You landed the account eight years ago. It’s your most profitable relationship, it pays on time, and it’s the reason you’ve grown. You walk into a lender expecting that story to help you.

It doesn’t. To a credit team, a customer that large is not a track record. It’s a single point of failure. Understanding why is the difference between a facility that gets sized off your whole book and one that gets sized off everything except your best account.

What a lender is actually asking

Every credit decision comes down to one question: what happens to this business if something goes wrong? Concentration makes that question easy to answer badly. If one customer is 40% of revenue, then one procurement change, one bankruptcy, one competitor’s better bid, and the borrower’s cash flow drops by nearly half. No covenant survives that. No amortization schedule survives that.

The lender isn’t doubting that your customer is good. They’re pricing the fact that your business doesn’t control the outcome.

The thresholds that change the read

There’s no universal cutoff, but the pattern is consistent across most credit shops:

  • Under ~10% of revenue or AR from a single account, generally a non-issue.
  • 10–20%, noted, monitored, usually not a dealbreaker.
  • 20–30%, material. Expect questions about contracts, tenure, and what replaces that revenue.
  • Over ~30%, structural. This is where borrowing-base carve-outs, concentration caps, and reduced advance rates start appearing in the term sheet.

Note that concentration gets measured in two separate places, and they don’t always agree. Revenue concentration shows up in your P&L and tells the lender about business risk. AR concentration shows up in your aging and tells them about collateral risk. A business can look diversified on revenue and dangerously concentrated on receivables at a single point in time, and the borrowing base is built off the latter.

What it does to your borrowing base

This is the mechanical part, and it’s where owners are most often surprised. A typical asset-based structure will advance 75–85% against eligible receivables, but “eligible” is doing enormous work in that sentence. A concentration cap says that no single account may represent more than some percentage (often 15–25%) of the eligible pool. Anything above the cap becomes ineligible and is simply excluded.

So if your largest customer is half your AR, roughly half of that balance may not count toward the borrowing base at all. Your receivables total didn’t change. Your available liquidity did. This is the same category of gap covered in what a lender does to your AR, concentration is one of the biggest single drivers of that haircut.

The factors that soften the read

Concentration is not automatically fatal. What moves the needle:

  • Contract structure. A multi-year contract with termination-for-convenience notice periods reads very differently than a purchase-order relationship that can end tomorrow.
  • Customer credit quality. A concentrated book against an investment-grade obligor or a government agency is a materially different risk than the same concentration against a thinly capitalized private company. Lenders will credit-check your customers.
  • Tenure and payment history. Eight years of clean, on-time payment is real evidence. Pull the payment history and present it, it lives in your bank statements anyway, and that’s a document credit teams read closely.
  • Switching costs. If you’re embedded in the customer’s operations, integrated into their systems, or hold certifications that are expensive to replace, say so specifically. “They can’t easily leave” is a credit argument when you can substantiate it.
  • Credit insurance. Insuring the receivable transfers the default risk to an insurer, and some lenders will lift or relax the concentration cap on insured accounts.

What to do before you apply

  • Run your own concentration analysis on both revenue and AR, for the trailing twelve months and at the most recent month-end. Know the numbers before a lender computes them for you.
  • Model the downside honestly. What does your coverage look like if the top account disappears? A borrower who has already stress-tested this and can speak to it credibly is treated very differently from one who hasn’t considered it. That test runs through the same coverage ratios the credit team will use.
  • Document the relationship. Contracts, renewal history, integration points, personnel relationships.
  • Have a diversification narrative. Not a promise, a pipeline, with names and stages.
  • Consider whether you need the concentrated account in the base at all. Sometimes the cleaner structure is a smaller facility against a diversified pool plus a separate solution for the large account.

The honest summary

Concentration doesn’t kill deals as often as owners fear. What kills deals is a borrower who is surprised by the question, has no data ready, and treats the concern as a misunderstanding of how good the customer is. The lender knows the customer is good. They’re asking what happens on the day the customer is gone, and the businesses that get funded are the ones that already have the answer written down.

Run your own file first

Want to see how a credit team would read your customer mix and what it does to your borrowing base? Run the assessment or send us your AR aging and we’ll show you where the caps would land.

Educational only. Nothing here is an offer of credit, a commitment to lend, or advice on any specific transaction.