An LOI deposit becomes part of your equity injection.

Earnest money at the letter of intent stage is normal in a brokered sale, and a deposit credited against the purchase price at closing counts toward the equity injection an SBA lender must source and document under the rules in force as of September 2026. The deposit is three decisions: how much, who holds it, and what returns it.

Why does a broker want earnest money before diligence even starts?

Earnest money at the letter of intent stage is what a main-street business broker uses to separate buyers who will spend money from buyers who will only spend time. A deposit signals funded intent. It does not signal agreement on price, a diligence outcome, or lender approval, and the letter of intent should say so in words.

The reason is structural, not personal. During exclusivity the seller goes off the market and opens the books, so a buyer who disappears in week three costs the seller weeks.

A letter of intent at this size is usually non-binding as to the sale and binding as to a short list: confidentiality, exclusivity, cost allocation, and the deposit. That split holds only if the document says so expressly. Courts have found letters of intent binding where the language was ambiguous, and a promise to negotiate in good faith can create its own obligation.

If the letter is silent on release, the binding part of it is the part that took your money.

Where should the deposit sit — an escrow agent, the broker’s trust account, or seller’s counsel?

An earnest money deposit should sit with a custodian whose authority to release the funds is written down before the money moves. Escrow agents, broker trust accounts, and seller’s counsel are all used in main-street deals. The difference rarely matters while the deal is alive. It matters entirely on the day the deal dies.

I read the escrow agreement before I read the letter of intent, because the letter of intent tells me what the parties hope and the escrow agreement tells me who can move the money.

Before you wire, get three answers: the name and type of account, who can instruct a release and in what form, and who receives any interest. If nobody can answer the second from a document, there is no escrow, only a person holding your money.

Broker licensing and deposit handling are creatures of state law and vary, so confirm the trust account rules with the state agency, not the broker.

What makes an LOI deposit refundable in a way you can actually enforce?

Refundability is a drafting problem, not a fairness problem. A deposit is refundable when the letter of intent names a condition, states who tests it, states the deadline, and states what happens to the money if the condition fails. Conditions a stranger can verify from documents are the only ones a custodian can act on without the seller’s signature.

A buyer-satisfaction condition is easier to get at this size than buyers expect and worth less than it looks: it hands the seller a good-faith argument and gives a custodian nothing to verify. Draft the return triggers as events a stranger could test from paper:

• Diligence failure, defined. Not “diligence unsatisfactory to buyer,” but verified trailing twelve-month earnings below a stated figure, largest-customer revenue above a stated percentage, a required license that proves not transferable, or an unrecorded liability above a set amount.
• Lender failure, defined. No written credit approval from a named lender by a stated date, or approval subject to a condition you cannot satisfy. Expect the seller to require in exchange that you file a complete application by a set date.
• Landlord failure, defined. No written consent to assignment or a new lease by a stated date, on economics no worse than today’s in term, rent, and guaranty.
• Consent failure, defined. A named franchisor, licensor, or supplier withholds written consent by a stated date.
• Failure to sign. No purchase agreement executed by a stated date, for any reason other than your refusal to sign the form you had already agreed.

Then build the release mechanic, because a trigger with no mechanic is a dispute. Ask for this: you give written notice identifying the failed condition, the seller has a stated number of business days to object in writing, and absent a timely objection the custodian returns the funds. That works only if the escrow agreement contains it and the agent accepts it. Otherwise a neutral agent will generally do nothing until both sides sign or a court directs it.

A staged deposit with a non-refundable date is one common trade, not a rule of the market. At this size many letters of intent keep the deposit refundable until the purchase agreement signs, so treat early non-refundability as something the seller is buying. If you agree, tie it to an event you can see and carve out seller breach and consents nobody controls.

A condition an escrow agent can test on paper can be acted on. A condition that turns on your satisfaction leaves the money where it sits.

Does an LOI deposit count toward the SBA equity injection?

A deposit credited against the purchase price at closing counts toward the buyer’s equity injection, and SBA rules require that injection to be sourced, verified, and documented before the loan disburses. Stated as of September 2026, the governing edition sets a minimum injection for a complete change of ownership against total project costs. Money wired months earlier gets tested.

Stated as of September 2026, the operative edition is SOP 50 10, Version 8, effective June 1, 2025, as since amended. It governs loan numbers issued through September 30, 2026. Version 8.1 takes effect October 1, 2026 for loan numbers issued on or after that date, and it rewrites the change-of-ownership provisions, including how the equity requirement applies by transaction type. A letter of intent signed this month will most likely be underwritten under 8.1, so confirm the edition with your lender in writing.

Policy: SBA SOP 50 10, Version 8 (effective June 1, 2025); Version 8.1 (effective October 1, 2026). Rule: 13 CFR 120.150 (lenders must use appropriate and prudent generally acceptable commercial credit analysis, consistent with their non-SBA loans). The minimum injection percentage for a change of ownership comes from the SOP, not from that regulation.

