What You Need to Understand About the Letter of Intent
One of the duties of a business broker San Marcos is to help you review the particulars of the Letter of Intent (LOI). The issuance of the LOI by a potential buyer is the starting point in the submission of a formal offer to acquire your business. The LOI spells out the terms of the purchase as well as the transaction period. The LOI will eventually act as the framework for the Asset Purchase Agreement (the formal offer).
So-Cal Business Brokers is not just committed to helping you find the right buyer for your business but also to help with the paperwork. We will help with the particulars of the Letter of Intent. Here are the main items we look at in an LOI.
Agreement to buy and sell between buyer and seller
This is the legal language in the Letter of Intent. It is what spells out the details on what the buyer is committing to purchase from you. Our business brokers San Marcos will help renegotiate the terms. The agreement will also include details about the name of the business and where it is located. To maintain confidentiality, we will not share any information about your business with the buyer until they sign our legally binding NDA.
Payment terms
The LOI will give details on payment. This is where the buyer proposes the financial piece of the deal. This section spells the total purchase price that will be paid as well as the structure of the deal. Payment can be done in several ways including all cash offer, bank financing and cash with seller financing.
Earnest money deposit
As an act of good faith, the buyer needs to put some money into an escrow account. This is done after the execution of the Letter of Intent. This has to be done before giving the buyer permission to perform due diligence. At So-Cal Business Brokers, we insist on an amount of between 10% and 20% of the total deal value. Being able to make this deposit shows that the buyer is a serious buyer and has the means to finance the deal.
Due diligence terms
How long will due diligence last? This information will be included in the LOI. The due diligence can take days or even weeks. Our duty as your business broker San Marcos is to ensure the due diligence period is fair. Due diligence begins after the execution of the LOI.
Time for asset purchase agreement (APA)
This mirrors due diligence time frame. It states that the APA will be draw within the due diligence period.
Other details in the Letter of Intent include closing dates, non-compete terms, exclusivity clause and contingencies. Give us a call today to learn more about LOI and how we make your deal a success. Schedule a free consultation now to talk to one of our experienced business brokers in San Diego.