Is a letter of intent binding?
Whether any part of a letter of intent binds you depends on what it says and on the law that governs it, which is a question for your attorney. As a general principle of contract law, an agreement to agree isn't enforceable. In California, for example, whether a document is a final agreement or an agreement to agree depends on the objective intent of the parties 1.
The SBA's guide for buyers lists the letter of intent first among the documents a buyer reviews with an attorney and an accountant, ahead of the confidentiality agreement, the sales agreement and any purchase price adjustment 2.
What is the buyer really paying?
Start with the headline number, then take out everything that isn't cash at closing: a seller note, an earn-out, a holdback, and any working-capital or purchase price adjustment. What's left is what you're paid on the day the deal closes. The rest depends on the business, the buyer, or both, after you've handed over control.
Is it an asset sale or a stock sale?
In an asset sale, the buyer buys the assets that make up the business. When goodwill or going-concern value attaches, buyer and seller both report the sale on IRS Form 8594 and allocate the price across seven asset classes in a set order, with goodwill and going-concern value last 3. How the price is split between those classes is part of the deal, so ask your CPA what it means for you before you agree to it.
In a stock sale, the buyer buys the shares instead. When one corporation buys at least 80% of another's stock within 12 months, a section 338 election can be made, and the target is then treated as if it had sold its assets 4.
How will the buyer pay for it?
If the buyer is using an SBA 7(a) loan, the SBA's rules in effect from October 1, 2026 shape what the offer can say 5:
- Equity
- For an initial acquisition, the buyer must put in at least 10% of the total project cost as equity, and that can't be reduced or eliminated 5.
- Seller notes
- A seller note counts as equity only if it's subordinated to the lender and on full standby, with no payments of principal or interest for the term of the 7(a) loan. Standby debt and similar sources can provide no more than half of the required equity 5.
- The valuation cap
- Total debt supporting the purchase, including seller debt not on full standby, is limited to the business valuation amount. Anything paid above the valuation must be made up with equity 5.
- Refinancing
- Seller debt can be refinanced once it has been in place and current for 36 months 5.
What does a letter of intent leave out?
A letter of intent is short, and the hard parts usually come later: exactly what working capital stays in the business, what you promise about it in the purchase agreement, and who stays on, and for how long. Read it for what it commits you to and for what it leaves open.
An offer evaluation is a second read on the letter of intent before you sign it: the price, the structure, the terms and what's missing. It's $500 per offer, fixed.
This is general information, not tax or legal advice. Your attorney and CPA should confirm how it applies to your sale.
