Do you need a letter of intent to buy a business?

A buyer may wonder whether the letter of intent is optional. This page reports what BDC, the federal Crown lender, says the letter does for each side, and leaves the choice to you and your lawyer. It does not say the law requires a letter of intent, or that it does not. For what binds once a letter is signed, see whether a letter of intent is binding.

What BDC calls customary

BDC says that to pursue discussions with the seller, it is customary to sign a confidentiality agreement and to write a letter of intent. In its steps for buying a business, BDC lists drafting and negotiating a letter of intent as a stage of its own, and says that although the LOI is not a binding offer, it anchors the transaction terms to some degree. BDC’s article on purchase agreements says the agreement typically comes after you have signed a letter of intent and done the bulk of your due diligence.

What the letter does for the buyer

BDC says the document will reassure the seller of your willingness to submit a potential bid, will help lay down the key elements of the transaction and, if needed, can also assure you a period of exclusivity during which you will be able to conduct the negotiations. It adds that once the main transaction parameters are listed in the letter, it will be time to proceed with thorough due diligence, and only after that to write the final agreements.

How the seller’s side describes it

BDC’s guidance for sellers names an initial offer or letter of intent stage. It describes this as a non-binding offer outlining the proposed purchase price, key terms and the exclusivity period for due diligence. A seller should ask a lawyer which parts of the letter, if any, are meant to bind. The letter of intent compared with a purchase agreement sets the two documents side by side.

Where this leaves the choice

None of these sources says you must have a letter of intent, or that you can go without one. If you are weighing whether to skip it, ask your lawyer what you would give up, such as confidentiality terms and an exclusivity period, and how the key terms would be recorded before due diligence begins.