What is a Letter of Intent (LOI)?
Definition
A Letter of Intent (LOI) is a non-binding document that outlines the key terms of a proposed acquisition before formal due diligence and the definitive purchase agreement.
Key Elements of an LOI
- Purchase price: Total consideration and how it's structured
- Deal structure: Cash at close, seller financing, earnout
- What's included: Assets, inventory, accounts receivable, vehicles
- Due diligence period: 30-90 days for buyer to verify financials
- Exclusivity: Seller agrees not to shop the deal to others
- Contingencies: Financing, landlord consent, license transfer
- Expected closing date: Target timeline for completion
Binding vs. Non-Binding Provisions
Most LOI terms are non-binding—either party can walk away. However, these provisions are typically binding:
- Exclusivity (no-shop): Seller can't negotiate with other buyers
- Confidentiality: Terms and existence of deal stay private
- Expense allocation: Who pays for due diligence costs
From LOI to Close
After signing the LOI, the typical process: due diligence (30-90 days), definitive agreement drafting (2-4 weeks), final negotiations, and closing. Total time from LOI to close is usually 60-120 days for small businesses.
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