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What changed in Stellus Capital Investment Corp's 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of Stellus Capital Investment Corp's 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.

+442 added−419 removedSource: 10-K (2026-03-11) vs 10-K (2025-03-04)

Top changes in Stellus Capital Investment Corp's 2025 10-K

442 paragraphs added · 419 removed · 364 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

87 edited+5 added−6 removed277 unchanged
Biggest changeSpecifically, Stellus Capital Management’s monitoring system consists of the following activities: Regular Investment Committee Updates Key portfolio company developments are discussed each week as part of the standard investment committee meeting agenda. 11 Table of Contents Written Reports The deal teams provide periodic written updates as appropriate for key events that impact portfolio company performance or valuation.
Biggest changeThe monitoring process begins with structuring terms and conditions, which require the timely delivery and access to critical financial and business information on portfolio companies. 11 Table of Contents Specifically, Stellus Capital Management’s monitoring system consists of the following activities: Regular Investment Committee Updates Key portfolio company developments are discussed each week as part of the standard investment committee meeting agenda.
The Stellus Capital Management senior investment professionals continue to provide investment sub-advisory services to the D. E. Shaw & Co., L.P. and its associated investment funds (the “D.E. Shaw group”). In addition to serving as our investment adviser and the sub-advisor to the D. E.
The Stellus Capital Management senior investment professionals continue to provide investment sub-advisory services to D. E. Shaw & Co., L.P. and its associated investment funds (the “D.E. Shaw group”). In addition to serving as our investment adviser and the sub-advisor to the D. E.
Resources of Stellus Capital Management Platform We have access to the resources and capabilities of Stellus Capital Management, which has 17 investment professionals, including Robert T. Ladd, Dean D’Angelo, and Joshua T. Davis, who are supported by seven managing directors, three vice presidents and four analysts.
Resources of Stellus Capital Management Platform We have access to the resources and capabilities of Stellus Capital Management, which has 17 investment professionals, including Robert T. Ladd, Dean D’Angelo, and Joshua T. Davis, who are supported by seven managing directors, four vice presidents and three analysts.
Our investment philosophy emphasizes capital preservation through superior credit selection and risk mitigation. We expect our portfolio to provide downside protection through conservative cash flow and asset coverage requirements, priority in the capital structure and information requirements. We also anticipate benefiting from equity participation through 7 Table of Contents equity co-investments.
Our investment philosophy emphasizes capital preservation through superior credit selection and risk mitigation. We expect 7 Table of Contents our portfolio to provide downside protection through conservative cash flow and asset coverage requirements, priority in the capital structure and information requirements. We also anticipate benefiting from equity participation through equity co-investments.
In addition, we co-invest with private credit funds and a private BDC managed by Stellus Capital Management or its affiliates that have a similar, overlapping or identical investment strategy as us and where doing so is consistent with conditions of the Order, and we may co-invest with other BDCs, registered investment companies, and private credit funds managed by Stellus Capital Management or an adviser that is controlled, controlling, or under common control with Stellus Capital Management in the future.
In addition, we co-invest with private credit funds and a private BDC managed by Stellus Capital Management or its affiliates that have a similar, overlapping or identical investment strategy as us where doing so is consistent with conditions of the Order, and we may co-invest with other BDCs, registered investment companies, and private credit funds managed by Stellus Capital Management or an adviser that is controlled, controlling, or under common control with Stellus Capital Management in the future.
Incentive Fee The incentive fee, which provides Stellus Capital Management with a share of the income that it generates for us, has two components, ordinary income and capital gains, calculated as follows: The ordinary income component is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the immediately preceding calendar quarter, subject to a total return requirement and deferral of non-cash amounts, and is 20.0% of the amount, if any, by which our pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets attributable to our common stock, for the immediately preceding calendar quarter, exceeds a 2.0% (which is 8.0% annualized) hurdle rate and a “catch-up” provision, for the benefit of 16 Table of Contents Stellus Capital Management, measured as of the end of each calendar quarter.
Incentive Fee The incentive fee, which provides Stellus Capital Management with a share of the income that it generates for us, has two components, ordinary income and capital gains, calculated as follows: The ordinary income component is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the immediately preceding calendar quarter, subject to a total return requirement and deferral of non-cash amounts, and is 20.0% of the amount, if any, by which our pre-incentive fee net investment income, expressed 16 Table of Contents as a rate of return on the value of our net assets attributable to our common stock, for the immediately preceding calendar quarter, exceeds a 2.0% (which is 8.0% annualized) hurdle rate and a “catch-up” provision, for the benefit of Stellus Capital Management, measured as of the end of each calendar quarter.
Our Board also considered Stellus Capital Management’s personnel and their prior experience in connection with the types of investments made by us, including such 23 Table of Contents personnel’s corporate relationships and relationships with private equity firms, investment banks, restructuring advisors, law firms, boutique advisory firms and distressed/specialty lenders.
Our Board also considered Stellus Capital Management’s 23 Table of Contents personnel and their prior experience in connection with the types of investments made by us, including such personnel’s corporate relationships and relationships with private equity firms, investment banks, restructuring advisors, law firms, boutique advisory firms and distressed/specialty lenders.