Under Version 8, verifying an injection means documents: the check or wire with evidence it processed, statements from the source account showing the funds were available for the period the lender requires, and evidence the funds reached the borrower’s account, the escrow agent, or the settlement statement. A promissory note or gift letter alone is not sufficient.

Three failures show up late:

• An undocumentable account. Money wired from an account you cannot produce statements for — a relative’s account, a business you do not own, a platform that issues none — creates a tracing gap the lender must close before funding.
• A gift with no paper. The donor’s letter is the beginning, not the end. Collect the donor’s statements showing the funds existed and moved, when it happens, and ask the donor’s tax preparer about filing obligations.
• Borrowed money. Borrowed cash is not automatically disqualified, but it is conditioned. Under Version 8, unborrowed cash counts, personal loan proceeds count where repayment comes from a source other than the business’s cash flow, and seller debt counts only on full standby and only up to a capped share. Those conditions move between editions, so ask in writing what your edition permits before funds move.

Two mechanics protect the credit. The closing statement should show the deposit as a credit against the purchase price, so deposit plus closing wire equals your stated injection. And a tranche released to the seller before closing is not automatically lost, but the tracing burden becomes yours.

The deposit leaves your account in March and gets tested in September. Document it the day it leaves.

The lender’s own policy can be stricter than the SOP, and it is allowed to be. Federal rules set a floor. No document makes an approval predictable.

Do you have to post earnest money to compete, and can the seller keep it?

Earnest money is the cheapest instrument a buyer has where a seller has more than one interested party, and a buyer who refuses one on principle competes on price alone. Credibility, speed, and evidence of funded intent are what a seller weighs next to price, and a deposit is short proof of all three.

So refuse the bad mechanic, not the deposit. “I will not post earnest money” sounds like you cannot fund. “I will post it with a neutral agent, on five defined return triggers, with a non-refundable date six weeks after signing” sounds like you have done this before.

Now the limit, which runs the other way. A forfeited deposit is enforceable as liquidated damages only where it approximates a loss that was hard to measure when the parties contracted. Delaware’s two-part inquiry illustrates the standard: were damages uncertain at contracting, and is the agreed amount reasonable. A sum set to punish rather than estimate loss is a penalty, and a penalty is not enforceable as agreed damages. That decision concerned a public-company merger termination fee, not a small-business deposit, and your letter will usually name the law of the state where the business sits, so ask which test applies.

Case: Brazen v. Bell Atlantic Corp., 695 A.2d 43 (Del. 1997).

Two drafting points follow. Recite that the deposit is a reasonable estimate of the seller’s loss from being off market, and say what that loss consists of. Then make the deposit the seller’s sole and exclusive remedy, because forfeiture is not automatically a ceiling; without that, a seller can claim damages beyond the money it holds.

How much earnest money should you post, and what should you get for it?

Deposit size should be set by three constraints, not by a percentage someone quotes you: what you can lose without breaking the injection you must document later, what the seller plausibly loses by going off market, and what length and quality of exclusivity the deposit buys. Trade a larger deposit for better exclusivity, never for goodwill.

• Start from documented cash. Total the funds in accounts in your name you can evidence with statements. Subtract your injection requirement, closing costs, diligence budget, and post-closing reserve. What remains is the outside limit of what a deposit can risk.
• Buy something each time. Any increase should purchase longer exclusivity, an extension if the lender’s credit decision is pending through no fault of yours, a seller obligation to deliver named documents within a stated number of days, or a standstill that survives the extension.
• Price exclusivity against the lender’s clock. No lender commits to a decision date, so short exclusivity is exclusivity you will probably renegotiate from a weak position.

Exclusivity is the asset. The deposit is the currency. Spend it on terms and dates you can point to.

What should you do before you sign the letter of intent?

Three items should be settled in writing before a deposit moves: the custodian and the exact account, the defined return triggers with dates, and the release mechanic that returns the money without the seller’s signature. A deposit sent before those are settled is not earnest money. It is an unsecured advance to an adverse party.

• Ask who will hold the deposit and read the escrow agreement before you discuss amount.
• Ask your lender in writing what it requires to source your injection and which SOP edition applies.
• Save the source account statement and the wire confirmation the day the wire goes out.
• Convert every soft condition into a number, a named document, or a date.
• Add the objection window and deemed-release language, and get the custodian to accept it.
• If a gift funds any part of it, collect the donor’s letter and statements immediately.
• Confirm the non-refundable date, what starts that clock, and which failures survive it.

I ask for the statements on the account the deposit will leave before I agree to any deposit date, because the injection is tested with documents and documents are easiest to collect while the money is still yours.