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Letters of Intent: What to Sign and What to Question

A letter of intent feels friendly, and Cleveland Business Brokers Desk sees it still shape the final deal.

Read it like a contract.

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Quick takeaways

  1. A letter of intent sets price, payment terms and timing before the full contract, so it deserves careful review.
  2. Do not grant exclusivity to an unsolicited buyer before you know what the market would pay.
  3. Look beyond price at payment timing, financing contingencies, diligence scope and asset allocation.
  4. Proof of funds or a lender letter should come before you spend owner time on a buyer.

What it does

A letter of intent, or LOI, outlines the buyer's offer. It usually states price, how the buyer will pay, the timeline, the buyer's due diligence and any exclusivity period.

Most terms are not binding, but exclusivity often is. Once you agree, you stop talking to other buyers, which ends your ability to compare offers.

Be careful with unsolicited offers

A buyer who phones you directly may be hoping for a quiet bargain. Get a valuation and test the market before you sign anything. A fair offer will still look fair after another opinion.

Terms beyond the price

  • How much is cash at closing, and how much is a note or earnout
  • Financing contingencies and the lender involved
  • Which assets are included and how the price is allocated
  • How long due diligence runs and what stays refundable
  • The length of any transition and non compete

Time to respond

Buyers sometimes set a short deadline to accept. A real offer from a serious buyer can wait a few days while you get advice, so treat pressure to sign fast as a warning.

Screen the buyer first

Ask for a signed NDA and proof of funds or a lender pre qualification letter before you share tax returns or meet. A bank commitment letter beats a promise that a buyer is good for it.

Exclusivity and timing

If you do grant exclusivity, keep it short, tie it to the buyer meeting stated milestones and say what ends it. A long lockup with a buyer who stalls can cost months of a buyer pool you have already built.

Lock terms before the contract

Price, payment terms and closing date are much harder to change once lawyers start drafting. Settle the asset allocation too, because it affects taxes for both sides. For how risk gets split, see earnouts, seller notes and holdbacks.

If you already have an offer, request a price opinion to compare it.

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