[Crawl-Date: 2026-04-06] [Source: DataJelly Visibility Layer] [URL: https://travisbusinessadvisors.com/zh/articles/loi-letter-of-intent-business-austin] --- title: Letter of Intent (LOI): What You're Committing To description: The LOI is the most misunderstood document in acquisitions. Here's what's binding, what's not, and how to protect yourself. url: https://travisbusinessadvisors.com/zh/articles/loi-letter-of-intent-business-austin canonical: https://travisbusinessadvisors.com/articles/loi-letter-of-intent-business-austin og_title: Travis Business Advisors og_description: Austin's Business Broker for Owners Who Built Something Worth Protecting og_image: https://storage.googleapis.com/gpt-engineer-file-uploads/attachments/og-images/598e6334-eb7e-4cdb-9bad-6a67b74e851b?Expires=1775422155&GoogleAccessId=go-api-on-aws%40gpt-engineer-390607.iam.gserviceaccount.com&Signature=XohJTtkAmsM6NTTTILYOicAWnVPn9C8RCQ9k%2Fn%2FmpCDFMbVeOM4XRpiB1SRlZzisI9hGBq67t7Elh5tKl6vxybSkR94jwptDGkvJFfPhm%2BxbX49eiEdX%2Bmy3Wo2t%2FRJOWybZmdE%2FM9d5a6QbvmWeDseCoNuvsP0ejJcjifGN62GUFqZQWv9oznuhXu0eE0WmDX4BRZi79sE0HYSJ1reAf9eTOueKDWPPjMIr%2FSO%2BcHEebakd679a0byTQHfqUxiWqMCP9cOu2zJwmbWEoFk%2FkUoOMzfjrtyMDbP%2BeEQMQIl22mwKx5qtqCr7hCojQgZF00diNfrALT5nOcvQDRiksQ%3D%3D twitter_card: summary_large_image twitter_image: https://storage.googleapis.com/gpt-engineer-file-uploads/attachments/og-images/598e6334-eb7e-4cdb-9bad-6a67b74e851b?Expires=1775422155&GoogleAccessId=go-api-on-aws%40gpt-engineer-390607.iam.gserviceaccount.com&Signature=XohJTtkAmsM6NTTTILYOicAWnVPn9C8RCQ9k%2Fn%2FmpCDFMbVeOM4XRpiB1SRlZzisI9hGBq67t7Elh5tKl6vxybSkR94jwptDGkvJFfPhm%2BxbX49eiEdX%2Bmy3Wo2t%2FRJOWybZmdE%2FM9d5a6QbvmWeDseCoNuvsP0ejJcjifGN62GUFqZQWv9oznuhXu0eE0WmDX4BRZi79sE0HYSJ1reAf9eTOueKDWPPjMIr%2FSO%2BcHEebakd679a0byTQHfqUxiWqMCP9cOu2zJwmbWEoFk%2FkUoOMzfjrtyMDbP%2BeEQMQIl22mwKx5qtqCr7hCojQgZF00diNfrALT5nOcvQDRiksQ%3D%3D --- # Letter of Intent (LOI): What You're Committing To > The LOI is the most misunderstood document in acquisitions. Here's what's binding, what's not, and how to protect yourself. --- Video Guide Watch: The Letter of Intent — What You're Committing To (And What You're Not) 6 min A buyer in the Austin market found a dental practice that checked every box. Good location. Strong patient base. Clean financials. The broker asked for a Letter of Intent — and the buyer froze. "If I sign this, am I locked in? What if due diligence turns up problems? What if the financing falls through? Am I buying this business the moment I sign?" The answer to all of those questions is no. But the confusion is understandable — because the LOI occupies a peculiar space in the acquisition process. It's more than a casual expression of interest. It's less than a binding purchase agreement. And understanding what it is — and isn't — gives buyers the confidence to make offers without feeling trapped. ## What the LOI Does The Letter of Intent is a document that outlines the proposed terms of a business acquisition. It signals to the seller that the buyer is serious, sets the framework for the deal, and triggers the due diligence period during which the buyer investigates the business. Think of the LOI as a handshake with structure. It says: "Here are the terms under which I'm prepared to buy your business, subject to satisfactory due diligence, financing approval, and negotiation of a definitive purchase agreement." Most LOIs for Austin business acquisitions are two to five pages. They cover the essential deal terms — price, structure, timeline, contingencies — without the detailed legal provisions that appear in the final purchase agreement. The purchase agreement (often 30–60 pages) comes later, after due diligence confirms the buyer wants to proceed. ## The Key Terms in Every LOI While no two LOIs are identical, seven terms appear in virtually every Letter of Intent for an Austin business acquisition. Understanding each one is essential. **Purchase Price.** The total price the buyer is offering. This can be a fixed number ($1.8 million) or a range ($1.7 million–$1.9 million, subject to verified SDE). Some LOIs include language tying the final price to the confirmed SDE — "the purchase price shall be 3.0x the verified trailing twelve months' SDE" — which protects the buyer if the financial data changes during due diligence. **Deal Structure.