LOI: Letter of Intent
An LOI is a mostly non-binding offer that sets the price, structure, and terms before you spend real money on diligence. It's the document that turns "I'm interested" into "here's my deal," and it's what gets the seller to take their business off the market while you do your homework.
Why it matters to a buyer
The LOI is where you actually negotiate the deal. Most of the price and structure (down payment, seller note, any earnout, working capital peg) gets agreed here, not in the final purchase agreement. Change your mind later and you're renegotiating from a weaker spot. So the LOI deserves more care than its "non-binding" label suggests.
What binds and what doesn't
The economic terms (price, structure) are usually non-binding: either side can walk if diligence turns up problems. But a few clauses typically are binding, and they're the ones that matter:
- Exclusivity (the no-shop): the seller agrees not to talk to other buyers for a set window (30 to 90 days). This is the most important thing an LOI buys you.
- Confidentiality: both sides keep the deal quiet.
- Expense responsibility: who pays for what if the deal dies.
What a solid LOI includes
- Purchase price and the deal structure (cash, debt, seller note, earnout)
- What's included: assets vs. stock, and what the seller keeps
- Conditions to close (financing, clean diligence, lease assignment)
- The diligence period and exclusivity window
- A target closing date
One tip from experience: keep the first LOI clean and credible rather than packed with every protection you can imagine. A seller who sees a reasonable offer signs. A seller who sees a wall of one-sided terms stalls (and momentum is a real asset in a deal).