Earnest Money Contract (EMC) vs LOI risk in SBA deals

February 04, 2026

by a searcher from University of Alberta - School of Business in Miami, FL, USA

Curious to hear others’ experiences. I’m looking at a small acquisition for a rollover where the broker insists on using a binding Earnest Money Contract (EMC) as the definitive purchase agreement, with earnest money posted upfront ($10K), rather than starting with a non-binding LOI. The EMC includes inspection and financing contingencies, but also allows the seller to retain earnest money in the event of buyer default. Not great, but I'm most concerned about the fact that the broker insists that the EMC will be the APA and all the leverage I'll lose during the QoE period, which shouldn't take long as it's a small deal for a rollover. I understand this structure might be common in some lower middle market transactions and that brokers value certainty. At the same time, from a buyer’s perspective, I'm not convinced that this structure appropriately balances risk prior to diligence and SBA credit confirmation. For those who’ve done similar SBA deals: - Have you signed EMC first structures like this? - Any approaches you’ve used to mitigate downside risk while still keeping the seller and broker engaged?

Reply by an intermediary
from The University of Michigan in Bonita Springs, FL, USA

If your deal is in Florida with a Business Brokers of Florida (BBF) association member, this is common. BBF's standard purchase agreement will balance the risk. It will include contingencies for due diligence, financing, and lease transfer. Any that fail will trigger a return of your escrow deposit. As I've been told my many attorneys, this protects you as well. Understand 'non-binding' means exactly that in Florida -- at any time in the process, you can be replaced with another buyer who will follow this process. In Florida, 95% of the time, your LOI without consideration (an escrow deposit) isn't sufficient to bind your exclusivity. You mention QOE. They aren't cheap. Effectively, you would be gambling that money without full, binding exclusivity as the seller (and broker) can terminate your LOI at any time with or without cause.

Reply by an investor
from Columbia University in Fairfax, VA, USA

We ran into a handful of brokers during our Search that insisted on what you're describing. There was only one brokerage (Benjamin Ross Group out of New Jersey) we moved forward with under these conditions because they had a reputation of only repping quality deals: clean financials, reasonable valuations, robust dataroom. They also get all their deals pre-approved by an SBA lender (but honestly, that doesn't mean much). Put another way, they ran a very tight process. BUT... they made no exceptions about using their binding LOI / EMC with an escrow deposit. We looked at two of their deals. In both cases, DD uncovered issues and we walked, and the earnest money was returned with no issues. But in almost every other case where a broker pushed for binding paper or deposits pre-QoE / pre-credit, we pushed back. About half the time we were able to get to a non-binding LOI w/ standard contingencies. In the other cases where they wouldn’t budge, we passed (but that was mostly because the the deal wasn't compelling enough to justify the downside risk and distraction of potentially having to fight for a deposit back). If you do move forward, I'd just make sure there are tight financing & DD contingencies, explicit refund mechanics, and no ambiguity about what constitutes "buyer default".

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