What Happens After You Sign an LOI to Buy a Business (With an SBA Loan)
Congratulations—you've signed a Letter of Intent (LOI) to acquire a business using SBA financing. Now comes the critical question: what's next?
Signing an LOI marks a pivotal moment in your acquisition journey. It signals serious intent and sets the stage for the formal underwriting and due diligence process. If you're planning to finance your purchase with an SBA 7(a) loan, understanding the post-LOI timeline and key milestones will help you avoid delays and navigate toward a smooth closing.
In this guide, we'll walk you through exactly what happens after you sign that LOI, outline realistic timelines, address common obstacles, and share strategies to keep your deal on track.
Understanding the Letter of Intent
Before diving into the post-LOI phase, let's clarify what an LOI actually is and why it matters for your acquisition.
A Letter of Intent (LOI) is a preliminary, non-binding agreement that outlines the basic terms between buyer and seller. While not legally enforceable in most cases, it demonstrates genuine commitment and establishes the foundational roadmap for negotiations ahead.
Key characteristics of an LOI include:
- Non-binding nature: Either party can typically walk away, though it shows serious buyer intent
- Core terms: Specifies purchase price, closing timeline, deal structure, and contingencies
- Due diligence trigger: Officially launches the verification and investigation phase
- SBA alignment: Begins the clock on your SBA loan process, as lenders now have a defined target to evaluate
Your Immediate Action Plan After Signing
Once your LOI is signed, several concurrent activities need to begin. Here's how to prioritize:
1. Launch Comprehensive Due Diligence
Due diligence is your opportunity to verify the business's financial health, operational strength, and potential risks before committing to permanent financing.
Financial Analysis
- Obtain and review tax returns for the past three years
- Examine P&L statements, balance sheets, and cash flow projections
- Verify revenue trends and profitability consistency
- Identify any accounting irregularities or red flags
Legal and Contractual Review
- Collect all customer contracts, supplier agreements, and lease terms
- Assess existing liabilities, litigation history, and compliance issues
- Review employment agreements and any non-compete clauses
- Identify any pending legal matters that could impact operations
Operational Assessment
- Evaluate customer concentration and retention rates
- Review staffing, key personnel, and succession plans
- Assess systems, technology infrastructure, and scalability
- Verify supplier relationships and pricing stability
2. Connect With an SBA Lender
If you haven't already selected a lender, now is the time to make that critical choice. Your SBA 7(a) lender will guide the entire financing process and significantly influence your deal's timeline and terms.
What to do:
- Research lenders with proven experience in business acquisition financing
- Contact an SBA loan advisor or marketplace like Cassian for lender recommendations
- Prepare your borrower profile, financial statements, and preliminary business summary
- Request term sheets and initial underwriting feedback
- Ensure your lender understands the specific business you're acquiring and your acquisition strategy
3. Engage an M&A Attorney
Before drafting the purchase agreement, you need experienced legal counsel. This is not the place to use generic templates or cut corners.
Your M&A attorney should:
- Draft a customized purchase agreement reflecting your specific transaction structure
- Align the agreement with SBA loan requirements and lender expectations
- Define escrow arrangements, working capital provisions, and seller financing terms (if applicable)
- Address contingencies, indemnifications, and representations and warranties
- Protect your interests while maintaining seller cooperation through closing
Your attorney and lender should work together to ensure the purchase agreement supports both your acquisition strategy and the lender's requirements.
The SBA Loan Timeline: What to Expect
Understanding realistic timelines helps you plan staffing transitions, financing arrangements, and other logistics.
Phase 1: Prequalification (3–7 Days)
Your lender conducts a preliminary review of:
- Your personal credit, financial profile, and acquisition experience
- The target business's financial performance and viability
- The proposed deal structure, including equity injection requirements and seller note terms
This phase confirms whether the deal generally fits SBA 7(a) parameters and moves forward to formal underwriting.
Phase 2: Formal Underwriting (2–4 Weeks)
The lender performs detailed analysis:
- Debt Service Coverage Ratio (DSCR) calculations to verify cash flow adequacy
- Asset valuation and collateral assessment
- Comprehensive financial statement review
- Tax return verification and comparison to business owner representations
Phase 3: SBA Loan Committee Review (1–2 Weeks)
The lender's loan committee evaluates the complete file and issues a conditional approval or requests additional documentation.
Phase 4: Closing and Funding (1–2 Weeks)
Once SBA and lender approval is finalized, you'll coordinate closing with the seller, execute all loan documents, and receive funding.
Total typical timeline: 8–12 weeks from LOI to funding
Common Obstacles and How to Avoid Them
Incomplete or Inaccurate Documentation
- Provide organized, complete financial files from day one
- Verify all business numbers before submission to avoid resubmissions
Misaligned Deal Structure
- Confirm your lender understands the purchase price allocation, seller financing terms, and equity injection upfront
- Discuss DSCR requirements early to ensure the deal pencils financially
Weak or Inadequate Personal Financials
- Address credit issues, debt obligations, or income verification concerns proactively
- Discuss any weaknesses with your lender before full underwriting
Unclear or Risky Purchase Agreement Language
- Have your attorney coordinate with the lender to ensure agreement terms support loan approval
- Address indemnification, contingencies, and closing conditions early
Staying on Track: Key Success Strategies
Communicate Proactively: Update your lender regularly with new information, financial updates, or changes to the deal structure. Surprises during underwriting cause delays.
Coordinate Your Team: Your lender, attorney, accountant, and business advisor should be aligned on timelines, requirements, and contingencies.
Prepare for Due Diligence Questions: Anticipate what lenders will ask and have documentation ready to support your answers.
Understand Your Financing Requirements: Know your required equity injection, any seller note terms, working capital needs, and the debt service coverage ratio your lender requires for approval.
Keep the Seller Engaged: Ensure the seller is responsive to information requests and cooperates with the lender's verification process.
Moving Forward With Confidence
The post-LOI phase is intense but manageable when you understand what to expect. By conducting thorough due diligence, working with experienced professionals, and maintaining clear communication with your lender, you can navigate the SBA loan process smoothly and close your acquisition on schedule.
At Cassian, we help business buyers connect with experienced SBA 7(a) lenders who specialize in acquisition financing. Our marketplace matches you with lenders who understand your deal and can move efficiently through underwriting. Let us help simplify your path to business ownership.