SPECIAL EPISODE - Structuring the Deal: Letters of Intent Explained

It’s the document that inspired the name of our show, and today, we are dedicating an entire episode to it. In this episode of Letters of Intent, Pankaj Raval and Sahil Chaudhary break down the critical importance of getting your LOI right before you ever look at a Purchase and Sale Agreement (PSA).

They explore how a well-crafted LOI acts as a "movie trailer" for a deal, surfacing major disagreements and dealbreakers before either party spends thousands of dollars on legal fees or due diligence. Whether you are buying commercial real estate, selling a growing business, or bringing on new partners, Pankaj and Sahil walk you through the 10 essential terms every LOI needs, the dangers of seller financing, and the critical difference between binding and non-binding provisions.

Takeaways

• Don't Negotiate on a Handshake: Proceeding with due diligence without an LOI in place leaves you completely exposed. You can spend thousands of dollars inspecting a business or property, only for the seller to walk away with zero consequences.
• The 10 Essential Terms: Price is just one factor. Your LOI must outline the deposit, due diligence period, closing date, exclusivity, financing contingencies, deal structure (asset vs. stock), key economic terms, closing conditions, and confidentiality.
• Binding vs. Non-Binding: While the core economic terms of an LOI are generally non-binding, you must ensure that clauses protecting your process—like exclusivity, confidentiality, and breakup fees—are strictly binding.
• Beware of Seller Financing: If a buyer is asking for seller financing, it often means a bank won't lend to them. Unless you are fully prepared to act as a bank and navigate a complex foreclosure process, proceed with extreme caution.
• Bring Counsel in Early: The biggest mistake business owners make is handing their attorney an already-signed LOI. By bringing counsel in before signing, you can identify blind spots, secure leverage, and avoid being locked into unfavorable terms.

Soundbites

• "Three weeks of momentum and $8,000 gone, an LOI would have cost them an afternoon."
• "Is an LOI kind of like a movie trailer? It gives you the highlights. It tells you, do you want to watch this movie?"
• "Unless you're prepared to be the bank and try to foreclose and try to deal with the property and take back the property, you do not want that headache."
• "The price is only one factor of a deal and you have to weigh that against many other factors."
• "If there's one takeaway... you can't read the other person's mind. The biggest protection you have against making assumptions is the LOI."

Keywords

Letter of Intent, LOI, Mergers and Acquisitions, Commercial Real Estate, Business Acquisition, Term Sheet, Exclusivity, Due Diligence, Seller Financing, Carbon Law Group