Hypertension is the most significant risk factor of cerebral small vessel disease (SVD). SVD raises the likelihood of poor functional outcomes in independent older adults, though the underlying causes remains uncertain. This study aimed to investigate the link between incident events and poor functional outcomes in individuals with SVD. In this post hoc analysis, data were sourced from a Japanese observational registry, including 1011 patients with cerebral vessel disease evident on magnetic resonance imaging and vascular risk factors. Follow-up continued until March 2023. After excluding participants with suspected dementia, Modified Rankin Scale (mRS) scores of 2 or more, or missing Mini-Mental State Examination results, 859 patients were analyzed. SVD was defined as moderate to severe white matter hyperintensity (WMH) and/or the presence of lacune. The study's outcome was a poor functional status defined as a mRS score ≥3 at the last visit. Over a median follow-up of 4.6 years, 50 patients died, and 85 experienced poor functional outcomes. WMH or lacune were associated with an increased risk of all-cause mortality and poor functional outcomes. Key causes of death included cancer, heart disease, pneumonia and senility, while stroke, dementia and fall-related injuries also elevated the risk of poor functional outcomes. WMH or lacune specifically heightened the risk of stroke and dementia. In conclusion, SVD elevates the risk of poor functional outcomes primarily via incident stroke and dementia. To maintain independence in daily activities among elderly individuals, targeted prevention of stroke and dementia is crucial in patients with SVD. Proposed mechanism linking small vessel disease, typically white matter hyperintensity/lacune, with poor functional outcome. Seven incident events, neoplasm, heart disease, stroke, dementia, falls, pneumonia, and motor function impairment, potentially related to poor functional outcomes. In elderly patients, SVD significantly increases the risk of stroke, and moderately raises the risk of dementia, pneumonia, and motor impairment which may be related to senility. This relationship helps explain why patients with SVD are more likely to experience poor functional outcomes compared to those without SVD.