Glossary · contract

Letter of intent LOI

Also called LOI, term sheet, memorandum of understanding, MOU.

A short document setting out the principal terms of a proposed deal, mostly non-binding on the commercial terms and fully binding on several provisions people skim past.

Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.

What it means

Used in business acquisitions, commercial property purchases, and larger credit facilities to establish that the parties agree on the shape of a deal before either spends money on diligence and documents.

The binding parts

A well-drafted LOI states explicitly which provisions bind. Typically:

  • Exclusivity or no-shop: the seller or borrower agrees not to negotiate with anyone else for a period. This is the most valuable clause in the document and it runs one way
  • Confidentiality
  • Expense allocation: who pays for diligence, appraisals, environmental reports and legal fees if the deal dies
  • Break-up fee, in larger transactions
  • Governing law and dispute resolution for the LOI itself

The price, structure, conditions and closing date are usually expressed as non-binding, subject to diligence, documentation and credit approval.

In credit transactions

A lender's term sheet or LOI is an indication of terms, conditioned on completion of underwriting and formal credit approval. Where a deposit accompanies it, the deposit agreement is binding even though the terms are not — read that document separately.

Why sign one at all

It forces the commercial conversation before the legal spend, it produces a written record of what was agreed when the documents diverge later, and in an acquisition it is what an SBA lender will want to see before opening a file.

Where this one catches people

"Non-binding" describes the price, not the exclusivity clause. Signing a 60-day no-shop stops you talking to any other lender or buyer for 60 days, during which the counterparty controls the pace, learns everything about your business through diligence, and retains the ability to reprice at the end of it — with your alternatives now two months colder. The exclusivity period should be as short as the diligence genuinely requires, and that is the term to negotiate hardest.

Where you will meet this term

Term Loan Business Line of Credit SBA Loan Asset-Based Lending

Read next

Closing costsEverything deducted or payable at funding beyond the financing cost itself, from origination and documentatio… Due diligenceThe verification work between approval and funding, testing everything the credit decision assumed: documents… Good faith depositMoney a borrower is asked to pay before funding, nominally to cover third-party costs or demonstrate commitme… Loan agreementThe contract governing a loan — usually one of several documents that operate together, with the provisions t… Loan committeeThe group inside a bank or SBA lender with authority to approve credit above a threshold — the only party who… Term sheetA summary of proposed terms issued before contract documents, mostly non-binding as to the financing itself b…

Letter of intent — common questions

What does letter of intent mean?

A short document setting out the principal terms of a proposed deal, mostly non-binding on the commercial terms and fully binding on several provisions people skim past.

Where does letter of intent catch people out?

"Non-binding" describes the price, not the exclusivity clause. Signing a 60-day no-shop stops you talking to any other lender or buyer for 60 days, during which the counterparty controls the pace, learns everything about your business through diligence, and retains the ability to reprice at the end of it — with your alternatives now two months colder. The exclusivity period should be as short as the diligence genuinely requires, and that is the term to negotiate hardest.

Is letter of intent the same as an interest rate?

Letter of intent is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.

Which products does letter of intent apply to?

Term Loan, Business Line of Credit, SBA Loan, Asset-Based Lending.

Is there a worked example of letter of intent?

Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.

What else should I read alongside letter of intent?

Closing costs, Due diligence, Good faith deposit, Loan agreement, Loan committee.

Has this definition been checked?

Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.

Is this legal advice?

No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.

Can I suggest a term?

Yes — [email protected]. The glossary grows from what people are actually shown in contracts.