SBA Guides · Verified against SOP 50 10 8.1 · Updated October 2026
The SBA-Proof LOI
The letter of intent is where an SBA deal is quietly made or broken. Get these terms right up front and the loan follows the deal, get them wrong and you renegotiate at closing, or lose it.
An SBA-proof LOI protects the two things that kill deals late: the price (contingent on financing and on the required valuation) and the structure (a seller note built for standby, no earnout, a realistic timeline, lease assignment). None of this is legal boilerplate you add later, it's the difference between a deal that stays financeable and one that unravels at underwriting. Your attorney drafts the LOI; this is what to make sure is in it.
Written by Thomas Hartwell, author of the FUNDED series of industry-specific SBA lending guides.
1. A financing contingency
Condition the purchase on obtaining SBA financing on acceptable terms. This is your protection if the loan doesn't come together, including if the required valuation comes in below the price and you'd have to fund the gap with more equity.
2. A valuation contingency (and a price at or below it)
A change of ownership requires an independent business valuation from a qualified source (a lender may do its own only when the business price is $350,000 or less and buyer and seller aren't closely related). Total debt, including any seller note not on full standby, can't exceed that value, and any price above it must be covered by equity. Make the price contingent on the valuation supporting it, or know your walk-away number and price at or below it going in.
3. Seller-note standby terms, stated up front
If a seller note counts toward your injection, state that it's on full standby for the life of the loan (no principal or interest paid to the seller until the SBA loan is repaid) and capped at half the required injection, shared with any minority investors. Sellers who discover full standby at closing walk, put it in the LOI.
4. No earnout; a compliant seller transition
Earnouts aren't permitted in an SBA-financed change of ownership. On a full purchase the seller must fully exit, with at most a consulting role of up to 24 months including extensions, so keep long seller-employment arrangements out of the LOI.
5. Lease term and assignment (leased locations)
Lenders want the lease term, including options, to run at least as long as the loan, and landlord consent to assign the lease is a closing condition. Reference the lease assignment in the LOI so the landlord conversation starts early, it's a common source of delay.
6. A realistic timeline and exclusivity window
Plan for roughly 60 to 120 days from signed LOI to close: the lender orders the valuation (and a Quality of Earnings report at a business price of $3 million or more), verifies the seller's returns against IRS transcripts, and clears diligence and closing conditions. Set exclusivity and target-close dates that reflect that runway.
7. Purchase-price allocation cooperation
Agree that the parties will cooperate on allocating the price across the assets (both sides file matching allocations with the IRS). It affects your opening books and taxes, and it's far easier to agree in the LOI than to negotiate at closing.
Know your numbers before the LOI
The "Will the SBA Fund This Deal?" kit gives you the walk-away price, the seller-note standby math, the equity-injection structure, and the financeability verdict before you sign, so the LOI you send is one the loan can actually follow. Verified against the current SOP 50 10 8.1.
See the Kit →The SBA-Proof LOI, FAQ
Should my LOI include a financing contingency?
Yes, if you're financing with an SBA loan. The LOI should condition the purchase on obtaining SBA financing on acceptable terms and on the required independent valuation supporting the price. Without those conditions you risk being bound to a price the loan won't cover. Under SOP 50 10 8.1, total debt on the deal (including any seller note not on full standby) can't exceed the valuation, so if the valuation comes in low you'd owe the difference in equity: cash, or a seller note on full standby.
How should the seller note be described in the LOI?
Spell out the standby terms up front. If a seller note is meant to count toward your equity injection, the LOI should state it will be on full standby for the life of the SBA loan (no principal or interest payments to the seller until the loan is repaid; interest may accrue) and capped at half the required injection, a cap shared with any minority investors under 20%. Sellers who only learn about full standby at closing often balk, putting it in the LOI avoids a late blow-up.
Can the LOI include an earnout or a consulting role for the seller?
Be careful. Earnouts, payments contingent on the business's future performance, aren't permitted in an SBA-financed change of ownership, so an earnout in the LOI has to be restructured. And on a full purchase the seller must fully exit, with at most a consulting role of up to 24 months in total (SOP 50 10 8.1 raised it from 12). A buyer rebate applied to the loan principal and a working-capital true-up are allowed. Writing a long seller employment arrangement into the LOI can conflict with the SBA rules.
What timeline should I put in the LOI?
Give the deal room. A typical SBA 7(a) acquisition runs roughly 60 to 120 days from signed LOI to close, because the lender orders an independent valuation, pulls IRS transcripts, and clears diligence and closing conditions such as lease assignment and license transfers. Set exclusivity and target-closing dates that reflect that, so you're not renegotiating deadlines mid-process.
Should an LOI to buy a business include a financing contingency?
Yes. If you're buying with an SBA loan, the LOI should make the purchase contingent on obtaining that financing on acceptable terms. Without it, you can be bound to buy even if the loan falls through, or if the required independent valuation comes in below the price and you'd have to cover the gap with more equity.
How long does an SBA acquisition take from LOI to closing?
Plan for roughly 60 to 120 days from a signed LOI to closing on a typical SBA 7(a) acquisition, the lender orders an independent business valuation (plus a Quality of Earnings report when the business price is $3 million or more), verifies the seller's returns against IRS transcripts, and works through diligence and closing conditions like lease assignment and licensing. Build that runway into the LOI's exclusivity and closing dates rather than assuming a fast close.
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