When to use this template
Two common scenarios:
- Equity injection supplementation. The buyer can raise 5% of the deal in cash but not the full 10% SBA requires. SBA permits the second 5% to come from a seller note if that note meets standby criteria (no payments for 24+ months, full subordination).
- Price-gap bridge. Buyer and seller disagree on price by 5–15%; structuring the disputed portion as a deferred seller note (or earn-out) lets the deal close while the seller takes paper for the contested upside.
The standby clock starts at closing — get this right
SBA standby requirements are strictly interpreted: no payments of principal or interest for the first 24 months from the closing date. Not from "year three of operations." Not "after the buyer ramps up." From closing.
An LOI structured as "interest-only for years one and two with principal beginning year three" is outside the SBA standby rule even though it superficially looks like deferred-pay. Lenders catch this in the closing checklist, by which point you've signed a definitive APA and are 30 days from close. Renegotiating the seller note schedule with the seller at that point costs weeks and often cash. Get the language right at LOI.
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LETTER OF INTENT
Asset Purchase with Seller Financing — [TARGET BUSINESS NAME]
Date: [DATE]
Buyer: [BUYER ENTITY NAME]
Seller: [SELLER LEGAL ENTITY NAME]
Target: The business operated as [TARGET DBA]
This LOI sets forth the principal terms under which Buyer proposes to acquire substantially all of the operating assets of the Business, with a portion of the consideration paid via a standby-compliant Seller Note. Sections marked "binding" in Section 11 are legally binding upon signature; all other sections are non-binding.
1. Transaction structure
Asset purchase. Buyer acquires substantially all of the operating assets and assumes only specified liabilities, in accordance with the definitive Asset Purchase Agreement.
2. Purchase price & consideration
Aggregate Purchase Price: [$0,000,000], on a cash-free, debt-free basis, payable at closing as follows:
- Cash at closing (SBA 7(a) loan proceeds): [$0,000,000]
- Buyer cash equity injection: [$0,000,000] (constitutes [at least 5%] of total project cost; required by SBA SOP)
- Seller Note (per Section 3 below): [$0,000,000] (may constitute up to the second [5%] of equity injection if structured on full standby per SBA SOP)
3. Seller Note — standby terms
At closing, Buyer will issue, and Seller will accept, a promissory note ("Seller Note") with the following principal terms:
- Principal: [$0,000,000]
- Interest rate: [%] per annum, computed on the outstanding principal
- Standby period: No payments of principal or interest for twenty-four (24) months from the closing date. During the standby period, accrued interest will be added to principal (negative-amortization accrual is acceptable to the SBA so long as no actual cash payments are made).
- Following the 24-month standby period, the Seller Note will amortize over [months] in equal monthly payments of principal and interest, with a final balloon at maturity if applicable.
- Subordination: The Seller Note is fully subordinated, in right of payment and lien position, to all indebtedness owed to Buyer's SBA 7(a) lender (the "Senior Lender"). The Seller will execute the Senior Lender's standard subordination and standby agreement at closing.
- Acceleration restrictions: Seller's remedies on default are limited as required by the SBA standby agreement. Seller may not accelerate, sue on, or enforce the Seller Note while the SBA loan is outstanding without the Senior Lender's written consent.
- Prepayment: Buyer may prepay in whole or in part at any time after the standby period ends, without penalty.
- Personal guaranty: [Buyer principal personally guarantees the Seller Note / no personal guaranty] — subject to Senior Lender approval.
4. Working-capital peg
Same as standard Asset Purchase LOI — normalized peg of [$000,000], dollar-for-dollar adjustment.
5. Earnest money
[$00,000] in escrow within five business days of LOI signing.
6. Diligence period
Sixty (60) days from LOI signing.
7. Exclusivity
Ninety (90) days from LOI signing or earlier termination.
8. Closing conditions
- SBA 7(a) loan commitment, including written confirmation that the Seller Note structure is standby-compliant for SBA equity-injection purposes
- Diligence to Buyer's satisfaction
- Third-party consents
- No material adverse change
- Execution of definitive APA, Seller Note, subordination agreement, and ancillary docs
9. Confidentiality
Mutual; binding on signature.
10. Definitive agreements
The parties will negotiate in good faith to execute the APA, the Seller Note, a security agreement (if applicable), and the subordination/standby agreement required by the Senior Lender, within thirty (30) days of LOI signing.
11. Binding provisions
Sections 5, 7, 9, 12, and 14 are binding upon signature; all other sections are non-binding.
12. Expenses
Each party bears its own.
13. Public announcements
No public announcement without the other party's prior written consent.
14. Governing law
Laws of [STATE].
Accepted and agreed:
BUYER: ______________________________ [NAME, TITLE]
SELLER: ______________________________ [NAME, TITLE]
Negotiation notes
- Sellers will resist standby. Twenty-four months of zero cash flow on a meaningful chunk of their proceeds is a real cost. Common resolutions: bump the interest rate, add a higher principal balance, or shorten the post-standby amortization period.
- Negative-amortization accrual. SBA permits accrued interest to be added to principal during standby, but doesn't require it. Some sellers prefer this; others prefer interest-forgiveness during standby. Spell it out in the LOI.
- Personal guaranty. Senior Lender (SBA) requires the buyer's personal guaranty on the SBA loan. Whether the seller note is also personally guaranteed is negotiable, but the SBA limits remedies in either case.
- Don't promise what you can't deliver. Confirm the Senior Lender will accept your specific Seller Note structure before signing the LOI. Some lenders apply tighter internal standby criteria than the SBA SOP requires.