The Direct Answer
Earnest money historically was not required when buying a business through a Letter of Intent. That changed starting in 2026. Sellers and their advisors are now routinely asking buyers to put earnest money down — either a set amount or a percentage of the deal value — to prove the buyer is real, funded, and serious. Without earnest money, sellers are increasingly refusing to sign a no-shop exclusivity clause, which means the seller continues shopping the deal to other buyers during the buyer’s due diligence period. The shift came from two patterns over the prior years. Buyers dragging their feet during due diligence after locking up sellers under exclusive LOIs. And unfunded buyers submitting LOIs on businesses they could neither run nor afford to close, freezing those businesses out of the market for weeks or months. If you are buying, expect to put skin in the game. If you are selling, you are now in a position to require it.
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What Earnest Money Means In A Business Acquisition
Earnest money in a business acquisition is a deposit the buyer places at the time of signing the Letter of Intent. The amount can be a set dollar figure — twenty-five thousand, fifty thousand, one hundred thousand — or a percentage of the proposed purchase price. The money typically sits in escrow with a neutral third party. If the deal closes, the earnest money applies to the purchase price. If the deal falls through for reasons outlined in the LOI, the disposition of the earnest money depends on the language negotiated up front.
The function of earnest money is not the money itself. The function is the signal. A buyer who is willing to wire twenty-five thousand dollars into escrow is a different buyer than one who refuses. The wire is proof of three things at once — the buyer has the funds available, the buyer is serious about closing, and the buyer is willing to accept consequences if they walk away without cause. None of that is provable through conversation. Earnest money makes it provable.
Why The Norm Shifted In 2026
For most of the past two decades, earnest money in business acquisitions was uncommon. The norm was the buyer signed a Letter of Intent, the seller signed a no-shop exclusivity clause, and the two sides ran a 60 to 120 day due diligence and closing window. The buyer’s reputation and the seller’s broker relationships were sufficient signals of seriousness.
Two patterns broke the old norm. First, sophisticated buyers — including private equity firms and strategic acquirers — began using long exclusivity windows to lock up sellers while running parallel deals or extracting renegotiation leverage during the diligence period. By the time the buyer walked or re-traded the price, the seller had lost months of market time and missed their selling window. Second, the rise of acquisition entrepreneurship produced a wave of buyers who submitted LOIs without the operational capability to run the business they were proposing to buy, and without funding lined up to close. These deals collapsed at the diligence table or at the financing table, leaving the seller worse off than if they had never signed the LOI.
By 2026, enough sellers and their advisors had been burned by both patterns that earnest money became standard practice. The THREATS framework covers this exact category of seller risk — the risk that the wrong buyer locks up the deal and burns the selling window.
How Earnest Money Affects The No-Shop Clause
The no-shop exclusivity clause is the seller’s most expensive concession in an LOI. By agreeing not to entertain other offers during the buyer’s diligence period, the seller is taking the business off the market for 60 to 120 days. If the buyer walks, the seller has lost that window and may have to restart the entire marketing process at a worse time of year or under worse market conditions.
In 2026, sellers and their advisors are increasingly conditioning the no-shop clause on earnest money. The framework is simple — if the buyer wants exclusivity, the buyer puts money down. If the buyer refuses to put money down, the seller continues shopping the deal in parallel during the diligence period. Some sellers are willing to sign an LOI without exclusivity, but they will not freeze their market without proof of buyer commitment. This is a structural change in how deals are now papered. The exclusivity clause discussion covers the no-shop mechanics in more depth.
Typical Earnest Money Amounts In 2026
Earnest money amounts vary by deal size and industry. For mid-market businesses in the five to fifty million dollar range, earnest money is commonly between one and three percent of the proposed purchase price. On a ten million dollar deal that is one hundred to three hundred thousand dollars. On a thirty million dollar deal that is three hundred to nine hundred thousand dollars. Some sellers ask for a flat amount instead of a percentage — typically twenty-five thousand to one hundred thousand — when the deal size is smaller or when the seller wants a simpler conversation.
The amount matters less than the willingness. A buyer who balks at putting one percent in escrow on a ten million dollar deal is signaling something the seller needs to understand before exclusivity is granted. Either the buyer does not have the funds liquid, or the buyer is not as committed as the LOI implies. Both are red flags that the seller can act on before signing the no-shop clause.
What Happens To The Earnest Money If The Deal Does Not Close
The disposition of earnest money if the deal does not close is negotiated up front in the LOI. The standard categories are buyer default, seller default, mutual termination, and termination for cause based on diligence findings. If the buyer walks for reasons outside the agreed termination triggers, the earnest money is typically forfeited to the seller. If the seller walks or breaches the LOI, the earnest money is returned to the buyer. If the diligence reveals material adverse findings that fall within the agreed termination categories, the earnest money is typically returned to the buyer.