As a result, our Board determined that the substantive terms of the Investment Advisory Agreement (other than the fees payable thereunder, which our Board reviewed separately), including the services to be provided, are similar to those of comparable externally managed BDCs described in the available market data and in the best interests of our stockholders.
As a result, our Board determined that the substantive terms of the Investment Advisory Agreement (other than the fees payable thereunder, which our Board reviewed separately), including the services to be provided, are similar to those of comparable externally managed BDCs described in the available market data and are in the best interests of our stockholders.
In addition, we generally must timely distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxable income,” which is our ordinary income plus the excess of our realized net short-term capital gains over our realized net long-term capital losses (the “Annual Distribution Requirement”).
In addition, we generally must timely distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxable income,” which is our net ordinary income plus the excess of our realized net short-term capital gains over our realized net long-term capital losses (the “Annual Distribution Requirement”).
In order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things: ● continue to qualify as a BDC under the 1940 Act at all times during each year; 30 Table of Contents ● derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale or other taxable disposition of stock or other securities or foreign currencies, or other income derived with respect to our business of investing in such stock or securities, and net income from certain “qualified publicly traded partnerships” (as defined in the Code) (the “90% Income Test”); and ● diversify our holdings so that at the end of each quarter of the taxable year: o at least 50% of the value of our assets consists of cash, cash items, U.S. government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and o no more than 25% of the value of our assets is invested in (i) the securities, other than U.S. government securities or securities of other RICs, of one issuer , (ii) the securities, other than securities of other RICs, of two or more issuers that are controlled by us and that are engaged in the same or similar or related trades or businesses , or (iii) the securities of one or more qualified publicly traded partnerships (the “Diversification Tests”) .
In order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things: ● continue to qualify as a BDC under the 1940 Act at all times during each year; ● derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale or other taxable disposition of stock or other securities or foreign 30 Table of Contents currencies, or other income derived with respect to our business of investing in such stock or securities, and net income from certain “qualified publicly traded partnerships” (as defined in the Code) (the “90% Income Test”); and ● diversify our holdings so that at the end of each quarter of the taxable year: o at least 50% of the value of our assets consists of cash, cash items, U.S. government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and o no more than 25% of the value of our assets is invested in (i) the securities, other than U.S. government securities or securities of other RICs, of one issuer , (ii) the securities, other than securities of other RICs, of two or more issuers that are controlled by us and that are engaged in the same or similar or related trades or businesses , or (iii) the securities of one or more qualified publicly traded partnerships (the “Diversification Tests”) .
If additional funds are unavailable or not available on favorable terms, our ability to grow may be impaired. ● The time and resources that the investment professionals of Stellus Capital Management devote to us may be diverted, and we may face additional competition due to the fact that Stellus Capital Management and its affiliates are not prohibited from raising money for, or managing, another entity that makes the same types of investments that we target. ● If we do not invest a sufficient portion of our assets in qualifying assets, we could violate the 1940 Act provisions applicable to BDCs or be precluded from investing according to our current business strategy. ● The failure of cyber security systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning, could impair our ability to conduct business effectively. ● Our investments in private and lower middle-market portfolio companies are risky, and we could lose all or part of our investment. ● Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio investments, reducing our net asset value through increased net unrealized depreciation. ● Because we generally do not hold controlling equity interests in our portfolio companies, we may not be able to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments. ● The interest rates of our floating-rate loans to our portfolio companies might be subject to change, and such fluctuations could negatively impact our financial condition and results of operations.
If additional funds are unavailable or not available on favorable terms, our ability to grow may be impaired. ● The time and resources that the investment professionals of Stellus Capital Management devote to us may be diverted, and we may face additional competition due to the fact that Stellus Capital Management and its affiliates are not prohibited from raising money for, or managing, another entity that makes the same types of investments that we target. ● If we do not invest a sufficient portion of our assets in qualifying assets, we could violate the 1940 Act provisions applicable to BDCs or be precluded from investing according to our current business strategy. ● The failure of cybersecurity systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning, could impair our ability to conduct business effectively. ● Our investments in private and lower middle-market portfolio companies are risky, and we could lose all or part of our investment. ● Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio investments, reducing our net asset value through increased net unrealized depreciation. ● Because we generally do not hold controlling equity interests in our portfolio companies, we may not be able to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments. ● The interest rates of our floating-rate loans to our portfolio companies might be subject to change, and such fluctuations could negatively impact our financial condition and results of operations.
In addition, portfolio investments that are not publicly traded or for which market quotations are not readily available are valued at fair value as determined in good faith by our Board based on the input of Stellus Capital Management’s investment professionals and our Board’s audit committee.
Portfolio investments that are not publicly traded or for which market quotations are not readily available are valued at fair value as determined in good faith by our Board based on the input of Stellus Capital Management’s investment professionals and our Board’s audit committee.
In following these approaches, the types of factors that are taken into account in fair value pricing our investments include, as relevant, but are not limited to: ● available current market data, including relevant and applicable market trading and transaction comparables; ● applicable market yields and multiples; ● financial covenants; ● call protection provisions; ● information rights; ● the nature and realizable value of any collateral; ● the portfolio company’s ability to make payments, its earnings and discounted cash flows and the markets in which it does business; ● comparisons to financial ratios of peer companies that are public; ● comparable merger and acquisition transactions; and ● the principal market and enterprise values.
