Key Insight
The no-shop clause is the only binding provision in most LOIs. Without it, a seller can use your LOI as leverage to extract better terms from other buyers while you spend money on due diligence.
What the No-Shop Covers
A strong no-shop clause prevents the seller from:
- Actively marketing the business to other potential buyers
- Engaging with or responding to unsolicited inquiries from other buyers
- Providing information to other parties
- Negotiating or executing any other letter of intent or purchase agreement
Some no-shop clauses carve out the obligation to disclose unsolicited approaches to the buyer — giving the buyer the opportunity to match any competing offer.
Typical Duration
The no-shop period mirrors the exclusivity period: 30-90 days from LOI signing. Most SBA-financed deals require 60-75 days minimum to complete due diligence and secure lender approval. A 30-day exclusivity period is almost never enough; buyers should push for at least 60 days.
Extensions
LOIs typically include a provision for extending the exclusivity period if:
- The parties are actively progressing toward closing
- The extension is mutually agreed in writing
- No material due diligence findings have terminated the exclusivity period
What Happens When a No-Shop Is Violated
If the seller violates the no-shop by entertaining other offers while the buyer is in due diligence, the buyer may:
- Terminate the LOI and seek recovery of due diligence costs
- Negotiate a break-up fee as compensation for time and expense
- Continue the process (if the violation was minor and the deal is still attractive)
Due to the "non-binding" nature of most LOI provisions, enforcing no-shop violations can be legally complex — courts look at the overall circumstances and whether the buyer can prove damages.
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