A deposit with an LOI?

searcher profile

March 18, 2025

by a searcher from University of Toronto - Joseph L. Rotman School of Management in Durham, ON N0G 1R0, Canada

Hi all,

I am submitting my first LOI for a Canadian company with roughly $500K SDE - very excited, it should be a good fit.
Two questions:
1. Is it standard practice for the seller's agent to require a deposit before the conversation begins?
2. If so, what is the typical deposit amount (% of offer)?

Any insight is helpful, and thank you!

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commentor profile
Reply by a searcher
from Harvard University in Washington, DC, USA
I believe you've gotten good feedback on your question, but I wanted to write some (unsolicited, I know - I'm sorry!) advice on what you mentioned here.

You might want to think about dynamics going forward. You want both the deal AND the process to be equitable and win-win for both parties. If you're going in saying "I have to play by their rules", its neither equitable, nor a win-win. I'm definitely not advocating posturing or being inflexible, but rather staying firm on things that are important to you. (regardless of whether its this downpayment or something else)

Sometimes the best companies can have brokers/sellers who kill the deal. When you get into an LoI, think about whether you get the sense that the broker and seller are going to be reasonable and flexible. If not - I know it can be very painful and heartbreaking - move on. You're better off letting go of a great company rather than getting into an LoI where there is a high risk of the deal not closing last-minute, or you getting strong-armed into submitting to terms that aren't win-win; and then living with those consequences for the next 5-10 years.
commentor profile
Reply by a searcher
from University of Illinois at Urbana in Chicago, IL, USA
I would echo the thoughts from other commentors that a deposit should not be used at the LOI stage/it should be very small. Even after signing an LOI, both parties have a LOT of reasons to back out of the deal. That means your safety deposit may be subject to forfeiture if the seller suddenly changes their mind and backs out (or you do with for a good reason), with limited recourse to get the money back.

If the Selller's agent is concerned about you losing interest post-LOI, that should be encouragement for them to move quickly to close. In lieu of a deposit, ask the Seller's agent what would be helpful to demonstrate seriousness about closing from you.

Doing healthcare M&A in the US for multiple years, I have never seen such a deposit ever. To be honest, it feels kinda slimy for Seller's agent to make this requirement.
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