This is why the earnest money language in the LOI matters as much as the amount. A poorly drafted earnest money clause can produce a deposit that is effectively unenforceable, which defeats the purpose. Both sides need M&A counsel reviewing the language. The LOI negotiation framework covers what to expect from competent counsel during these conversations.
How Buyers Should Prepare For The Earnest Money Conversation
Buyers entering the market in 2026 should expect earnest money to come up and should have a plan before the conversation starts. The buyer should know in advance what percentage or dollar amount they are prepared to put down, how quickly they can wire the funds, and what triggers they need built into the LOI to protect their deposit. A buyer who is surprised by the earnest money request and has to scramble for a position is signaling inexperience or under-preparation, both of which weaken the buyer’s negotiating posture across the rest of the LOI.
The buyer should also have liquid funds available specifically for earnest money, separate from the funds needed to close the deal. Wiring earnest money out of operating capital or borrowing the deposit defeats the signal the earnest money is supposed to send. Sellers and brokers can sometimes detect this and will adjust their confidence in the buyer accordingly.
How Sellers Should Position The Earnest Money Request
Sellers asking for earnest money should position the request as a normal part of the 2026 deal landscape, not as a special concession. The framing matters. If the seller frames earnest money as a sign of distrust toward this specific buyer, the buyer may react defensively. If the seller frames earnest money as standard market practice that protects both sides from wasted time, the buyer is more likely to engage constructively.
The seller should also be prepared to discuss the earnest money disposition language. The buyer will reasonably want protections for diligence findings, financing contingencies, and material adverse changes. A seller who refuses to negotiate any protections for the buyer’s deposit will lose the better-qualified buyers and end up with the buyers who do not care because they were never going to close anyway.
Why This Matters For Your Selling Window
The Titan thesis at the core of the Exit Ratio 360™ system is that a business has a finite optimal selling window. Personal readiness, market conditions, industry tailwinds, interest rate environment, and buyer appetite all align for a defined period. The seller who is locked under exclusivity to the wrong buyer during that window loses the window. Earnest money is the mechanism that protects the seller from giving away the window to a buyer who was never going to close. The Titan thesis page covers the timing logic in more depth.
Frequently Asked Questions
Is earnest money required when buying a business?
Earnest money is not legally required, but starting in 2026 it has become standard practice in mid-market business acquisitions. Sellers and their advisors increasingly condition the no-shop exclusivity clause on the buyer putting earnest money in escrow. Buyers who refuse to put earnest money down often cannot secure exclusivity, which means the seller continues shopping the deal in parallel during diligence.
How much earnest money is typical for a business acquisition?
Earnest money typically ranges from one to three percent of the proposed purchase price for mid-market deals. On a ten million dollar acquisition that is one hundred to three hundred thousand dollars. Smaller deals sometimes use flat amounts of twenty-five thousand to one hundred thousand instead of a percentage. The amount varies by deal size, industry, and the seller’s confidence in the buyer.
What is the connection between earnest money and the no-shop clause?
The no-shop clause is the seller’s exclusivity commitment — agreeing not to entertain other offers during diligence. In 2026, sellers are increasingly refusing to grant no-shop exclusivity without earnest money. The buyer’s deposit becomes the consideration that justifies the seller taking the business off the market for 60 to 120 days during diligence.
Why did earnest money become standard in 2026?
Two patterns drove the shift. Sophisticated buyers using long exclusivity windows to extract renegotiation leverage or run parallel deals, burning the seller’s market time. And unfunded buyers submitting LOIs on businesses they could neither run nor close, freezing those businesses out of the market. Enough sellers were burned by both patterns that earnest money became standard practice.
What happens to the earnest money if the deal does not close?
The disposition is negotiated up front in the LOI. If the buyer walks outside agreed termination triggers, the earnest money typically forfeits to the seller. If the seller walks or breaches, the earnest money returns to the buyer. If diligence reveals material adverse findings within the agreed termination categories, the earnest money typically returns to the buyer. The exact language matters as much as the amount.
Should the earnest money come from the buyer’s operating capital?
No. Earnest money should come from liquid funds set aside specifically for the deposit, separate from the funds needed to close. Wiring earnest money out of operating capital or borrowing the deposit defeats the signal the earnest money is supposed to send. Sellers and experienced brokers can sometimes detect this and will adjust their confidence accordingly.