In following these approaches, the types of factors that are taken into account in determining the fair value of our investments include, as relevant, but are not limited to: ● available current market data, including relevant and applicable market trading and transaction comparables; ● applicable market yields and multiples; ● financial covenants; ● call protection provisions; ● information rights; ● the nature and realizable value of any collateral; ● the portfolio company’s ability to make payments, its earnings and discounted cash flows and the markets in which it does business; ● comparisons to financial ratios of peer companies that are public; ● comparable merger and acquisition transactions; and ● the principal market and enterprise values.
Investment Category 3 is used for investments that are performing below expectations and that require closer monitoring, but where no loss of return or principal is expected. Portfolio companies with a rating of 3 may be out of compliance with financial covenants.
Investment Category 3 is used for investments that are performing below expectations and that require closer monitoring, but no loss of return or principal is expected. Portfolio companies with a rating of 3 may be out of compliance with financial covenants.
Moreover, our ability to dispose of assets to meet the Annual Distribution Requirement, the Excise Tax Avoidance Requirement or the Diversification Tests may be limited by (a) the illiquid nature of our portfolio and/or (b) other requirements relating to our qualifications as a RIC, including the Diversification Tests.
Moreover, our ability to dispose of assets to meet the Annual Distribution Requirement, the Excise Tax Distribution Requirement or the Diversification Tests may be limited by (a) the illiquid nature of our portfolio and/or (b) other requirements relating to our qualifications as a RIC, including the Diversification Tests.
In view of the wide variety of factors that our Board considered in connection with its evaluation of the Investment Advisory Agreement, it is not practical to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision.
In view of the wide variety of factors that our Board considered in connection with its evaluation of the Investment Advisory Agreement, our Board concluded that it is not practical to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision.
In addition, we will be subject to a 4% nondeductible U.S. federal excise tax on our undistributed income unless we distribute in a timely manner an amount at least equal to the sum of (a) 98% of our net ordinary income for each calendar year, (b) 98.2% of the amount by which our capital gain exceeds our capital loss (adjusted for certain ordinary losses) for the one-year period ending October 31 in that calendar year, and (c) certain undistributed amounts from previous years on which we paid no U.S. federal income tax (the “Excise Tax Avoidance Requirement”).
In addition, we will be subject to a nondeductible 4% U.S. federal excise tax on certain undistributed income unless we distribute in a timely manner each calendar year an amount at least equal to the sum of (a) 98% of our net ordinary income for each calendar year, (b) 98.2% of the amount by which our capital gain exceeds our capital loss (adjusted for certain ordinary losses) for the one-year period ending October 31 in that calendar year, and (c) certain undistributed amounts from previous years on which we paid no U.S. federal income tax (the “Excise Tax Distribution Requirement”).
Pursuant to the Investment Advisory Agreement , we have agreed to pay Stellus Capital Management a fee for investment advisory and management services consisting of two components — a base management fee and an incentive fee. The cost of both the base management fee and the incentive fee is borne by our stockholders.
Pursuant to the Investment Advisory Agreement , we have agreed to pay Stellus Capital Management a fee for investment advisory and management services consisting of two components — a base management fee and an incentive fee. The cost of both the base management fee and the incentive fee is ultimately borne by our stockholders.
If we dispose of assets in order to meet the Annual Distribution Requirement, the Excise Tax Avoidance Requirement or the Diversification Tests, we may make such dispositions at times that, from an investment standpoint, are not advantageous.
If we dispose of assets in order to meet the Annual Distribution Requirement, the Excise Tax Distribution Requirement or the Diversification Tests, we may make such dispositions at times that, from an investment standpoint, are not advantageous.
We may, however, sell our common stock at a price below the current net asset value of the common stock if our Board determines that such sale is in our and our stockholders’ best interests, and our stockholders approve such sale.
We may, however, sell our common stock at a price below the then-current net asset value of the common stock if our Board determines that such sale is in our and our stockholders’ best interests, and our stockholders approve such sale.
On May 9, 2022, we and certain of our affiliates received an exemptive order (the “Order”) from the Securities and Exchange Commission (“SEC”) that superseded the prior co-investment exemptive relief orders granted to us by the SEC that permits us to co-invest with additional types of private funds, other BDCs, and registered investment companies managed by Stellus Capital Management or an adviser that is controlled, controlling, or under common 1 Table of Contents control with Stellus Capital Management, subject to the conditions included therein.
On May 9, 2022, we and certain of our affiliates received an exemptive order (the “Order”) from the Securities and Exchange Commission (“SEC”) that superseded the prior co-investment exemptive relief orders and permits us to co-invest with additional types of private funds, other BDCs, and registered investment companies managed by Stellus 1 Table of Contents Capital Management or an adviser that is controlled, controlling, or under common control with Stellus Capital Management, subject to the conditions included therein.
In accordance with 13 Table of Contents ASC 820, the market in which we can exit portfolio investments with the greatest volume and level activity is considered our principal market. ​ With respect to investments for which market quotations are not readily available, our Board undertakes a multi-step valuation process each quarter, as described below: ● our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of Stellus Capital Management responsible for the portfolio investment; ● preliminary valuation conclusions are then documented and discussed with Stellus Capital Management’s senior investment professionals; ● at least twice annually, the valuation for each portfolio investment is reviewed by an independent valuation firm; ● the audit committee of our Board then reviews these preliminary valuations and any valuation provided by an independent valuation firm; and ● the Board then discusses the valuations and determines the fair value of each investment in our portfolio in good faith, based on the input of Stellus Capital Management’s investment professionals, the independent valuation firm and the audit committee of the Board.
