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The Seller Wasn't Worried. The Lender Was.
What to do when your deal has a concentration problem
Shaun Tiwari
March 27, 2026 • Estimated Reading Time: 3 minutes
A buyer came to us recently with a deal that checked every box. Strong SDE, clean financials, 15 years in business, good industry. We were ready to take it to market.
Then we looked at the customer breakdown.
One account represented 35% of revenue. Two more accounted for another 25%. More than half the business was sitting in three relationships.
The seller wasn't worried. He'd been managing those accounts for over a decade. The relationships were rock solid. And honestly, from his perspective, he was right. When you've built a business and you know your customers by name, concentration doesn't feel like a risk.
But he wasn't the one taking on $1.5M in SBA debt.
Why Concentration Doesn't Bother Sellers
Sellers have context that doesn't transfer with the business. They know which customers would never leave. They know which relationships are personal, not contractual. They've weathered downturns and held onto every major account.
That history is real. But it lives in the seller's head, not in the financials. And lenders don't underwrite history that walks out the door on closing day.
Why It Terrifies Lenders
A lender looking at an SBA deal is asking one question: can this business service the debt under stress?
When a single customer represents 30%+ of revenue, the math gets ugly fast.
Take a $1.5M SBA loan with annual debt service around $160K. The business generates $400K in SDE. Comfortable at 2.5x coverage.
Now remove the top customer. SDE drops to $260K. Coverage falls to 1.6x. Still technically serviceable, but one more hiccup and the borrower is in trouble.
Lenders think in scenarios. And the scenario where your biggest customer leaves is the first one they model.
The general thresholds:
Under 20% in any single customer: most lenders won't flag it
20-30%: yellow flag, expect questions about contracts and tenure
30%+: red flag, expect pushback on structure or an outright pass
What Lenders Actually Want to See
Not all concentration is created equal. Lenders are evaluating the stickiness of those relationships:
Contracts vs handshakes: a 5-year MSA with auto-renewal is very different from "we've just always worked together"
Customer tenure: 15 years with the same client is more defensible than 2 years
Revenue trend: is the concentration growing or diversifying over time?
Replaceability: could you realistically replace 30% of revenue within 12 months in this industry?
Relationship transfer: does the customer relationship survive a change of ownership, or is it tied to the seller personally?
That last one is the question lenders care about most. And it's the one buyers rarely ask until it's too late.
What Buyers Should Do Before the LOI
If you're looking at a deal with concentration, don't ignore it and hope the lender won't notice. They will. Get ahead of it:
Run the stress test yourself: what does DSCR look like if the top customer leaves? If coverage drops below 1.25x, you need a plan.
Ask about contracts during diligence: not just whether they exist, but what the termination clauses look like. A 90-day out clause isn't much protection.
Talk to the customers: if the seller won't let you speak to key accounts during diligence, that tells you something.
Structure around the risk: tie a portion of the purchase price to customer retention. A seller note with a retention-based earnout protects both sides.
Understand the industry: some industries have natural concentration (B2B services, government contracting). Lenders who specialize in those sectors are more comfortable with it.
The Bottom Line
Customer concentration isn't a deal-killer. Plenty of great businesses have it. But if you're buying with SBA leverage, you can't afford to hand-wave it away.
The seller has 15 years of context. You have a debt payment that starts in 30 days. Those are two very different risk profiles.
Know your exposure. Structure around it. And bring it up before the lender does.
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