% of enterprise value.

When you use RWI, the seller’s indemnification cap usually drops to the retention level, with the policy taking over above that. Without RWI, expect a 10 to 15% cap on general representations and uncapped (or capped at deal value) for fundamental reps like title, taxes, and authority.

Survival periods for general representations are 12 to 18 months. Fundamentals survive the longer of the statute of limitations or 6 years. Tax reps mirror the statute of limitations plus 60 days.

7. Exclusivity period

60 to 90 days is the 2026 norm. 60 is tight but doable for clean deals. 75 is the comfortable middle. 90 makes sense if you need a regulatory clearance, environmental Phase II, or extensive customer reference work.

Push for a hard no-shop, not a “good faith” version. The seller’s banker will lobby for a 30 to 45 day window. That isn’t long enough to close real diligence and creates a foot race that benefits the bankers, not you. If the seller insists on 45 days, ask for an automatic 30-day extension if both sides are negotiating in good faith on PSA drafts.

8. Conditions precedent to closing

List the gates that have to be cleared before you’re obligated to close. The standard set includes: satisfactory completion of due diligence, execution of mutually acceptable definitive agreements, receipt of required regulatory and third-party consents, no material adverse change, and (for SBA buyers) loan approval. PE buyers with committed equity skip the financing condition. Independent sponsors and search funders should include it.

9. Material adverse change (MAC) clause

The MAC is a walk-away right if the business takes a meaningful hit between signing and closing. Define what counts. Loss of the top customer? Drop in TTM EBITDA below a threshold? Death or disability of a key person? The cleaner you write this, the less arguable it is at closing.

Sellers will push to carve out general economic conditions, industry-wide events, and pandemic-related effects. Reasonable. Resist carve-outs that swallow the clause (e.g. “anything that affects the broader economy generally”).

10. Breakup fee

Uncommon in lower middle market deals but worth knowing. A breakup fee compensates the seller if you walk for reasons other than the conditions you’ve negotiated. If you’re proposing one, keep it small (1 to 2% of deal value) and tied to specific bad-faith scenarios, not general buyer remorse. Asking for a reverse breakup fee from the seller (if they walk to take a competing offer) is reasonable in competitive situations.

11. Financing contingency

If you’re SBA-financed, you need a financing contingency. Period. SBA can deny for reasons you can’t predict, and you do not want to be on the hook to close without your debt stack. Standard language: “Buyer’s obligation to close is conditioned on Buyer obtaining debt financing on commercially reasonable terms substantially consistent with the term sheet attached as Exhibit A.”

PE buyers with committed equity don’t need this. Independent sponsors who are still raising equity should include a separate equity financing contingency with a defined deadline (usually 30 days post-LOI signing).

See our SBA 7(a) loan for business acquisition guide for how the loan approval timeline interacts with the LOI exclusivity window.

12. Expense allocation

Each side pays its own diligence, legal, and advisory costs. Standard. The exception is regulatory filing fees (HSR if you’re north of the threshold, state-level antitrust), which are usually split. State this explicitly because some sellers will try to push their banker fee onto you in the PSA.

13. Confidentiality

The LOI itself is confidential. The fact that you’re in exclusivity is confidential. The terms are confidential. If there’s an existing NDA, reference it and confirm it continues in effect. Carve out disclosure to your investors, lenders, advisors, and (with seller consent) reference customers.

14. Binding vs non-binding sections

The LOI is mostly non-binding. The binding sections are exclusivity, confidentiality, and expense allocation. Some buyers also make the governing law clause binding. Put a clear paragraph at the end stating which sections survive and which are subject to definitive documentation. Without this paragraph, the entire LOI is arguable as a binding agreement to negotiate in good faith, which is a doctrine you don’t want to invoke.

Sample buyer letter of intent to buy a business: template walkthrough

Here is a stripped-down skeleton you can adapt. It is not legal advice and you should have a transaction attorney review your specific draft.