In accordance with ASC 820, the market in which we can exit portfolio investments with the greatest volume and level of activity is considered our principal market. ​ With respect to investments for which market quotations are not readily available, our Board undertakes a multi-step valuation process each quarter, as described below: ● our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of Stellus Capital Management responsible for the portfolio investment; ● preliminary valuation conclusions are then documented and discussed with Stellus Capital Management’s senior investment professionals; ● at least twice annually, the valuation for each portfolio investment is reviewed by an independent valuation firm; ● the audit committee of our Board then reviews these preliminary valuations and any valuation provided by an independent valuation firm; and ● the Board then discusses the valuations and determines the fair value of each investment in our portfolio in good faith, based on the input of Stellus Capital Management’s investment professionals, the independent valuation firm and the audit committee of the Board.
Under this provision, in any calendar quarter, Stellus Capital Management receives no incentive fee until our pre-incentive fee net investment income equals the hurdle rate of 2.0%, but then receives, as a “catch-up,” 100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.5%.
Under this provision, in any calendar quarter, Stellus Capital Management receives no incentive fee on our ordinary income until our pre-incentive fee net investment income equals the hurdle rate of 2.0%, but then receives, as a “catch-up,” 100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.5%.
We also expect to benefit from Stellus Capital Management’s due diligence, credit analysis, origination and transaction execution experience and capabilities, including the support provided with respect to those functions by W. Todd Huskinson, who serves as our Chief Financial Officer and Chief Compliance Officer, and his staff of nine finance and operations professionals.
We also expect to benefit from Stellus Capital Management’s due diligence, credit analysis, origination and transaction execution experience and capabilities, including the support provided with respect to those functions by W. Todd Huskinson, who serves as our Chief Financial Officer and Chief Compliance Officer, and his staff of sixteen finance and operations professionals.
With an average of over 36 years of investing, corporate finance, restructuring, consulting and accounting experience, the senior investment professionals of Stellus Capital Management have demonstrated investment expertise throughout the balance sheet and in a variety of situations, including financial sponsor buyouts, growth capital, debt refinancing, balance sheet recapitalizations, rescue financings, distressed opportunities, and acquisition financings.
With an average of over 37 years of investing, corporate finance, restructuring, consulting and accounting experience, the senior investment professionals of Stellus Capital Management have demonstrated investment expertise throughout the balance sheet and in a variety of situations, including financial sponsor buyouts, growth capital, debt refinancing, balance sheet recapitalizations, rescue financings, distressed opportunities, and acquisition financings.
The senior investment professionals of Stellus Capital Management have an average of over 36 years of investing, corporate finance, restructuring, consulting and accounting experience and have worked together at several companies. The Stellus Capital Management senior investment professionals have a wide range of experience in lower middle-market investing, including originating, structuring and managing loans and debt securities through market cycles.
The senior investment professionals of Stellus Capital Management have an average of over 37 years of investing, corporate finance, restructuring, consulting and accounting experience and have worked together at several companies. The Stellus Capital Management senior investment professionals have a wide range of experience in lower middle-market investing, including originating, structuring and managing loans and debt securities through market cycles.
We originate and invest primarily in private lower middle-market companies (typically those with $5 million to $50 million of EBITDA (earnings before interest, taxes, depreciation and amortization)) through first lien (including unitranche), second lien, and unsecured debt financing, often with corresponding equity co-investments.
We originate and invest primarily in private U.S. lower middle-market companies (typically those with $5 million to $50 million of EBITDA (earnings before interest, taxes, depreciation and amortization)) through first lien (including unitranche), second lien, and unsecured debt financing, often with corresponding equity co-investments.
We expect the large amount of uninvested capital commitments will drive buyout activity over the next several years, which should, in turn, create lending opportunities for us. Attractive Environment to Lend To Lower Middle-Market Companies The current strength of the U.S. economy provides an attractive environment to lend to lower middle-market companies.
We expect the large amount of uninvested capital commitments will drive buyout activity over the next several years, which should, in turn, create lending opportunities for us. Attractive Environment to Lend To Lower Middle-Market Companies The current state of the U.S. economy provides an attractive environment to lend to lower middle-market companies.
If we default on our obligations thereunder, we may suffer adverse consequences, including foreclosure on our assets. ● Most of our portfolio investments are recorded at fair value as determined in good faith by our board of directors (the “ Board ”) and, as a result, there may be uncertainty as to the value of our portfolio investments. 3 Table of Contents ● If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud.
If we default on our obligations thereunder, we may suffer adverse consequences, including foreclosure on our assets. ● Most of our portfolio investments are recorded at fair value as determined in good faith by our board of directors (the “ Board ”) and, as a result, there may be uncertainty as to the value of our portfolio investments. ● If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud.
As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock. ● Any failure to comply with SBA regulations could have an adverse effect on our SBIC subsidiaries’ operations. ● Because we intend to distribute substantially all of our income to our stockholders to obtain and maintain our status as a RIC, we will continue to need additional capital to finance our growth.
