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LOI Terms Worksheet

Structure
The Outs You Keep (Contingencies)

The Clock After Signing (60 days)

  • Day 1: Kick off diligence in writing and send the document request the same day the ink dries. Document Requests
  • Day 3: Full loan application in with the lender you already shortlisted; the bank's clock is the longest one. Lenders
  • Day 6: Earnings verification engaged, scoped to what you are actually paying for. The QoE scope
  • Day 36: Commitment letter in hand, or the conversation about extending exclusivity starts now. Compare the terms
  • Day 42: Third-party consents moving: the landlord, the franchisor, every license the deal transfers. License Rules
  • Day 51: Seller transition terms papered while you still have leverage. Seller Transition
  • Day 59: Walk the funds flow line by line and verify every wire instruction by phone. Funds-Flow Worksheet

A typical shape to drag against your lender's own dates, not a promise about any deal.

LOI TERMS SUMMARY (for discussion with counsel; not a legal document)

Target: small business under evaluation.
Offer: $4,000,000, structured as an asset purchase.
Seller financing: 10% of price ($400,000), on full standby for the life of the SBA loan.
Exclusivity: 60 days from signing.
Diligence period: 45 days.
Transition: seller support for 6 months after close.
Non-compete: 5 years.

The clock after signing (60 days):
- Day 1: Kick off diligence in writing and send the document request the same day the ink dries.
- Day 3: Full loan application in with the lender you already shortlisted; the bank's clock is the longest one.
- Day 6: Earnings verification engaged, scoped to what you are actually paying for.
- Day 36: Commitment letter in hand, or the conversation about extending exclusivity starts now.
- Day 42: Third-party consents moving: the landlord, the franchisor, every license the deal transfers.
- Day 51: Seller transition terms papered while you still have leverage.
- Day 59: Walk the funds flow line by line and verify every wire instruction by phone.

Offer contingent on:
- Financing: SBA 7(a) approval on terms acceptable to buyer
- Quality of earnings supporting the reported SDE

Questions for counsel: anything above that should move, and what this market's LOIs currently hold on each point.

The Working-Capital Peg

The Trailing-Twelve-Month Average

The peg: what a normal month holds, from the QoE or the monthly balance sheets.

Expected at Close

What the seller will actually deliver on closing day.

The Peg

$200,000

Receivables plus inventory, minus payables, at the trailing average

Delivered at Close

$150,000

The same math on closing day's balances

True-Up

$50,000

In your favor: the price adjusts down

The seller delivers $50,000 less than normal: the price adjusts down by that much, or the gap gets funded another way.

The address encodes both snapshots, so the link restores this scenario.

Sellers argue for a low peg and buyers for the trailing average. Both numbers here follow the cash-free, debt-free convention, and the peg's accounting method has to match the trailing statements or the fight just moves. The trailing figures come from the QoE work you scope.

Where the Give Is

9 terms, and they do not move alike. A buyer who spends their goodwill on the ones that rarely move arrives at the ones that do with nothing left. This is our reading rather than a rule, and your deal can differ. It extends the section called Terms Move More Than Price in How to Make an Offer on a Business, which is where the offer itself is written.

Price · Rarely moves
It is what the seller anchored on and what the lender's own valuation has to support, so it is squeezed from both sides before you get to it.
Asset or stock · Rarely moves
It decides who carries the old liabilities and how each side is taxed, so both sets of advisors argue it on principle. Asset deals dominate at this size for that reason.
Seller note · Usually moves
It costs the seller nothing today and it is the commonest way to bridge a gap between the price they want and the price the debt supports.
Note on full standby · Moves for a reason
Whether the note may be paid while the SBA loan runs is set by the program, not by the parties, once the note is counted toward the injection.
Exclusivity · Usually moves
It costs the seller time rather than money, and a seller who wants your offer taken seriously has little ground to refuse a working window.
Diligence period · Usually moves
Sellers grant it readily, and shortening it is the concession a competing buyer will offer, so treat a short one as a signal about the room rather than a favor.
Transition support · Usually moves
Most sellers expect to stay a while and many want to. Ask for longer than feels polite, up to the 24 months an SBA purchase allows; it is the cheapest thing on this list.
Non-compete · Moves for a reason
State law decides how long and how wide a court will let one run, so past that line you are not negotiating, you are writing something a court may refuse to enforce.
Contingencies · Moves for a reason
Each one is a right to walk away. Dropping one is the strongest concession you have, which is exactly why it should buy something named rather than goodwill.

