{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/what-happens-if-a-significant-portion-of-the-acquired-business-s-revenue-is-generated-from","api_url":"https://dealroom.so/api/public/questions/what-happens-if-a-significant-portion-of-the-acquired-business-s-revenue-is-generated-from","question":"What happens if a significant portion of the acquired business's revenue is generated from government contracts?","topic":"What kills approval","audience":"borrower","bot_mode":"buyer","short_answer":"Acquiring a business highly dependent on government contracts can complicate SBA 7(a) approval, as these contracts can be unpredictable, subject to political changes, and have unique payment cycles.","rule":"Lenders view heavy reliance on government contracts as a risk due to factors like funding uncertainties, complex procurement processes, and potential for contract termination. The business must demonstrate a stable financial history and a diversified revenue strategy or a strong track record of securing such contracts.","example":"If a target business for a $1.5 million acquisition generates 70% of its revenue from a single federal contract, the lender will require extensive due diligence on the contract's terms, renewal history, and the buyer's ability to maintain or diversify this revenue.","what_lenders_check":"Lenders scrutinize government contracts for stability, profitability, and duration. They assess the buyer's experience in navigating government procurement and look for clear strategies to mitigate the concentration risk, such as pursuing commercial clients.","required_facts":["Government contracts","Revenue dependency","Unpredictable revenue","Political risk","Payment cycles","Diversification strategy"],"source_families":["SOP 50 10 - Lender and Development Company Loan Programs","13 CFR Part 120 - Business Loans"],"official_sources":[{"title":"SOP 50 10 - Lender and Development Company Loan Programs","url":"https://www.sba.gov/sites/default/files/2025-05/SOP%2050%2010%208%20Technical%20Updates%20effective%206.1.2025.docx"},{"title":"13 CFR Part 120 - Business Loans","url":"https://www.ecfr.gov/current/title-13/chapter-I/part-120"}],"related_questions":[{"question":"What if the business I'm acquiring has poor historical cash flow or declining revenues for the last two years?","url":"https://dealroom.so/sba-7a/questions/what-if-the-business-i-m-acquiring-has-poor-historical-cash-flow-or-declining-revenues-for"},{"question":"Can a high customer concentration (e.g., one customer is 50% of revenue) jeopardize my SBA 7(a) loan approval?","url":"https://dealroom.so/sba-7a/questions/can-a-high-customer-concentration-e-g-one-customer-is-50-of-revenue-jeopardize-my-sba-7-a-"},{"question":"What common issues can cause an SBA 7(a) loan application to be denied?","url":"https://dealroom.so/sba-7a/questions/what-common-issues-can-cause-an-sba-7-a-loan-application-to-be-denied"},{"question":"Can an SBA 7(a) loan be used to purchase a business that is currently unprofitable?","url":"https://dealroom.so/sba-7a/questions/can-an-sba-7-a-loan-be-used-to-purchase-a-business-that-is-currently-unprofitable"},{"question":"What happens if the acquired business declines significantly during the loan underwriting period?","url":"https://dealroom.so/sba-7a/questions/what-happens-if-the-acquired-business-declines-significantly-during-the-loan-underwriting-"},{"question":"What if the business I'm buying has existing tax liens or other government debts?","url":"https://dealroom.so/sba-7a/questions/what-if-the-business-i-m-buying-has-existing-tax-liens-or-other-government-debts"}],"related_terms":[{"term":"Indemnification from the Seller","url":"https://dealroom.so/glossary/indemnification-from-the-seller"},{"term":"Substitution of significant collateral","url":"https://dealroom.so/glossary/substitution-of-significant-collateral"},{"term":"Alienate the Business","url":"https://dealroom.so/glossary/alienate-the-business"},{"term":"Revenue","url":"https://dealroom.so/glossary/revenue"},{"term":"Unguaranteed portion","url":"https://dealroom.so/glossary/unguaranteed-portion"},{"term":"Guaranteed Portion","url":"https://dealroom.so/glossary/guaranteed-portion"}],"related_tools":[{"name":"SBA 7(a) payment & fee calculator","url":"https://dealroom.so/sba-7a/calculator"},{"name":"Find an active SBA 7(a) lender","url":"https://dealroom.so/lenders"}],"data_freshness":{"last_reviewed":"2026-06-14","sba_rule_sources_checked_through":"2026-06-14"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/sba-7a/questions/what-happens-if-a-significant-portion-of-the-acquired-business-s-revenue-is-generated-from","source_type":"DealRoom Q&A"},"caveats":["Grounded in the current SBA rulebook; verify against official sources before relying on it for a live deal.","Not legal, tax, or financial advice and not an approval decision."]}