As a result, stockholders could lose confidence in our 3 Table of Contents financial and other public reporting, which would harm our business and the trading price of our common stock. ● Any failure to comply with SBA regulations could have an adverse effect on our SBIC subsidiaries’ operations. ● Because we intend to distribute substantially all of our income to our stockholders to obtain and maintain our status as a RIC, we will continue to need additional capital to finance our growth.
The maximum leverage available to a “family” of two or more SBIC funds under common control is $350.0 million, subject to SBA approval . SBA-guaranteed debentures have fixed interest rates that equal the prevailing rate for 10-year U.S. Treasury Notes plus a market spread and have a maturity of ten years, with interest payable semi-annually.
The maximum leverage available to a “family” of two or more SBIC funds under common control is $350.0 million, subject to SBA approval . SBA-guaranteed debentures have fixed interest rates that equal the prevailing rate for 10-year U.S. 2 Table of Contents Treasury Notes plus a market spread and have a maturity of ten years, with interest payable semi-annually.
If Stellus Capital Management’s senior investment professionals believe an investment opportunity merits further review, the investment opportunity is assigned a deal team and the deal team 10 Table of Contents prepares and presents to the investment committee for initial review a prescreen memorandum that generally describes the potential transaction and includes a description of the risks, due diligence process and proposed structure and pricing for the proposed investment opportunity.
If Stellus Capital Management’s senior investment professionals believe an investment opportunity merits further review, the investment opportunity is assigned a deal team and the deal team prepares and presents to the investment committee for initial review a prescreen memorandum that generally describes the potential transaction and includes a description of the risks, due diligence process and proposed structure and pricing for the proposed investment opportunity.
We believe the members of Stellus Capital Management’s senior investment team are proven and experienced, with extensive capabilities in credit investing, having participated in these markets for the predominant portion of their careers. We believe that these characteristics enhance the quantity and quality of investment opportunities available to us.
We believe the members of Stellus Capital Management’s senior investment professionals are proven and experienced, with extensive capabilities in leveraged credit investing, having participated in these markets for the predominant portion of their careers. We believe that these characteristics enhance the quantity and quality of investment opportunities available to us.
As a condition of the SEC's COVID-19 relief, our Board will be required to ratify the re-approval of the Investment Advisory Agreement at its next in-person meeting .
As a condition of the SEC’s in-person meeting relief, our Board will be required to ratify the re-approval of the Investment Advisory Agreement at its next in-person meeting .
Each potential investment opportunity that an investment professional determines merits consideration is presented and evaluated at a weekly meeting during which Stellus Capital Management’s senior investment professionals discuss the merits and risks of the potential investment opportunity as well as the due diligence process and the pricing and structure.
Each potential investment opportunity that an investment professional determines merits 10 Table of Contents consideration is presented and evaluated at a weekly meeting during which Stellus Capital Management’s senior investment professionals discuss the merits and risks of the potential investment opportunity as well as the due diligence process and the pricing and structure.
Debt and equity securities that are not publicly traded or whose market quotations are not readily available will be valued at fair value as determined in good faith by our Board. Such determination of fair values may involve subjective judgments and estimates.
Debt and equity securities that are not publicly traded or whose market quotations are not readily available will be valued at fair value as determined in good faith by our Board. Such determinations of fair value may involve subjective judgments and estimates.
Our officers are employees of Stellus Capital Management and our allocable portion of the cost of our Chief Financial Officer and 15 Table of Contents Chief Compliance Officer and his staff is paid by us pursuant to the Administration Agreement that we have entered into with Stellus Capital Management (the “Administration Agreement”) .
Our officers are employees of Stellus Capital Management and our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer and his staff is paid by us pursuant to the Administration Agreement that we have entered into with Stellus Capital Management (the “Administration Agreement”) .
Our debt orientation provides for increased potential exit opportunities, including (a) the sale of investments in the private markets, (b) the refinancing of investments, often due to maturity or recapitalizations, and (c) other liquidity events, including the sale or merger of the portfolio company.
Our debt orientation provides for increased potential exit opportunities, including (a) the sale of investments in the private 14 Table of Contents markets, (b) the refinancing of investments, often due to maturity or recapitalizations, and (c) other liquidity events, including the sale or merger of the portfolio company.
Small Business Administration (“SBA”) regulations allow a single SBIC to obtain leverage in the form of debentures guaranteed by the SBA up to a maximum of 2 Table of Contents $175.0 million, subject to required capitalization of the SBIC subsidiary, SBA approval, and other requirements .
Small Business Administration (“SBA”) regulations allow a single SBIC to obtain leverage in the form of debentures guaranteed by the SBA up to a maximum of $175.0 million, subject to required capitalization of the SBIC subsidiary, SBA approval, and other requirements .
In the event that Stellus Capital Management determines that an investment is underperforming, or circumstances suggest that the risk associated with a particular investment has significantly increased, Stellus Capital Management will increase its monitoring intensity and prepare regular updates for the investment committee, summarizing current operating results and material impending events and suggesting recommended actions.
In the event that Stellus Capital Management determines that an investment is underperforming, or circumstances suggest that the risk associated with a particular investment has significantly increased, Stellus Capital Management will 12 Table of Contents increase its monitoring intensity and prepare regular updates for the investment committee, summarizing current operating results and material impending events and suggesting recommended actions.