Reading the Purchase Agreement

The letter sets the terms and the purchase agreement makes them binding. Read the draft against both the letter and the rules the SBA lender will read it against. The form itself is your counsel's.

Price and structure
The price, the asset or equity structure and the excluded assets match the letter. Agree the allocation of the price across asset classes now, since it sets your depreciation and the seller's tax.
Real estate in the price · SBA rule
State the building's share separately. The lender takes the appraised real estate out of the price to reach the business purchase price its diligence rules are measured on.
Working capital · SBA rule
The peg uses the same accounting method as the trailing statements, and the true-up names its date and who pays. The SBA treats a true-up as a remedy, not a rebate, so the cash can stay in the business.
Seller note · SBA rule
A note counted toward your injection is subordinated and on full standby for the life of the SBA loan, on Form 155 or the lender's equivalent. Any other note's payments are underwritten as debt against the business's cash flow.
No earnout · SBA rule
Seller earnouts are prohibited on an SBA purchase. A buyer rebate tied to performance is allowed, and the rebate goes to pay down the loan.
The seller's role after closing · SBA rule
Consultant only, at most 24 months in aggregate including any extensions, and never an officer, director, stockholder or employee.
Representations and warranties
Financial statements, taxes, contracts, employees, litigation, permits and environmental matters are each represented, and they survive long enough for a year of your own books to surface a problem.
Indemnification
The basket, the cap and the survival period are stated, and so is where a claim is paid from: an escrow, a holdback, or a setoff against the seller note, which the lender will read beside the standby agreement.
Non-compete
The years and the territory match the letter and can be enforced where the business operates. A 7(a) may finance a non-compete as an intangible asset of the purchase.
The lease · SBA rule
Assigned or replaced. Where the lesser of $500,000 or 30% of the loan goes into improvements or attached equipment, its term, counting renewal options only you can exercise, should equal or exceed the loan's. Without an assignment and a landlord's waiver, that is a must rather than a should.
Closing conditions
SBA loan approval, the lease, transfer of licenses and permits, and the customer and vendor consents the contracts require are all conditions, so you are not bound to close without them.
Liens, payoffs and taxes
Payoff letters and lien releases at closing, a UCC search, and the state's tax clearance where a bulk-sale rule makes a buyer liable for the seller's unpaid taxes.
Employees
Who is offered a job, who pays accrued vacation and the final payroll, and what happens to the benefit plans, so the first payroll is not a surprise.
Schedules and side letters · SBA rule
Everything agreed is in the agreement or its schedules. The lender's file must hold the purchase agreement with all its schedules and amendments, so a side letter is a term the loan was not approved on.

Negotiating Seller Financing

On an SBA purchase most of a seller note's terms are set by the rulebook rather than by the parties, so spend the negotiation on the ones that are open. Price the note itself in the seller note calculator.

What the note counts toward · SBA rule
Settle first whether the note counts toward your equity injection. If it does, it may cover at most 50% of the injection, a share it splits with other standby debt and minority investors' equity, and it must sit on full standby.
Payments while the loan runs · SBA rule
A note on full standby pays no principal or interest for the SBA loan's whole term; its interest may accrue, be added to the balance and amortize once the loan is repaid. A note outside the injection may be paid, and the lender counts those payments against coverage.
Interest-only periods · SBA rule
A paid note that starts interest-only is underwritten as if it amortized over at most 10 years, the acquisition loan's own term, so the break shows up in your first year's cash and not in the coverage test the loan is approved on.
The rate
The rate is what the seller is paid for waiting, and it is open. On a standby note the unpaid interest can be added to the balance for the loan's whole term, so a point of rate grows larger there than on a note paid from year one.
Security and remedies · SBA rule
The seller subordinates any lien on the collateral to the lender and may take no action against you or that collateral without the lender's consent, on Form 155 or the lender's equivalent with the note attached.
A price above the valuation · SBA rule
Total debt, counting any seller note that is not on full standby, may not exceed the business valuation. Where the price runs above what the valuation supports, a seller note can bridge the gap only on full standby.
Setoff for claims
A right to set indemnity claims off against the note is the cheapest security a buyer has after closing. A note on full standby pays nothing for years, so pair the setoff with an escrow or holdback if a claim could surface sooner.
The seller's equity · SBA rule
A seller who sells outright may not stay a stockholder, and whoever holds standby debt may not also take equity in the business. A seller who keeps a stake makes the deal a partial change of ownership, in which an owner who stays guarantees the loan.
Refinancing it later · SBA rule
The note can be refinanced into SBA debt only after 36 months in place and current, months on standby not counted, and only if the new payment is at least 10% lower.