Letter of Intent (LOI)

LOI: What the Market Actually Requires

In the acquisition timeline, the LOI is the starting gun. It is the first document in the sequence that runs LOI, then purchase and sale agreement, then lender term sheet, then loan commitment, then closing, and every downstream date is constrained by what the LOI promised. Buyers who negotiate a 30-day due diligence period and a 60-day close have effectively committed to a financing schedule: lender selection and term sheet inside two weeks, third-party reports (appraisal, Phase I environmental, property condition) inside four to five, commitment and loan documents in the remainder. Agreeing to aggressive dates to win the deal, then discovering the debt cannot close on them, is the most common way buyers lose deposits or pay for extensions.

Legally, most LOI provisions are statements of intent, not obligations; the binding pieces are usually exclusivity (the seller takes the property off the market for a defined period), confidentiality, and sometimes deposit mechanics. Sellers read LOIs for execution risk as much as price: a slightly lower offer with proof of funds, a credible lender relationship, and no financing contingency frequently beats a higher one with a shaky capital plan.

Terminology overlaps in the financing world. Some banks and debt funds call their initial loan proposal a letter of intent, others a term sheet or loan application; the substance, a mostly non-binding outline of proposed terms with a deposit to enter underwriting, is the same, and the binding document that follows underwriting is the loan commitment. What matters is not the label but the sequencing: engage the debt market when the LOI is signed, not when the PSA is, so competing term sheets arrive while the due diligence clock is still young.

Why It Matters for Your Loan

The LOI fixes the deadlines your financing must live inside. Due diligence and closing periods negotiated without regard to appraisal, environmental, and underwriting timelines turn into extension fees and lost deposits. Starting the debt process at LOI signing, rather than waiting for the executed purchase contract, buys back two to three weeks and lets you negotiate term sheets from strength. On competitive deals, a documented financing plan also makes your LOI more credible to the seller, which wins ties against higher offers.