Taxation as a Regulated Investment Company As a BDC, we have elected to be treated and intend to qualify annually to be treated as a RIC under Subchapter M of the Code; however, no assurance can be given that we will be able to maintain our RIC tax treatment.
Taxation as a RIC As a BDC, we have elected to be treated and intend to qualify annually to be treated as a RIC under subchapter M of the Code; however, no assurance can be given that we will be able to maintain our RIC tax treatment.
The SBIC subsidiaries may be limited by the Small Business Investment Act of 1958, and SBA regulations governing SBICs, from making certain distributions to us that may be necessary to maintain our tax treatment as a RIC.
The SBIC subsidiaries may be limited by the Small Business Investment Act of 1958, as amended (the “Small Business Investment Act”), and SBA regulations governing SBICs, from making certain distributions to us that may be necessary to maintain our tax treatment as a RIC.
Since unitranche debt generally allows the borrower to make a large lump sum payment of principal at the end of the loan term, there is a risk of loss if the borrower is unable to pay the lump sum or refinance the amount owed at maturity.
Since unitranche debt generally allows the borrower to make a large lump sum payment of principal at the end of the loan term, there is a risk of loss if the borrower is unable to pay the 9 Table of Contents lump sum or refinance the amount owed at maturity.
We have elected and intend to qualify annually to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). To maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements.
We have elected, qualified, and intend to qualify annually to be treated for tax purposes as a regulated investment company (“RIC”) under subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). To maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements.
The frequency of Stellus Capital Management’s monitoring of an investment is 12 Table of Contents determined by a number of factors, including, but not limited to, the trends in the financial performance of the portfolio company, the investment structure and the type of collateral securing the investment.
The frequency of Stellus Capital Management’s monitoring of an investment is determined by a number of factors, including, but not limited to, the trends in the financial performance of the portfolio company, the investment structure and the type of collateral securing the investment.
Competitive Strengths We believe that the following competitive strengths will allow us to achieve positive returns for our investors: Experienced Investment Team Through our investment adviser, Stellus Capital Management, we have access to the experience and expertise of the Stellus Capital Management senior investment professionals, including its senior investment professionals who have an average of over 36 years of investing, corporate finance, restructuring, consulting and accounting experience and have worked together at several companies.
Competitive Strengths We believe that the following competitive strengths will allow us to achieve positive returns for our investors: Experienced Investment Team Through our investment adviser, Stellus Capital Management, we have access to the experience and expertise of the Stellus Capital Management senior investment professionals, including its senior investment professionals who have an 6 Table of Contents average of over 37 years of investing, corporate finance, restructuring, consulting and accounting experience and have worked together at several companies.
Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder’s adjusted tax basis, and any remaining distributions would be treated as a capital gain.
Distributions in excess of our current and accumulated earnings and profits would be treated first as a return 32 Table of Contents of capital to the extent of the stockholder’s adjusted tax basis, and any remaining distributions would be treated as a capital gain.
ASC 820 requires us to assume that the portfolio investment is assumed to be sold in the principal market to market participants, or in the absence of a principal market, the most advantageous market, which may be a hypothetical market.
ASC 820 requires us to assume that the portfolio investment is assumed to 13 Table of Contents be sold in the principal market to market participants, or in the absence of a principal market, the most advantageous market, which may be a hypothetical market.
(c) As of December 31, 2024, the weighted average yield on all of our debt investments, including those on non-accrual status, was approximately 10.3%, of which approximately 9.5% was current cash interest. The weighted average yield on all of our investments, including non-income producing equity positions and debt investments on non-accrual status, as of December 31, 2024 was approximately 9.7%.
(c) As of December 31, 2025, the weighted average yield on all of our debt investments, including those on non-accrual status, was approximately 9.3%, of which approximately 8.5% was current cash interest. The weighted average yield on all of our investments, including non-income producing equity positions and debt investments on non-accrual status, as of December 31, 2025 was approximately 8.7%.
This dynamism, coupled with ample capital from private equity firms to support lower middle-market companies, is creating a large population of credit worthy companies looking for debt capital.
This dynamism, coupled with ample capital from private equity firms to support lower middle-market companies, is creating a large population of creditworthy companies looking for debt capital.
The holders of a majority of our outstanding voting securities may also terminate the Investment Advisory Agreement without penalty upon 60 days’ written notice. See Item 1A. “Risk Factors — Risks Related to our Operations” in this Annual Report on Form 10-K. We are dependent upon key personnel of Stellus Capital Management for our future success.
The holders of a majority of our outstanding voting securities may also terminate the Investment Advisory Agreement without penalty upon 60 days’ written notice. See “ Item 1A. Risk Factors — Risks Related to our Operation s” in this Annual Report on Form 10-K. We are dependent upon key personnel of Stellus Capital Management for our future success.
We source investments primarily through the extensive network of relationships that the senior investment professionals of Stellus Capital Management have developed with financial sponsor firms, financial institutions, lower middle-market companies, management teams and other professional intermediaries.
We source investments primarily through the extensive network of relationships that the principals of Stellus Capital Management have developed with financial sponsor firms, financial institutions, lower middle-market companies, management teams and other professional intermediaries.