Letter of Intent

[Date]

[Seller name and address]

Re: Proposed acquisition of [Company name]

Dear [Seller]:

This letter sets forth the principal terms on which [Buyer entity] (“Buyer”) proposes to acquire [substantially all of the assets / 100% of the equity] of [Company name] (“Company”). Except as noted in Section 14, this letter is non-binding and is subject to negotiation and execution of definitive agreements.

1. Purchase Price. $[X], on a cash-free, debt-free basis, with a normalized working capital target as described in Section 3.

2. Structure. [Asset purchase / Stock purchase with Section 338(h)(10) election / Stock purchase].

3. Working Capital. Target of $[X], calculated as the TTM average of current assets less current liabilities, excluding cash, debt, and intercompany balances. Closing adjustment dollar-for-dollar against the purchase price, with disputes resolved by a mutually agreed independent accounting firm.

4. Earnout. $[X] payable over [2/3] years contingent on Company achieving $[Y] of [revenue / gross profit] in each measurement period.

5. Escrow. [6-8]% of purchase price held in escrow for [12-18] months to secure indemnification obligations.

6. R&W Treatment. [Buyer to obtain R&W insurance with retention of 0.5% of purchase price; Seller indemnification capped at retention amount / Seller indemnification capped at 10% of purchase price for general representations].

7. Exclusivity. Seller agrees not to solicit, entertain, or accept any other offers for [75] days from the date hereof.

8. Conditions. Buyer’s obligation to close is conditioned on: (a) satisfactory completion of due diligence, (b) execution of mutually acceptable definitive agreements, (c) receipt of required consents, (d) no material adverse change, and (e) receipt of debt financing on commercially reasonable terms.

9. MAC. Material adverse change includes loss of any customer representing more than [10]% of TTM revenue or decline in TTM EBITDA below $[X].

10. Expenses. Each party bears its own costs; regulatory filing fees split equally.

11. Confidentiality. Existing NDA dated [X] remains in full force and applies to the terms of this letter.

12. Diligence Period. [60-75] days from execution.

13. Closing Target. [90] days from execution.

14. Binding Provisions. Only Sections 7 (Exclusivity), 10 (Expenses), and 11 (Confidentiality) are legally binding. All other provisions are subject to definitive documentation.

If acceptable, please countersign below by [date].

Sincerely, [Buyer signature block]

For a state-specific variant with attorney-reviewed language, our business acquisition letter of intent in Illinois page covers Illinois-specific provisions that come up in lower middle market deals.

How to write a letter of intent to buy a business: common buyer mistakes

Three patterns repeat across first-time buyer LOIs. They cost real money and they’re avoidable.

Mistake 1: LOI too binding

Some buyers, eager to lock in the deal, draft an LOI that reads like a purchase agreement. Specific reps and warranties. Detailed indemnification mechanics. Closing condition waterfalls. The seller’s attorney sees this and either (a) redlines every line, which adds three weeks and burns goodwill, or (b) signs it cheerfully because the buyer just gave away negotiating room they should have held back for the PSA. Keep the LOI tight. Anchor the economics. Defer the mechanics.

Mistake 2: Exclusivity too long

Buyers occasionally ask for 120 or 150 day exclusivity periods, often because their financing or governance approval timelines are long. The cost of a long exclusivity is twofold. First, sellers feel trapped and start looking for ways out (real or imagined). Second, the longer the exclusivity, the more negotiating position the seller has at the renegotiation that almost always happens around day 60. Stay at 60 to 90 days. If you need more time, use a defined extension mechanism tied to specific milestones.

Mistake 3: Soft on contingencies

The most expensive mistake is dropping or weakening conditions to close in order to win a competitive process. SBA-financed buyers especially are tempted to remove the financing contingency to look stronger. Don’t. If SBA denies, you are looking at a damages claim from the seller and a deposit you cannot recover. The right move is to keep the financing contingency, tighten the language so it’s specific to your term sheet, and offer to deposit earnest money that converts to non-refundable after a defined diligence milestone.

