SBA 7(a) Letter of Intent: Sample LOI Provisions for an SBA Acquisition

A letter of intent is usually the first document in an acquisition that a lender reads closely. It is mostly non-binding, but it sets the price, the structure, and the expectations that the purchase agreement will later formalize. When the buyer plans to use an SBA 7(a) loan, the LOI also becomes an early test of whether the deal can be financed the way the parties have described it.

This guide walks through the provisions that matter most for an SBA-financed purchase, with sample wording, and explains which terms tend to work, which usually need adjustment, and which can stall underwriting. SBA references are to SOP 50 10 8.1 with Technical Updates effective October 1, 2026. Lenders apply that SOP and then layer their own credit policies on top, so an LOI that fits the SOP can still be declined or restructured by a particular lender. Nothing here makes a deal SBA compliant; that determination belongs to the lender and, where required, SBA.

What a lender reads an LOI for

An SBA lender is not grading your negotiation. It is checking whether the proposed transaction fits a change of ownership it can underwrite. In practice, that means the lender is looking for answers to a short list of questions:

• Who is the buyer, and which transaction type applies: an initial acquisition, a business expansion, or an owner buyout?
• Is this an asset purchase or a stock or membership interest purchase?
• What is the price, and what is included: equipment, inventory, real estate, working capital, receivables?
• How much cash is the buyer contributing, and where does it come from?
• Is there seller financing, and if so, are payments expected during the life of the SBA loan?
• Will the seller stay involved after closing, and in what role?
• Are any payments contingent on future performance?

A clear LOI answers those questions without forcing the lender to guess. A vague one tends to produce a term sheet that rewrites the deal, which can surprise a seller who thought the economics were settled.

Core provisions, with sample wording

The examples below are illustrative wording for a hypothetical $900,000 asset purchase of a service business. They are not a template to sign. Your attorney should draft the actual LOI, and your lender should review it before you sign if possible.

Purchase price and what it buys

State the total price and what the buyer receives. Lenders and valuation providers need to know whether inventory, receivables, real estate, or cash are included, because those items change the collateral picture and the comparison to the business valuation.

Purchase price allocation

In an asset purchase, buyer and seller generally allocate the price among asset classes and report that allocation to the IRS on Form 8594. The allocation affects taxes for both sides, and it also matters to the lender, because the amount allocated to goodwill and other intangibles is the portion supported mainly by cash flow rather than hard collateral. SBA allows 7(a) proceeds to finance intangible assets, including goodwill and agreements not to compete, as long as the SOP’s financial due diligence requirements are met.

An LOI does not need a final allocation, but it should say the parties will agree on one before closing. Leaving it entirely open can lead to a late dispute that delays closing.

Financing contingency

The financing contingency protects the buyer if the loan is not approved on acceptable terms. Sellers often push to narrow it; lenders expect it to exist. A workable contingency names the loan type, the approximate amount, and a reasonable deadline, and it obligates the buyer to apply promptly and in good faith.

Buyer equity and source of funds

Say how much cash the buyer will contribute. Do not overstate it. If the lender later finds that part of the "cash" is borrowed in a way the SOP does not count as equity, or comes from a source that is limited in amount, the structure will change. The SOP sets a minimum equity injection of 10% for initial acquisitions, and the requirement is calculated on total project cost, not just the purchase price. Our guide to SBA down payment requirements covers this in detail.

Seller financing

Seller notes are common in SBA deals, but the LOI must describe them precisely, because the same note can be treated two very different ways. A seller note that is subordinated to the lender and on full standby, meaning no payments of principal or interest for the term of the 7(a) loan, may be counted as equity for SBA purposes, subject to limits. A seller note that receives payments during the 7(a) loan term is treated as debt and must be supported by the business’s cash flow. See SBA seller note standby requirements before you commit to either form.

Working capital

Buyers often forget that the business needs cash on day one to pay staff and suppliers before receivables arrive. Lenders analyze working capital adequacy as part of underwriting, and working capital included in the project increases total project cost, which increases the required equity injection. The LOI should say whether the seller will deliver a normalized level of working capital, or whether the buyer will fund it through the loan or a line of credit.

Working capital true-up provisions are common. Under the SOP, a working capital adjustment paid to the buyer under the purchase agreement is not treated as a seller rebate, so it may be retained to support operations rather than applied to the loan balance.

Seller transition

For initial acquisitions and business expansions, the SOP generally does not allow the seller to remain as an officer, director, stockholder, or employee after closing. If the business needs the seller’s help during transition, the business may contract with the seller as a consultant for a period that does not exceed 24 months in aggregate, including extensions.

Diligence, exclusivity, and access

SBA deals need time. The lender will typically order an independent business valuation from a qualified source, and it may require a quality of earnings report depending on the transaction. Tax transcripts are used to validate the seller’s reported financials. Build a diligence period and exclusivity window that fit that process, and require the seller to cooperate with lender and valuation requests.

Which terms work, which need adjustment, and which cause problems

The table below summarizes how common LOI terms tend to interact with SBA underwriting. "Generally workable" does not mean approval is assured; it means the term is common and consistent with the SOP when it is documented correctly.

Earnouts and contingent payments

Earnouts deserve their own warning. The SOP states that seller earnouts are prohibited for 7(a) change of ownership financing. If the buyer and seller disagree on value and want a performance-based bridge, an earnout in the LOI will usually have to come out before the lender proceeds.

The SOP does allow buyer rebates based on business performance, because they benefit the borrower. A rebate works in the opposite direction: the seller returns part of the price if the business underperforms. If a rebate is paid, the SOP requires the proceeds to be applied to the principal of the 7(a) loan. Some parties also address valuation gaps with a full-standby seller note or with additional buyer equity. Our deal structures guide shows how those alternatives change the math.

LOI issues that commonly delay approval

1. The price exceeds what the independent valuation supports, and the LOI has no plan for the gap.
2. The seller note is described with payments during the loan term, but the deal needs it on full standby to meet the equity requirement.
3. The buyer’s equity includes borrowed money that does not qualify, or relies too heavily on limited equity sources.
4. The seller expects to stay on as an employee or retain a small ownership stake.
5. The LOI includes an earnout.
6. Working capital is not addressed, so the lender adds it late and the equity requirement grows.
7. Asset versus stock structure is unclear, which affects collateral, assumed liabilities, and who the borrower is.
8. The financing deadline is shorter than the lender’s realistic timeline.

Putting it together: a sample SBA LOI structure

Here is how the hypothetical $900,000 deal above might be summarized. Assume the buyer also needs $60,000 of working capital and $40,000 of closing costs and fees, for a total project cost of $1,000,000. The required minimum equity injection for an initial acquisition is 10% of that amount, or $100,000.

Buyer cash of $55,000 plus a $45,000 full-standby seller note meets the $100,000 requirement, and the seller note stays under the $50,000 cap on limited sources. If the seller wanted payments on that note, it would no longer count toward equity, and the buyer would need $100,000 of qualifying cash instead.

Showing the seller you can close

A seller comparing LOIs will often favor the buyer who looks most likely to close, not only the highest price. Bring a short financing summary: your planned contribution, the lender or lenders you are talking to, and evidence of funds. Our guide to proof of funds for buying a business explains what to share and what to withhold. A free BuyerPass profile lets you present your acquisition criteria and background in one place, and when a broker requests verification for a specific opportunity, BuyerPass can confirm your funds meet the requirement without showing balances or account numbers.