Use this guide to assess the underwriting impact of customer concentration in SBA business acquisition deals.

Why It Matters

• High customer concentration = higher revenue risk if a key client leaves.
• Reduces business transferability and stable earnings.
• May require valuation discounts or loan structuring changes.

Review Questions

• Does one customer account for >25% of revenue?
• Do top 3 customers account for >50%?
• Are contracts in place? What are the terms?
• Has the seller disclosed long-term customer relationships?
• Would revenue be lost if the buyer lacks the seller’s personal touch?

Discount Guidelines (Illustrative)

• 25%–35% concentration = up to 10% discount
• 36%–50% = 15–20% discount
• 50%+ = 25–35% discount or structure change
• Adjust based on industry norms and nature of client relationship.

Loan Structure Adjustments

• Larger buyer equity injection
• Seller carryback note or earn-out tied to customer retention
• Working capital adjustment to reduce exposure

SBA Tip

Underwriters and appraiser should concentration risks. Don’t assume risk will resolve post-close.