A Broker’s View on the Letter of Intent

By Wes Lewison · Changing Owners · ← All resources

A Letter of Intent is the best way to start a transaction off on the right foot — which is why the thinking should happen before the first draft is sent. Expect the first draft to be a starting point, with several versions exchanged in a healthy back-and-forth before an acceptable final is executed.

What a winning LOI always includes

The legal names of the buyer and buyer entity (“NewCo to be formed” is fine), address and contact details, and a cover letter with the buyer’s story — who they are and why they’re a good fit. Then the substance: asset sale or stock purchase; whether the offer is for 100% ownership or a structured deal with the seller retaining equity; purchase price, cash at close, and transaction timeline; and the financing plan, specifically — SBA, seller note, cash, or a combination. The offers that win address what sellers care about most: price, cash at close, speed to close, and certainty of close, presented in a way that builds confidence.

Part binding, part not — know which is which

Many people think LOIs are entirely non-binding. That’s incorrect. The deal-term provisions are non-binding; the exclusivity and expense provisions are binding. When you accept an LOI, you take your business off the market and promise not to solicit or accept competing offers while the buyer performs. That's a real commitment — make sure the offer deserves it.

And here’s the practical truth: the “non-binding” deal terms might as well be binding. The LOI becomes the blueprint that everyone — lawyers, buyer, seller, advisors, the bank — refers back to for the rest of the deal. Back-pedaling from it erodes confidence, so define terms carefully the first time.

Keep it current, and plan for disputes

Deal terms usually evolve as diligence proceeds. Document substantive changes as amendments to the LOI and share them with everyone working from the original — that way nobody is negotiating from a stale memory of what was agreed. It also pays to agree in advance on how disputes get resolved; virtual mediation through a national firm keeps it simple, defined, and affordable, with arbitration as the backstop.