** Asset purchase or stock/equity purchase. The vast majority of small business acquisitions in Austin are structured as asset purchases — the buyer acquires the business's assets (equipment, customer lists, goodwill, contracts) rather than the legal entity itself. Asset purchases provide the buyer with tax advantages (stepped-up basis for depreciation) and protection from unknown liabilities of the entity. **Payment Structure.** How the purchase price will be paid. Typical structure: buyer equity (10%+), SBA loan (70%–80%), and seller note (10%–20%). The LOI specifies the proposed breakdown. A seller who's told that 15% of the purchase price will be a seller note has the opportunity to accept, counter, or reject that structure before due diligence begins. **Due Diligence Period.** The number of days the buyer has to investigate the business after the LOI is signed. Standard range: 30–60 days. During this period, the buyer has access to the business's detailed financial records, contracts, operational information, and — in some cases — the physical facility. The due diligence contingency is the buyer's primary protection: if findings are unsatisfactory, the buyer can walk away. **Exclusivity Period (No-Shop Clause).** A provision that prevents the seller from soliciting or entertaining other offers during the due diligence period. This protects the buyer from investing time and money in due diligence only to be outbid by a competing offer. Standard exclusivity periods match the due diligence timeline — 30–60 days. **Earnest Money Deposit.** A cash deposit — typically 5%–10% of the purchase price — placed in escrow when the LOI is signed. The deposit demonstrates the buyer's financial commitment and is credited toward the purchase price at closing. The LOI should specify the conditions under which the deposit is refundable — typically refundable during the due diligence period and non-refundable (or partially refundable) thereafter. **Closing Timeline.** The target date for closing the transaction. Most Austin business deals close 60–90 days after the LOI is signed — though SBA financing timelines, lease negotiations, and document preparation can extend this. ## What's Binding and What's Not Here's the critical distinction that confuses most first-time buyers: most LOI terms are non-binding. The purchase price? Non-binding — it's a proposed term subject to due diligence findings. The deal structure? Non-binding — it's a framework for negotiation. The closing timeline? Non-binding — it's a target, not a deadline. **The binding provisions are typically:** The exclusivity/no-shop clause. Once signed, the seller agrees not to entertain other offers for the specified period. This is enforceable. The confidentiality provisions. Both parties agree to keep the terms and existence of the LOI confidential. This is enforceable. The expense allocation. Each party bears their own costs (legal, accounting, due diligence) regardless of whether the deal closes. This is standard and binding. The governing law. Texas law applies. This is binding. **Why the distinction matters:** A buyer who signs an LOI is NOT committing to purchase the business. The buyer is committing to investigate the business in good faith, under an exclusive arrangement, for a defined period. If due diligence reveals material problems — financial discrepancies, undisclosed liabilities, operational issues — the buyer can walk away with their deposit. This is the protection that every buyer needs to understand before signing. The LOI opens the door. Due diligence determines whether to walk through it. ## Common LOI Mistakes Buyers Make **Mistake #1: Submitting an LOI without an M&A attorney.** The LOI is a legal document with legal consequences — particularly the binding provisions. An M&A attorney can draft or review the LOI in a few hours for a few hundred to a few thousand dollars. That cost is trivial compared to the risk of signing a poorly drafted LOI with binding provisions the buyer didn't intend. **Mistake #2: Offering full asking price to "win" the deal.