2026 market norms for the letter of intent to buy a business

These benchmarks come from observing roughly 200 lower middle market LOIs in the $2M to $25M EBITDA range across the last 18 months. Adjust for your specific deal size, industry, and competitive dynamics.

Term	2026 norm	Buyer-friendly	Seller-friendly
Exclusivity period	60 to 90 days	90 days	45 to 60 days
Escrow	6 to 8% for 12 to 18 months	10% for 18 months	5% for 12 months
R&W survival (general)	12 to 18 months	24 months	12 months
R&W survival (fundamentals)	Statute of limitations or 6 years	Same	Statute of limitations
Indemnification cap (no RWI)	10 to 15% of price	15 to 20%	7.5 to 10%
Indemnification basket	0.5 to 1% of price (deductible)	0.25% tipping basket	1% deductible
RWI retention	0.5 to 0.75% of EV	0.5%	1%
Working capital methodology	TTM average	Same-month-prior-year (for declining businesses)	3-month trailing (for recently grown businesses)
Earnout sizing	15 to 25% of price	25 to 30%	0 to 10%

These numbers move. In a hotter market, seller-friendly terms become the default. In a tighter financing environment, escrow goes up and exclusivity gets harder to negotiate. Treat them as a starting line, not a finish line.

Worked example: SBA-financed buyer LOI for a $2M EBITDA plumbing company

Let’s run a real example. Target is an established residential and light commercial plumbing company in the Midwest, owner-operated, $9M revenue, $2M of normalized EBITDA after $180K of owner add-backs (above-market comp, personal vehicle, family payroll). Two-tech crews, 16 employees total, no customer over 4% of revenue.

The buyer is a first-time SBA-financed acquirer with $400K of equity, planning a 7(a) loan to fund the balance. Multiples in this segment have been running at 3.5x to 4.5x trailing EBITDA for businesses of this profile. The buyer’s reservation price (the highest they can pay and still hit a 15% cash-on-cash return after debt service) is $7.6M, which is 3.8x.

LOI offer: $8.0M (4.0x), structured as an asset purchase. The 5% premium over reservation gives room to concede during PSA negotiation.

Working capital target: $420K, calculated as TTM average of (accounts receivable + inventory + pre-paid expenses) less (accounts payable + accrued expenses + customer deposits). This excludes cash and any debt-like items.

Earnout: None. The owner is exiting fully at close with a 90-day transition consulting agreement. No customer concentration risk to warrant an earnout, and the buyer does not want to give the seller a continued financial interest in the business.

Escrow: 7% ($560K) held for 15 months. This is the middle of market for this deal profile.

R&W: No RWI on a deal this size (premiums make the economics tight). Seller indemnification capped at 12.5% of price for general reps, with fundamentals capped at deal value.

Exclusivity: 75 days. Enough time to get through SBA approval (typically 45 to 60 days from complete file) plus diligence and PSA negotiation.

Financing contingency: Yes. Specific reference to the SBA term sheet from First Federal Bank dated [X]. The buyer offers a $40K earnest money deposit that becomes non-refundable after the 30-day diligence checkpoint, which gives the seller comfort that the buyer is serious.

MAC: Loss of any customer representing more than 5% of TTM revenue or decline in TTM EBITDA below $1.7M.

Diligence period: 60 days. Target close: 90 days.

This LOI signals to the seller that the buyer is sophisticated, prepared, and serious. The price is competitive without being reckless. The contingencies are reasonable. The earnest money commitment shows skin in the game. Most sellers in this profile would either accept or counter on price ($8.25M to $8.5M) and possibly tighten the MAC.

Tools and software for managing your LOI

Most LOIs get drafted in Word and tracked in email, which is fine for a single deal. If you’re a buyer doing two or more deals a year, contract lifecycle management (CLM) software and dedicated LOI tools can cut your turnaround time meaningfully. We’ve reviewed the market in detail at best CLM software and LOI tools for M&A.

