SBA lenders have specific LOI requirements that can make or break your financing. Get the provisions right the first time.
A Letter of Intent for a business acquisition that will be financed through an SBA 7(a) loan. Must include lender-required provisions such as financing contingencies, seller note terms, training/transition requirements, and allocation of purchase price for SBA eligibility verification.
SBA 7(a) lenders won't even begin underwriting until they see an LOI with specific provisions. Missing these elements delays your deal-or kills it entirely.
Required SBA LOI Provisions
SBA loans take 45-90 days to close. Your LOI must explicitly condition closing on obtaining SBA financing, with enough time built in.
"This transaction is contingent upon Buyer obtaining SBA 7(a) financing on terms acceptable to Buyer in Buyer's sole discretion. If Buyer does not obtain financing commitment within 45 days of LOI execution, either party may terminate this LOI without penalty."
Most SBA deals require a seller note (typically 10-20% of purchase price) to reduce bank exposure. The note must be on full standby for 2 years.
"Seller agrees to provide a promissory note in the amount of $[X] (approximately [X]% of Purchase Price) at [X]% interest, with payments commencing after 24 months of full standby, amortizing over [X] years. Seller Note shall be subordinate to SBA lender and on full standby until SBA loan is current."
Note: SBA requires seller notes to be on "full standby"-no principal or interest payments-for at least 24 months. Some lenders require longer. Clarify this upfront.
SBA lenders want assurance the business will continue operating successfully. A seller transition/training period reduces lender risk.
"Seller agrees to provide training and transition assistance to Buyer for a period of [90 days] following closing at no additional cost, not to exceed [20] hours per week. Seller shall introduce Buyer to key customers, vendors, and employees and transfer all operational knowledge."
SBA lenders evaluate deals based on how the purchase price is allocated. Goodwill-heavy deals face more scrutiny. Include preliminary allocation in LOI.
"Parties agree to preliminary allocation: Equipment $[X], Inventory $[X], Customer Relationships $[X], Non-Compete $[X], Goodwill $[X]. Final allocation subject to mutual agreement and third-party valuation if required by lender."
SBA lenders require sellers to sign non-competes. Without this commitment in the LOI, financing may be denied.
"Seller agrees to execute a non-competition agreement prohibiting Seller from engaging in a competing business within [X] miles for a period of [5] years following closing. Non-compete is a material condition of this transaction."
SBA requires acceptable lease terms (usually 10+ years remaining or renewal options). Address this in the LOI to avoid surprises.
"Seller shall obtain landlord consent to assignment of existing lease to Buyer, or Buyer shall negotiate a new lease with minimum term of 10 years (including renewal options). Failure to obtain acceptable lease terms shall be grounds for termination."
SBA Acquisition Timeline
Include all SBA-required provisions
LOI, business financials, personal financials, business plan
Lender reviews, may request additional info
Conditional approval from lender
Final documents, funding, transfer
Total timeline: 60-90 days from LOI to close. Build this into your exclusivity period.
SBA LOI Mistakes That Kill Deals
SBA loans take 60-90 days minimum. A 30-day exclusivity forces you to rush or lose the deal.
Without an explicit out if SBA financing falls through, you could lose your earnest money or face breach claims.
Many SBA deals require 10-20% seller financing. If the seller refuses, the deal may not be financeable.
SBA needs 10+ years of lease term. If the current lease has 2 years left and landlord won't extend, you can't close.
SBA 7(a) loans require specific LOI language. Our attorneys review your letter of intent to ensure it meets lender requirements before you submit.
Request SBA LOI Review →We've helped dozens of buyers structure LOIs that SBA lenders approve the first time. Don't let a poorly drafted LOI delay your acquisition.
Acquisition Stars • acquisitionstars.com • alex@acquisitionstars.com