Can a buyer refuse to put earnest money down?
A buyer can refuse, but the seller can also refuse to grant exclusivity. In 2026, the most likely outcome of a buyer refusing earnest money is that the seller signs the LOI without a no-shop clause and continues marketing the deal during the buyer’s diligence period. Some sellers will refuse to sign the LOI at all without earnest money on mid-market deals.
How does earnest money protect the seller’s selling window?
A business has a finite optimal selling window — personal readiness, market conditions, industry tailwinds, and buyer appetite align for a defined period. Earnest money protects the seller from giving away that window to a buyer who was never going to close. If the buyer walks without cause, the seller keeps the deposit as compensation for the lost market time.
Does earnest money apply to the final purchase price at closing?
Yes. If the deal closes, the earnest money typically applies as a credit against the final purchase price. The seller does not keep the earnest money in addition to receiving the full purchase price. The deposit simply moves from the escrow account to the seller’s account as part of the closing wire reconciliation.
What should buyers and sellers each prepare before the earnest money conversation?
Buyers should know in advance what percentage or dollar amount they are prepared to put down, how quickly they can wire the funds, and what termination triggers they need built into the LOI to protect their deposit. Sellers should be ready to frame earnest money as standard 2026 practice rather than special distrust, and should be prepared to negotiate reasonable protections for the buyer’s deposit including financing contingencies and material adverse change clauses.
Full Transcript
There are rules and norms when it comes to you investing in a business or buying in a business, and one of the most common conversations that comes up is around earnest money or deposit when it comes to buying or selling a business. So, do you need to put earnest money in place when you are buying a business? And is this expected? This is a fantastic question. I am Scott Sylvan Bell, coming live from Consulting Secrets. On a perfect day to talk about business sales, business exits, buying a business, and a fantastic day to talk about you.
So when you take a look at buying a business or selling a business, you do want to judge the seriousness of the buyer, and historically the rule has been there is no expectation of earnest money up front on buying a business or a deal. Does it get done occasionally? It would. Now, I do want to bring up somebody that I know in my life, and the guy’s name is Marty Fonkey, and Marty is the one that brought this awareness to me. So I want to make sure to give credit where credit is due.
One of the changes that has happened early in 2026 is for somebody to consider a purchase being made of a company, it may be that there is a requirement for earnest money. Now, it could be a set amount, it could be a percentage of the deal, but it is money set aside to say, hey, timeout, this is a real deal. Yes, I am a real buyer. Yes, I have money.
One of the conversations that you absolutely want to be aware of is that some people, in lieu of taking earnest money, are saying, if you are not going to put money in on this deal to lock it in, then we are going to continue to shop this deal, and we are not going to accept a no-shop close. So traditional in the world of a letter of intent would be, hey, I am giving you a letter of intent, and during the time that I am going through my due diligence, nobody else can do this deal.
One of the ways that businesses, brokers, and strategic people selling their business have made this decision is to say I am more than willing to sign a letter of intent, but without earnest money I am not going to give you exclusivity, I am not going to sign off on a no-shop clause, because the way that you have got to take a look at this is there is a window of opportunity inside of a business to sell, and there are certain seasons. So you may have a business owner that has a Titan thesis, where they said, hey, here is what we are looking for for the business, this is all of the information about it, these are the best times for me to sell personally. So this is the time that I am going to do it. By them signing a letter of intent, they are locking themselves into a time frame where they may lose out. Interest rates can change. Interest in the industry, products, or services can change.
So for you, if you are a business owner, you may decide, hey, listen, if we are going to go take this company to the market, we may require earnest money inside to lock down a no-shop clause. If you are an investor, you may want to be aware that this conversation may happen, and I will share with you where part of this came from.
Part of this came from buyers dragging their feet on a deal and locking people up on an LOI, knowing that they were going to drag their feet. That is one version. Another version is there were people out there that had no role and responsibility in life, where they should be making purchases of companies, who went out and they started putting LOIs out on businesses that A, they do not know how to run, B, they cannot fund, or A and B together, where they cannot run them and they cannot fund them, and it locked businesses out from going to the market and making sales that they could have.
So for you, business owner, you may be in the clear to ask, hey, we want proof, we want some earnest money up front to prove that this deal can go through. As a buyer, you may be asked, hey, in order to make this deal go through, you have to put some skin in the game, or we are not going to be willing to sign an exclusive LOI for this deal to happen.
Be aware, earnest money is a normal part of the conversation starting in 2026. Absolutely want to thank Marty Fonke for this. You are the one that brought it to my attention. So like I said, I want to give credit where credit is due.
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