LOI and deposit: what to write down before you pay

Before you pay a deposit on a small business in the US, the letter of intent should say four things: how long you have to check the business, which results let you walk away with your deposit, who holds the money, and which papers the seller opens for you. Whether a deposit comes back depends on the conditions written next to it.

General information, not legal or tax advice: ask your lawyer to put these points into your own letter.

What the letter is, and which parts bind you

A letter of intent (LOI) is not the purchase contract, and most of it is not binding: the price, the closing date and the conditions depend on what you find in the seller's books. Two parts usually are binding: confidentiality, and exclusivity, a period when the seller takes the business off the market and talks to no other buyer.

In smaller deals there is often no letter: the broker's own purchase agreement form takes its place. The same points go into that form.

What to write in the letter

The price, and what it assumes: "subject to verification of the stated cash flow."
Your checking period, with an end date. This is the due diligence period, the time you have to investigate; in the letter it is usually set as the exclusivity period. Long enough to finish your checks, short enough that the seller agrees.
Who holds the deposit. An escrow agent (a third party who holds the money), a title company, a lawyer's client account, or the broker's own trust account, normal in many small deals. Never the seller's account: money there is money you will be asking for back.
What brings the deposit back. The conditions you name; see below.
The papers the seller will open, each with a date: three years of tax returns, twelve months of bank statements, the lease itself with every amendment, payroll, the licenses, and the seller's agreement that their figures will be checked against their IRS tax transcripts. "Full access to the books" is not a list.
The seller's written waiver, so that the state tax department will tell you what the seller owes.
A first, rough split of the price across equipment, stock, customer list and name. In an asset purchase you both generally report it to the IRS on Form 8594, and the split best for you is generally not the best for the seller. Raise it while the price is open; your accountant sets the numbers.

The condition that decides whether you get the deposit back

The wording decides. A deposit returnable "if financing is not obtained" is a different thing from one returnable "at the buyer's discretion during the investigation period".

Name every condition that can stop the deal: the loan, the landlord's written consent to pass the lease to you, the license transfer, a tax clearance certificate that shows nothing owed.

A real case from the book, as the buyer told it online: the landlord's rent came in higher than the seller's projection, the business no longer met the bank's minimum coverage of the loan payment, and the loan was declined. The seller then asked to keep most of the deposit. The account does not say what the contract said about the deposit. The lesson: ask the landlord for the rent in writing before you go to the bank, and write the condition for the deposit down before you pay.

Ask your lawyer to word the exit so that the deposit comes back if your own checks turn up a problem during the checking period, not only if the loan fails.

With an SBA 7(a) application received by SBA from 1 October 2026 (rulebook version 8.1; applications submitted through 30 September stay under version 8, so ask your lender which one covers you), the debt the bank can count is capped at the bank's valuation of the business (a qualified valuation expert the bank engages; for a price of $350,000 or less the bank may value it itself, unless buyer and seller are closely connected), whatever price you agreed. A seller's note that is paid along the way counts inside that cap. Any gap must be made up by equity: for example your own cash, or a seller's note that pays nothing, not even interest, for the life of the SBA loan. Ask your lawyer how your financing condition covers a low valuation. First check that every owner is eligible: E-2 and green-card buyers can't get SBA 7(a) or 504 loans.

If the seller says no

"Let's see an offer first" when you ask for tax returns in week one is the normal answer, not a warning sign. A seller who still will not open the bank statements after you have agreed terms is another matter. Then ask your lawyer which of these fit your deal:

do not pay the deposit until the list of papers and their dates are agreed in writing;
make the papers themselves a condition: not opened by the date, deposit back;
run the checks that do not need the seller: the lien search in the seller's exact legal name, in every state where the business has worked, and the court records;
if the papers still do not come, treat that as your answer.

A deadline that may fall before the deposit

In some states the seller's unpaid sales tax can follow the business to the buyer, and the protection is a notice to the state tax department or a certificate from it. Where the deadline counts back from payment or possession, whichever comes first, ask the department whether a deposit counts as payment, and to be sure, file before it. Not sure? Ask in writing: "Do I owe a notice before I take over this business, and how many days before?"

What to tell the broker

"I'll send a letter of intent this week. Two things I'd like your view on first: how long an exclusivity period you're comfortable with, and who you'd like to hold the deposit."

Chapter 8 of the book "Buying a Small Business in America" by Grig Lien covers this in more detail.

Before you sign the letter: put the check before the deposit

Write your checks into the letter as a condition of the deposit, and run the ones that need no papers from the seller before the money moves.

If you want help with that step, you can order a check from us before the deposit: the €550 report. We do not contact the seller or the seller's broker.

The price and how to order are on our pricing page.

See a sample report Start my check

Sources

Buying a Small Business in America (book, edition of 21 September 2026), chapter 8 and appendix A13 (retrieved 4 October 2026)
SBA SOP 50 10, Lender and Development Company Loan Programs (Version 8.1 with Technical Updates, effective 1 October 2026), Appendix 15 (retrieved 4 October 2026)
SBA Information Notice 5000-882227, Issuance of Technical Updates to SOP 50 10 8.1 (retrieved 4 October 2026)
IRS, Instructions for Form 8594 (retrieved 4 October 2026)