As of December 31, 2024, our asset coverage ratio was 234%. The amount of leverage that we employ at any time depends on our assessment of the market and other factors at the time of any proposed borrowing.
As of December 31, 2025, our asset coverage ratio was 203%. The amount of leverage that we employ at any time depends on our assessment of the market and other factors at the time of any proposed borrowing.
Board Approval of the Investment Advisory Agreement Our Board, including a majority of our independent directors, approved the Investment Advisory Agreement at its first meeting, held on September 24, 2012, and approved the annual continuation of the Investment Advisory Agreement on January 6, 2025 by virtual means in reliance on relief provided by the SEC in response to the COVID-19 pandemic.
Board Approval of the Investment Advisory Agreement Our Board, including a majority of our independent directors, approved the Investment Advisory Agreement at its first meeting, held on September 24, 2012, and approved the annual continuation of the Investment Advisory Agreement most recently on January 7, 2026 by virtual means in reliance on relief provided by the SEC in response to the COVID-19 pandemic.
We may invest in partnerships, including qualified publicly traded partnerships, which may result in our being subject to state, local or foreign income, franchise or withholding tax liabilities. We may be required to recognize taxable income in circumstances in which we do not receive cash.
We may invest in partnerships, including qualified publicly traded partnerships, which may result in our being subject to state, local or foreign income, franchise or withholding tax liabilities. For U.S. federal income tax purposes, we may be required to recognize taxable income in circumstances in which we do not receive cash.
If the SBIC subsidiaries are unable to obtain a waiver, compliance with the SBA regulations may cause us to fail to maintain our tax treatment as a RIC, which would result in us becoming subject to U.S. federal income tax. 31 Table of Contents Certain of our investment practices may be subject to special and complex U.S. federal income tax provisions that may, among other things, (a) treat dividends that would otherwise constitute qualified dividend income as non-qualified dividend income, (b) treat dividends that would otherwise be eligible for the corporate dividends received deduction as ineligible for such treatment, (c) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (d) convert lower-taxed long term capital gain into higher-taxed short-term capital gain or ordinary income, (e) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited), (f) cause us to recognize income or gain without a corresponding receipt of cash, (g) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (h) adversely alter the characterization of certain complex financial transactions and (i) produce income that will not be qualifying income for purposes of the 90% Income Test.
Certain of our investment practices may be subject to special and complex U.S. federal income tax provisions that may, among other things, (a) treat dividends that would otherwise constitute qualified dividend income as non-qualified 31 Table of Contents dividend income, (b) treat dividends that would otherwise be eligible for the corporate dividends received deduction as ineligible for such treatment, (c) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (d) convert lower-taxed long term capital gain into higher-taxed short-term capital gain or ordinary income, (e) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited), (f) cause us to recognize income or gain without a corresponding receipt of cash, (g) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (h) adversely alter the characterization of certain complex financial transactions and (i) produce income that will not be qualifying income for purposes of the 90% Income Test.
The Administration Agreement had an initial term of two years and may be renewed with the approval of our Board on an annual basis. The Board approved the annual continuation of the Administration Agreement on January 6, 2025. The Administration Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party.
The Administration Agreement had an initial term of two years and may be renewed with the approval of our Board on an annual basis. The Board most recently approved the annual continuation of the Administration Agreement on January 7, 2026. The Administration Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party.
As of December 31, 2024, our SBIC I subsidiary had $75.0 million in regulatory capital and $150.0 million in SBA-guaranteed debentures outstanding. As of December 31, 2024, our SBIC II subsidiary had $87.5 million in regulatory capital and $175.0 million in SBA-guaranteed debentures outstanding.
As of December 31, 2025, our SBIC I subsidiary had $75.0 million in regulatory capital and $124.0 million in SBA-guaranteed debentures outstanding. As of December 31, 2025, our SBIC II subsidiary had $87.5 million in regulatory capital and $175.0 million in SBA-guaranteed debentures outstanding.
For instance, as a BDC, we may not acquire any assets other than “qualifying assets” as specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets.
For instance, as a BDC, we may not acquire any assets other than “qualifying assets” as specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets. Qualifying assets include investments in “eligible portfolio companies” (as defined in the 1940 Act).
We have a Chief Executive Officer and President and a Chief Financial Officer, Chief Compliance Officer, Treasurer and Secretary. To the extent necessary, we may hire additional personnel going forward.
We have a Chief Executive Officer and President and a Chief Financial Officer, Chief Compliance 15 Table of Contents Officer, Treasurer and Secretary. To the extent necessary, we may hire additional personnel going forward.
Other than with respect to this limited license, we have no legal right to the “Stellus Capital” name. This license agreement will remain in effect for so long as the Investment Advisory Agreement with Stellus Capital Management is in effect. 25 Table of Contents Exchange Act Reports We maintain a website at www.stelluscapital.com (under the “Public Investors” section) .
Other than with respect to this limited license, we have no legal right to the “Stellus Capital” name. This license agreement will remain in effect for so long as Stellus Capital Management or an affiliate thereof remains our investment advise. 25 Table of Contents Exchange Act Reports We maintain a website at www.stelluscapital.com (under the “Public Investors” section) .
