Loans for businesses with high customer concentration

September 07, 2025

by a searcher from Massachusetts Institute of Technology - MIT Sloan School of Management in Boston, MA, USA

I'm pre-LOI on a business I'm very interested in. It has 2MM of top line and 700K of SDE. Just under 50% of its revenue comes from one client, which is on an annual contract. It's a long-term relationship that appears sticky, but because of the nature of the business, it's not possible to convert that to a longer-term contract -- it has to be year-to-year. I have been advised that SBA lenders will not consider a loan on such a business without a contingent seller note for ~50% of the purchase price, which the seller is unlikely to accept. (While it's reasonable to question whether they have any other choice, I believe they'd hold out for a lower offer from a cash buyer, which is realistic given the circumstances.) Is this a no-go for SBA lenders without such a structure? Are there other options for these types of businesses?

Reply by a searcher
from Southwestern University in Houston, TX, USA

Whenever we run into deals like this, our offer always has an earn-out based on the percentage revenue / profit that the single customer represents. So, in essence, we'll pay full price for the company as though the high concentration customer wasn't present, but the seller has to take an earn out over a minimum of 2 years (depends on circumstances in the business) for the same percentage that the customer represents. In your case, 50% of the purchase price would be contingent on the main customer continuing to spend similar amounts over the course of at least 2 years. The simplest agreements have this expressed in revenue terms. I haven't run into a seller that likes it yet, but that is the only thing that can mitigate the risk to a financial buyer. If they're truly confident that the relationship will continue after closing, they still get paid what they want. While the alternative is to take less for the company, most all cash offers are going to be ~50% lower, anyway, for the same reason. So, they'll still get that much up front plus the potential for the other half over two years.

Reply by a lender
in Falmouth, MA, USA

50% customer concentration means half the business can disappear overnight if that client leaves, is acquired by PE, or goes bankrupt. The deal only works if the risk is shifted back to the seller, typically through a large contingent note tied to that customer’s retention. I’ve structured similar deals successfully in the past. redacted

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