A letter of intent to purchase a business is a short document where a buyer and seller put the main terms of a deal on paper (price, structure, timing, conditions) before spending money on lawyers, accountants and due diligence. Most of it is non-binding. A few sections, usually confidentiality, exclusivity and who pays costs, are meant to bind both sides right away. This free LOI template is set up that way, with each section labeled.

Why sign an LOI before the purchase agreement?

Because a purchase agreement for a business can run dozens of pages and take weeks, and neither side wants to pay for that until they know they agree on the basics. The LOI is the handshake in writing. It flushes out deal-breakers early: a seller who assumed an all-cash deal learns the buyer needs seller financing, or a buyer learns the seller expects to stay on at full salary for two years.

Picture a buyer (invented for this example) who offers $850,000 for a profitable HVAC service company in Raleigh: $600,000 at closing funded by an SBA loan and cash, $150,000 as a seller note over five years, and $100,000 as an earnout if revenue holds for a year. That’s four moving parts. Putting them in a two-page letter before anyone drafts the real contract saves both sides from finding out in week six that they understood “earnout” differently.

If you’re buying a building or land rather than a business, use our real estate letter of intent instead. If you’re buying a single piece of equipment or a truck from a business, a bill of sale or equipment bill of sale is enough. And before the seller opens the books, you’ll probably want an NDA, although our LOI has its own confidentiality section.

Which parts of a business purchase LOI are binding?

Our template splits the sections into two groups, and says so in bold at the top of each.

Non-binding sections describe the proposed deal. Neither side is obliged to close on these terms, and either can walk away until a definitive purchase agreement is signed:

  • Purchase price and how it’s paid (cash at closing, seller note, earnout, assumed debt).
  • Structure: asset purchase or purchase of the owner’s shares or membership interests.
  • What’s included and excluded: equipment, inventory, customer lists, the business name, cash, receivables, debts.
  • Working capital or inventory targets at closing.
  • Conditions: satisfactory due diligence, financing approval, landlord consent to assign the lease, key contracts transferring.
  • Seller’s transition role and any non-compete, to be agreed in the final documents.
  • Target timeline for diligence and closing.

Binding sections apply as soon as both sign:

  • Confidentiality. The buyer keeps the seller’s information private and uses it only to evaluate the deal. The seller keeps the buyer’s offer terms private.
  • Exclusivity (no-shop). For a set period, the seller won’t solicit or negotiate with other buyers. Keep it tight and tied to your real diligence and financing timeline. Our template lets either side end it early if the other stops negotiating in good faith.
  • Access. The seller gives reasonable access to books, records and premises for diligence.
  • Costs. Each side pays its own lawyers and advisers.
  • Non-binding effect, governing law, and termination. A clear statement of what is and isn’t binding, and when the letter expires.

Whether an LOI binds anyone depends on its wording and your state’s contract law. If you want something to bind, say so. If you don’t, say that too, in plain words, and don’t behave as though the deal is done.

What should buyers and sellers think about before signing?

Structure has tax consequences. In an asset sale, the price has to be allocated among classes of assets. The IRS says Form 8594 is used to report a sale of a group of assets that make up a trade or business when goodwill or going concern value attaches, or could attach, and that both the buyer and the seller generally file it. Agreeing the allocation approach early avoids a later fight. Talk to an accountant before you pick a structure.

Financing shapes the timeline. If you’re using an SBA 7(a) loan, the SBA lists changes of ownership as an eligible use, and the maximum 7(a) loan is $5 million. Lenders need time. Build that into the exclusivity period and the target closing date.

Leases and contracts may need consent. A landlord, franchisor or major customer may have to approve the transfer. List those as conditions.

How do you fill it in and get it signed?

  1. Fill in the price, payment mix and structure. If you don’t know the structure yet, say it’s to be agreed and why.
  2. List what’s included and excluded as specifically as you can.
  3. Set realistic diligence, financing and closing dates.
  4. Choose an exclusivity period and make sure the binding sections are clearly marked.
  5. Buyer signs and sends it; Seller countersigns if it accepts. The letter can expire if not signed by a date you choose.

An LOI is an ordinary business document, and the federal ESIGN Act says a contract can’t be denied legal effect just because it’s electronic, so e-signing works for both the binding and non-binding parts. See how to get a document signed by multiple people if the seller has co-owners who all need to sign.

Download it, fill in the blanks, and send it for e-signature with any tool you like. (We’re building SignWren for exactly this; join the waitlist.)

This template and guide are general information, not legal, tax or financial advice. For a specific acquisition, talk to a lawyer licensed where you are and a qualified accountant.