Commercial LOI Template Explained: What to Include in 2026

Key Takeaways

• Section 1: Transaction Structure specifies asset purchase, stock purchase, or merger structure. Each has different tax implications, liability assumption, and complexity.
• Section 2: Purchase Price states the headline number, working capital target methodology, and cash vs other consideration mix. Should be non-binding pending due diligence findings.
• Section 3: Exclusivity binds the seller for 30 to 90 days to not solicit or accept competing offers. The exclusivity period is binding from LOI signing.
• Section 4: Due Diligence Access commits the seller to provide reasonable access to financial records, legal documents, customer contracts, and operational data during the exclusivity period.
• Section 5: Confidentiality protects deal information from public disclosure. Typically binding from LOI signing and survives any termination.
• Section 6: Expense Allocation specifies which party pays which transaction expenses. Each party typically pays their own legal and advisor fees unless a break-up fee triggers.
• Section 7: Binding vs Non-Binding clarifies which provisions are legally enforceable from LOI signing versus contingent on definitive agreement execution.
• Section 8: Termination specifies how either party can terminate the LOI and what survives termination (typically confidentiality, expense allocation, and any break-up fees).

What a commercial LOI template actually is

For 2026 electrical contractor multiples (3x-5x SDE / 6x-8x EBITDA) at 3x-5x SDE for owner-ops and 6x-8x EBITDA above $1M EBITDA, with data center premium, see our reference guide.

For 2026 staffing company valuation at 0.3x-0.6x revenue or 4x-7x EBITDA, with specialty vertical mix (IT, healthcare, light industrial) driving premium, see our reference.

For 2026 locksmith SDE / EBITDA multiples by operator at 2x-3.5x SDE for owner-ops and 4x-5x EBITDA for multi-location, with commercial-mix + recurring contracts, see our reference.

For 2026 sell your electrical business in Tennessee with 3x-7x range, Nashville growth + Ford BlueOval City + data center demand, and TN BLC license, see our guide.

Why LOI templates matter more than custom drafting

Section 1: Transaction Structure

Section 2: Purchase Price

Section 3: Exclusivity

Section 4: Due Diligence Access

Section 5: Confidentiality

Section 6: Expense Allocation

Section 7: Binding vs Non-Binding

Section 8: Termination

Conclusion

A well-structured commercial LOI template provides the framework for transactions that close cleanly and avoid mid-process disputes. The transactions that succeed share three characteristics. The parties use sophisticated templates that cover the eight standard sections rather than drafting each LOI from scratch and creating predictable gaps. They make the right provisions binding (exclusivity, confidentiality, expense allocation) while keeping price and commercial terms non-binding pending diligence findings. They engage qualified counsel for LOI review on any transaction above $1M enterprise value because the legal review cost (typically $3K to $15K) is recovered through clearer deal terms and reduced disputes during definitive agreement negotiation. The LOI is the foundation document for the entire transaction. Investing in proper structure at this stage pays dividends throughout the deal lifecycle.

Frequently Asked Questions

What is a commercial LOI template?

A commercial LOI template for business acquisitions is a structured preliminary agreement that establishes deal terms between signing of the LOI and execution of the definitive purchase agreement. The template differs from a commercial real estate LOI by covering going-concern operating businesses with employees, contracts, customers, and complex liabilities. Most templates include eight standard sections: transaction structure, purchase price, exclusivity, due diligence access, confidentiality, expense allocation, binding vs non-binding provisions, and termination.

What provisions in an LOI are binding versus non-binding?

Standard treatment makes these provisions binding: exclusivity, confidentiality, expense allocation, due diligence access, and any break-up fees. Standard treatment makes these provisions non-binding (pending definitive agreement): purchase price, transaction structure, working capital methodology, earnout structures, indemnification provisions, and other commercial terms. The most common mistake is making purchase price binding while leaving working capital and indemnification non-binding, which creates retrade pressure during diligence.

How long should the exclusivity period be?

Standard exclusivity runs 30 to 90 days. Simple deals use 30 to 60 days. Complex deals use 60 to 90 days. Transactions requiring regulatory approval, complex diligence, or significant financing work use 90 to 180 days. Sellers should negotiate three protections: termination triggers if buyer misses specific milestones (diligence start, financing, definitive agreement signing), carve-out for unsolicited superior offers (typically 110 to 125 percent of LOI price), and break-up fees for bad-faith buyer termination (typically 3 to 8 percent of transaction value).

What is the difference between a commercial LOI and a real estate LOI?

Commercial business acquisition LOIs cover going-concern operating businesses with employees, contracts, customers, and complex liabilities. Real estate LOIs cover discrete real property transactions. Business acquisition LOIs include more detailed provisions on transaction structure (asset vs stock vs merger), working capital adjustments, indemnification expectations, senior employee retention, and post-close transition matters. Real estate LOIs focus on the property itself, title, easements, inspection rights, and closing logistics.

Should the purchase price in the LOI be binding?

No. Best practice states purchase price as ‘approximately $X subject to working capital adjustment and due diligence findings’ rather than committing to a fixed number. The flexibility protects buyer from being trapped at a price the diligence cannot support and prevents retrade pressure when working capital methodology or indemnification structure differs from buyer assumptions. Making purchase price binding while leaving other key terms non-binding creates the most common LOI mistake in business acquisitions.

What happens if the buyer or seller walks away?

Depends on the termination provisions and break-up fee structure. Standard surviving provisions include confidentiality, expense allocation, and any break-up fees. Standard termination triggers include mutual agreement, expiration of exclusivity without execution of definitive agreement, material breach by either party, or specified milestone failures. Break-up fees (typically 3 to 8 percent of transaction value) protect against bad-faith termination after the other side has invested in expensive diligence. Without break-up fees, each party typically pays its own expenses regardless of outcome.

Do I need a lawyer to draft an LOI?

Yes for any transaction above $1M enterprise value. Sophisticated LOI templates from M&A practitioners cost $3K to $15K for legal review and customization on a per-transaction basis. The cost is recovered through clearer deal terms, better protection, and reduced disputes during definitive agreement negotiation. For smaller transactions, business broker LOI templates exist but should always be reviewed by counsel before signing because broker templates often favor the broker’s commission interests over buyer or seller protection.

What goes in the confidentiality section?

Confidentiality protects three categories of information: deal terms and existence of the transaction, target’s confidential business information shared during diligence, and parties’ identities to the extent any party requests anonymity. Confidentiality is typically binding from LOI signing and survives any termination. Standard duration extends 2 to 5 years post-termination. Permitted disclosures include disclosures required by law, disclosures to advisors under confidentiality obligations, and disclosures to financing sources under confidentiality obligations.

How much should I pay for due diligence access?

Due diligence access is typically free. The seller commits to provide reasonable access to financial records, legal documents, customer contracts, operational data, employee information, and management time during the exclusivity period. The buyer pays its own diligence costs (legal review, accounting review, market research, customer reference calls) which typically run 0.5 to 2 percent of transaction value. The seller’s only obligation is to provide cooperation and access, not to pay for buyer’s diligence work.

Can I have multiple bidders sign LOIs simultaneously?

No, not for the same transaction. Standard LOI exclusivity provisions prevent the seller from soliciting or accepting competing offers during the exclusivity period (30 to 90 days). Sellers running competitive processes typically have multiple bidders submit indications of interest (IOIs) or letters of interest, then select one bidder to grant LOI exclusivity. The seller cannot sign LOIs with multiple bidders because the exclusivity provision in each LOI prohibits the simultaneous engagement. Some sellers use ‘standstill’ provisions instead of full exclusivity to allow continued limited engagement with backup bidders.