** In a competitive situation with multiple interested buyers, the temptation is to offer at or above asking to stand out. But the LOI price isn't final — it's a starting point. A disciplined buyer offers a fair price based on the CIM financials, with language that ties the final price to verified SDE. This protects against overpaying if the numbers don't hold up during due diligence. **Mistake #3: Too-short due diligence period.** A 15-day due diligence period looks aggressive and might impress the seller — but it doesn't provide enough time to do the work properly. Rushing due diligence to hit an arbitrary deadline leads to missed red flags. Thirty to sixty days is standard for a reason. **Mistake #4: Waiving the financing contingency.** Some buyers, eager to present a "clean" offer, waive the financing contingency — committing to close even if SBA financing falls through. This is extremely risky. SBA loan approvals depend on factors the buyer can't fully control — appraisals, underwriting decisions, lender timelines. A financing contingency protects the buyer's deposit if the loan doesn't materialize. **Mistake #5: Ignoring the working capital provision.** The LOI should specify how working capital — current assets minus current liabilities — will be handled. Will the seller deliver a minimum working capital level at closing? Will excess working capital be purchased separately? Will deficient working capital trigger a price adjustment? Failing to address this in the LOI creates conflict at the closing table. Franchise resales require additional LOI provisions including franchisor consent contingencies and transfer fee allocation. See [how LOI terms differ for franchise resales](https://travisbusinessadvisors.com/articles/franchise-resale-buy-sell-austin) . The LOI is just the opening move. For the complete negotiation strategy from first contact to closing, see [the buyer's negotiation playbook for Austin acquisitions](https://travisbusinessadvisors.com/articles/buyer-negotiation-playbook-austin) . ## What the Seller Wants to See Understanding the seller's perspective helps buyers craft LOIs that get accepted — not just the ones with the highest price. **Seriousness.** The earnest money deposit signals financial commitment. A buyer who offers a $100,000 deposit on a $2 million deal is taken more seriously than one who offers $20,000. **Financing confidence.** An SBA pre-qualification letter, included with the LOI, tells the seller that a lender has reviewed the buyer's financial capacity and is willing to lend. This dramatically increases the seller's confidence that the deal will actually close. **Reasonable terms.** A 45-day due diligence period, a standard exclusivity clause, and a closing timeline of 60–90 days are all reasonable. An LOI with a 90-day due diligence period, a 6-month exclusivity demand, and no earnest money tells the seller the buyer isn't serious — or isn't experienced enough to close. **A credible plan.** The LOI should briefly describe the buyer's background, experience, and intent for the business. A former HVAC company manager buying an HVAC company is a credible buyer. A first-time buyer with no industry experience — while not disqualified — needs to work harder to demonstrate competence. ## The Bottom Line The LOI isn't a commitment to buy. It's a commitment to explore — under defined terms, within a defined timeline, with defined protections for both parties. The buyer who froze at the prospect of signing an LOI for the dental practice? After understanding the non-binding nature of the core provisions and the due diligence contingency, the buyer signed. Due diligence confirmed the business was solid. The deal closed 72 days later. The LOI was the moment the deal shifted from theoretical to tangible. Not because it locked the buyer in — but because it created the framework for both parties to move forward in good faith. Have an M&A attorney draft or review the LOI before signing. Know what's binding and what's not. Include the contingencies that protect against the unknown. And understand that signing the LOI isn't the end of the process — it's the beginning of the most important phase. ## Structured Data (JSON-LD) ```json {"@context":"https://schema.org","@type":"Article","headline":"The Letter of Intent: What You\u0027re Committing To (And What You\u0027re Not)","description":"The LOI is non-binding \u2014 mostly. 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