What is LOI (Letter of Intent)?
Written by True Tamplin, BSc, CEPF®
Updated on June 21, 2021
Letter of Intent (LOI) Definition
A Letter of Intent, or LOI, is a document in which one party declares their intent to do business with another.
These letters are preliminary to any formal deals or terms, and are designed to be general and non-legally binding.
LOIs are similar to term sheets, except that an LOI is presented in letter format and term sheets in a list format.
The Purposes of a Letter of Intent
An LOI may have different purposes depending on the business:
- Most often they are used as a written way to lay out some of the most basic, early terms of a formal financial deal, particularly to make apparent what details of the deal need to be negotiated further.
- An LOI may also be used to signal the initiation of a business deal such as a merger or acquisition.
Outside of business deals, it is very common for other institutions or individuals to use letters of intent to make a written declaration of some terms of an agreement.
- College graduates applying for graduate school are often required to write a letter of intent detailing the terms of their study.
- Parents may also write a letter of intent for their children, often in addition to a legally binding document like a will, describing what they wish to happen in the event of their deaths.