The core capabilities to look for: version control with redline tracking, comment threading by section, template libraries for common deal types, and integration with your data room. If you’re running an SBA deal you also want something that can export clean PDFs for lender review packages.

FAQ

How long should a letter of intent to buy a business be?

3 to 5 pages, 13 to 15 sections. Longer LOIs invite line-by-line redlines from the seller’s attorney and effectively become draft purchase agreements, which is the wrong place to negotiate that level of detail. Shorter LOIs leave material economic terms (working capital methodology, MAC definition, escrow percentage) unsettled, which causes friction in week six of diligence.

Is the letter of intent legally binding?

Mostly no. The standard structure is non-binding for economic terms (price, structure, working capital, earnout) and binding for confidentiality, exclusivity, and expense allocation. The LOI must contain explicit language at the end stating which sections survive. Without that language, you risk a “binding agreement to negotiate in good faith” interpretation that creates ambiguity neither side wants.

How long should the exclusivity period be?

60 to 90 days is the 2026 norm. 60 days is workable for clean deals. 75 days is the comfortable middle. 90 days makes sense for deals with regulatory filings (HSR), environmental Phase II requirements, or significant customer reference work. Anything less than 60 days creates a foot race that benefits the seller’s banker but compresses your diligence past the point of usefulness.

Should an SBA buyer include a financing contingency in the LOI?

Yes. SBA approval can fail for reasons outside your control (a borrower-side issue, an SBA policy change, a lender-side underwriting question). Without a financing contingency you would be on the hook to close or face a damages claim. Standard language ties the contingency to a specific term sheet from your lender and includes a defined deadline for loan approval, usually 60 days from LOI signing.

What is the right escrow percentage in 2026?

6 to 8% of purchase price held for 12 to 18 months. Clean deals with minimal customer concentration and no environmental exposure land at the lower end. Deals with material concentration, regulated industries, or pending litigation hit the upper end and often add special indemnity escrows for specific known risks. The escrow is the buyer’s primary recourse for breach of representations and warranties in deals without RWI.

How do I bridge a price gap without using an earnout?

Seller financing is the first lever. A small subordinated note (10 to 20% of price) signals seller confidence and shifts risk back to the seller side. Rollover equity is the second, particularly when the seller is staying involved in the business. A consulting agreement with defined deliverables is a third route. Earnouts work but they breed lawsuits, so they should be the last resort, not the first.

What happens if the seller breaches exclusivity?

Most LOIs cap damages at the buyer’s actual diligence costs, which typically run $25K to $100K. Some buyers negotiate a tail provision: if the seller closes within 6 to 12 months with a buyer they were introduced to during the exclusivity period, the original buyer is entitled to a portion of the alternative deal value. Specify this clearly in the LOI; without specification, breach becomes a damages dispute that often is not worth litigating.

Can I submit multiple LOIs at the same price to different sellers?

Yes, and most experienced buyers do exactly this. LOIs are non-binding for economic terms and you’re not in exclusivity until the seller countersigns. The constraint is bandwidth: each accepted LOI commits you to a real diligence and PSA process, which is a 60 to 90 day endeavor. Most independent buyers can run one or at most two LOIs in active diligence at a time without quality degradation.

What to do next

If you’re a buyer working a specific deal and want a sanity check on your LOI before you send it, the fastest path is to talk through it with someone who has seen 100+ of them. We work with buyers across SBA, search fund, family office, and lower middle market PE. There’s no cost to sellers, no contract required, and we curate proprietary deal flow that matches your buy box.

Three ways to engage:

• Book a 15-minute call to walk through your LOI or your buy box.
• Use the free valuation tool to pressure-test your purchase price against current market multiples.
• Become a buy-side partner to see vetted off-market deals matched to your criteria.

If you’re a seller who landed here looking for the other side of this conversation, our seller LOI guide covers what to look for when a buyer hands you a draft, and our letter of intent business purchase reference covers variants across deal types.