Business Acquisition LOI Checklist: 15 Terms to Review

How to use this LOI checklist

This checklist is designed for buyers of privately held small and lower-middle-market businesses. It is not a drafting template and it cannot tell you whether a provision is legally appropriate for your deal. Its purpose is to compare the written LOI with your actual investment thesis, financing plan, and expectations for diligence.

For each item, ask three questions: Is the subject addressed? Is the language clear enough to reflect the proposed deal? What assumption still needs to be confirmed by counsel, the lender, or another advisor? A missing term is not automatically a defect, but an important unwritten assumption is a reason to slow down.

1. Parties and target business

Confirm the legal identity of the proposed buyer, seller, and target business. If the buyer plans to form a new acquisition entity, the LOI should not accidentally create a personal obligation or identify the wrong party. Check that the target name matches the entity or assets the seller actually owns.

2. Asset purchase or equity purchase

The LOI should state whether the buyer intends to acquire selected assets or the ownership interests of the company. This decision can affect taxes, assumed liabilities, contracts, permits, and consents. If the structure remains subject to tax or legal advice, the document should make that uncertainty visible rather than imply a final answer.

3. Purchase price

Check the stated price against the buyer's model and the parties' latest discussions. Then look for language that changes what the number includes. A purchase price may be subject to debt payoff, transaction expenses, inventory treatment, working capital adjustments, or other closing calculations.

4. Sources and forms of payment

Break the total consideration into its parts: buyer cash, third-party debt, seller financing, earnout, rollover equity, escrow, holdback, or other deferred payments. The LOI should not make a financed acquisition read like an unconditional all-cash deal. If a lender must approve the transaction, that assumption needs to be consistent across the offer and the buyer's communications.

5. Seller note and earnout mechanics

If the seller is financing part of the price, check whether the principal amount, term, interest, payment timing, security, and subordination assumptions are clear enough for the next stage. For an earnout, identify the performance measure, period, maximum payment, and who will control the business while the earnout is measured.

The definitive agreement will contain the detailed mechanics, but the LOI should not leave the parties with fundamentally different ideas about what must happen for the seller to be paid.

6. Included and excluded assets and liabilities

For an asset purchase, identify the major categories expected to transfer, such as equipment, inventory, contracts, intellectual property, phone numbers, websites, customer records, and goodwill. Also identify meaningful exclusions. The same discipline applies to liabilities: do not assume that the phrase asset purchase answers every question about obligations the buyer may take on.

7. Cash, debt, and transaction expenses

If the offer is described as cash-free and debt-free, determine how cash, bank debt, shareholder loans, unpaid taxes, capital leases, credit cards, and seller transaction expenses will be handled. Labels are useful shorthand, but the parties still need a shared understanding of what will be paid off, retained, or transferred at closing.

8. Working capital and inventory

Ask whether the purchase price assumes a normal level of working capital and whether the definitive agreement will include a target and true-up. Review which accounts are likely to be included, how seasonality or recent growth may affect the calculation, and whether inventory is included in the price or handled separately.

A working capital shortfall can require an immediate buyer cash injection after close. That makes this an economic issue, not merely an accounting detail.

9. Financing contingency

If the buyer needs an SBA loan, conventional financing, investor capital, or another funding source, review how the LOI addresses that condition. A financing contingency can affect the seller's confidence and the buyer's protection, so it should reflect the actual level of lender progress rather than generic language borrowed from another deal.

10. Due diligence scope and access

The LOI should preserve enough room to investigate the business and verify the assumptions behind the offer. Consider financial, tax, legal, operational, commercial, human resources, technology, environmental, insurance, and regulatory workstreams as applicable.

Also check what access the seller will provide, when sensitive information becomes available, and whether management meetings or site visits are contemplated. A diligence right is less useful when the buyer cannot obtain the information needed to exercise it.

11. Exclusivity period

Confirm when the no-shop period begins, how long it lasts, and what seller conduct it restricts. Then compare that period with the real timeline for lender underwriting, quality of earnings work, legal diligence, insurance, third-party consents, and purchase agreement drafting.

The right number is deal-specific. What matters is that the protected period is long enough for a disciplined process and that the buyer has a plan to create momentum once it starts.

12. Closing timeline and conditions

A target closing date should be credible rather than aspirational. Identify major conditions such as satisfactory diligence, financing approval, landlord consent, license transfer, key contract assignments, board or investor approval, and completion of definitive documentation. If a condition is essential to the deal, do not let the timeline imply that it has already been solved.

13. Seller transition, employees, and restrictive covenants

Review what post-close support the buyer expects from the seller, whether that support is included in the price, and how long it is expected to last. Consider key employee retention, benefit transitions, customer introductions, and the transfer of owner-dependent relationships.

Non-competition and non-solicitation provisions can be important to the transaction and legally sensitive. The LOI may state the intended business understanding, but qualified counsel should advise on scope and enforceability.

14. Confidentiality, expenses, and publicity

Check whether an existing nondisclosure agreement remains in effect and whether the LOI adds new confidentiality terms. Determine who pays each side's professional fees, whether any expense reimbursement or break-up fee applies, and whether either party can announce the proposed transaction. These provisions may survive even if the acquisition does not close.

15. Binding versus non-binding language

Find the section that explains which provisions are binding. Then read the entire LOI for language that conflicts with that statement, imposes a duty to negotiate, or creates an obligation the buyer did not expect. Do not assume that every provision is non-binding simply because the document is titled Letter of Intent.

This is the point where legal review is essential. ReviewMyLOI can organize terms and surface questions, but only qualified counsel can interpret the language and advise on the buyer's obligations in the actual transaction.

Common LOI red flags for buyers

A red flag is not always a reason to walk away. It is a reason to understand the issue before the LOI becomes the negotiating framework. The most important warning signs are often internal inconsistencies and hidden assumptions rather than obviously aggressive language.

• The payment structure does not match the buyer's financing plan
• The offer omits working capital, inventory, or debt treatment
• The diligence period is shorter than the lender and advisors can support
• Exclusivity binds the buyer in practice but gives the seller broad outs
• The LOI describes important conditions as if they have already been satisfied
• Seller transition expectations exist only in emails or conversations
• Binding provisions are scattered through the document or defined inconsistently
• The buyer cannot clearly explain what changes between the LOI and closing

Who should review a business acquisition LOI?

The buyer should own the business terms because the LOI needs to reflect the deal the buyer actually wants. Acquisition counsel should review the legal language and binding provisions. The lender should confirm that the proposed structure is financeable, and a financial advisor or quality of earnings provider can help identify assumptions that need to be tested after signing.

The goal is not to turn a short LOI into a committee project. It is to make sure that price, structure, financing, diligence, and legal obligations tell one coherent story before the process accelerates.