A letter of intent is a short, mostly non-binding letter that sets out the main terms two parties expect to agree on before the full documents are drafted.
A borrower meets two kinds.
The first is between buyer and seller. Before a purchase contract for a building or a business, the buyer sends a letter with the price, deposit, time for inspections, closing date and any financing condition. A lender asked to finance the purchase reads it to learn the price, how much cash the buyer is putting in, whether the seller is carrying a note, and how much time there is to close.
The second comes from a lender, and in that use it is another name for a term sheet: an outline of the loan the lender would consider, subject to its full review. It is not a commitment. Bank rules reserve that word for a legally binding written promise to lend.
In both kinds most of the letter does not bind anyone. A few clauses often do, such as confidentiality, an exclusive dealing period and who pays costs. The letter itself should say which.
Do not treat a lender’s letter of intent as money in hand when you set a closing date with a seller.
How it shows up in the data here
Letters of intent are private and are not in any public file. A lender reviewing a purchase wants the signed letter or contract in the package; the deal summary builder lays out price, cash in and loan request on one page to send with it. To see which lenders made or hold similar loans before you ask for a lender's letter, use loan comps.
Go further
- Deal summary builder: A one-page summary of the deal for a lender.
- Loan comps: Similar loans by type, size and state.
- Deal summary builder: Turn the facts of a deal into a clean one-page summary you can copy or print. Nothing is saved or sent.
- What a lender-ready loan package looks like: A lender decides in minutes whether to keep reading. A package that answers the first five questions on one page, and backs each answer with a document, gets read.
- How to place a commercial loan with a bank: A bank loan moves through the same stages every time. Knowing them tells you what the bank needs at each point, what its answer means, and where time is lost.
Related terms
- Term sheet: A term sheet is a short written outline of the loan a lender is prepared to consider: amount, rate, term, fees and main conditions. It is usually not binding.
- Commitment letter: A commitment letter is the lender's written, binding promise to make a loan on stated terms, if the conditions listed in the letter are met by a set date.
- Change of ownership loan (SBA 7(a)): A 7(a) loan that finances buying an existing business or an owner's share of it. SBA requires an independent valuation, 10 percent equity and, for a new owner, debt service coverage of 1.25 to 1.
- Equity injection (SBA): The cash or other equity an owner puts into an SBA-financed project. A 7(a) start-up or business purchase needs at least 10 percent of total project cost; a 504 project needs 10, 15 or 20 percent.
- Commercial mortgage broker: A commercial mortgage broker is a person or firm that takes a borrower's loan request to lenders and is paid a fee, without lending its own money.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.