The Stellus Capital Management investment professionals have a wide range of 6 Table of Contents experience in lower middle-market investing, including originating, structuring and managing debt and equity securities through market cycles.
The Stellus Capital Management investment professionals have a wide range of experience in lower middle-market investing, including originating, structuring and managing loans and debt securities through market cycles.
As of December 31, 2024, the estimated fair value of the SBA-guaranteed debentures as prepared for disclosure purposes was $312.0 million. 33 Table of Contents We have received exemptive relief from the SEC to permit us to exclude the SBA-guaranteed debentures of our SBIC subsidiaries from the definition of senior securities in the asset coverage requirement applicable to us under the 1940 Act.
As of December 31, 2025, the estimated fair value of the SBA-guaranteed debentures as prepared for disclosure purposes was $290.4 million. We have received exemptive relief from the SEC to permit us to exclude the SBA-guaranteed debentures of our SBIC subsidiaries from the definition of senior securities in the asset coverage requirement applicable to us under the 1940 Act.
If such investments were rated, we believe that they would likely receive a rating that is often referred to as “junk.” Our investment objective is to maximize the total return to our stockholders in the form of current income and capital appreciation.
If such investments were rated, we believe that they would likely receive a rating that is often referred to as “junk.” Our investment objective is to maximize the total return to our stockholders in the form of current income and capital appreciation through debt and related equity investments in lower middle-market companies.
In the future, we may adjust opportunistically the percentage of our assets held in various types of loans, our principal loan sources and the industries to which we have greatest exposure based on market conditions, the credit cycle, available financing and our desired risk/return profile. 4 Table of Contents The following table provides a summary of our portfolio investments as of December 31, 2024: ​ ​ ​ ​ ​ ​ As of ​ ​ December 31, 2024 ​ ​ ($ in millions) Total number of portfolio company investments ​ 105 ​ Fair value (a) ​ $ 953.5 ​ Cost ​ $ 961.8 ​ % of portfolio at fair value – first lien debt (b) ​ 89.8 % % of portfolio at fair value – second lien debt ​ 1.2 % % of portfolio at fair value – unsecured debt ​ 0.7 % % of portfolio at fair value – equity ​ 8.3 % Weighted-average annual yield (c) ​ 9.7 % (a) As of December 31, 2024, $826.9 million of our debt investments at fair value were at floating interest rates, which represented approximately 94.5% of our total portfolio of debt investments at fair value.
In the future, we may adjust opportunistically the percentage of our assets held in various types of loans, our principal loan sources and the industries to which we have greatest exposure based on market conditions, the credit cycle, available financing and our desired risk/return profile. 4 Table of Contents The following table provides a summary of our portfolio investments as of December 31, 2025: ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ ​ December 31, 2025 ​ ​ ($ in millions) Total number of portfolio company investments ​ 115 ​ Fair value (a) ​ $ 1,007.6 ​ Cost ​ $ 1,026.1 ​ % of portfolio at fair value – first lien debt (b) ​ 90.2 % % of portfolio at fair value – second lien debt ​ 1.2 % % of portfolio at fair value – unsecured debt ​ — % % of portfolio at fair value – equity ​ 8.6 % Weighted-average annual yield (c) ​ 8.7 % (a) As of December 31, 2025, $843.1 million of our debt investments at fair value were at floating interest rates, which represented approximately 91.6% of our total portfolio of debt investments at fair value.
Treasury Notes with ten-year maturities. SBICs are designed to stimulate the flow of private equity capital to eligible small businesses. Under SBA regulations, SBICs may make loans to eligible small businesses and invest in the equity securities of small businesses.
SBICs are designed to stimulate the flow of private equity capital to eligible small businesses. Under SBA regulations, SBICs may make loans to eligible small businesses and invest in the equity securities of small businesses.
If we are unable to qualify for tax treatment as a RIC, and certain relief provisions are unable to be satisfied, we would be subject to U.S. federal income tax imposed at corporate rates on all of our taxable income regardless of whether we make any distributions to our stockholders.
If we are unable to qualify for tax treatment as a RIC, and certain relief provisions are unable to be satisfied, we would be subject to U.S. federal income tax imposed at corporate rates (and also will be subject to any applicable state and local taxes), on all of our taxable income (including our net capital gains) regardless of whether we make any distributions to our stockholders.
SBA-guaranteed debentures are non-recourse, interest only debentures with interest payable semi-annually and a ten-year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed at the time of issuance at a market-driven spread over U.S.
The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed at the time of issuance at a market-driven spread over U.S. Treasury Notes with ten-year maturities.
For taxable years beginning before 2026, miscellaneous itemized deductions generally are not deductible by a U.S. stockholder that is an individual, trust or estate.
Miscellaneous itemized deductions generally are not deductible by a U.S. stockholder that is an individual, trust or estate.
In addition to financial sponsors, Stellus Capital Management has developed a network of other deal sources, including: ● management teams and entrepreneurs; ● portfolio companies of private equity firms; ● other investment firms that have similar strategies to Stellus Capital Management and are seeking co-investors; ● placement agents and investment banks representing financial sponsors and issuers; ● corporate operating advisers and other financial advisers; and ● consultants, attorneys and other service providers to lower middle-market companies and financial sponsors.
In addition to financial sponsors, Stellus Capital Management has developed a network of other deal sources, including: ● management teams and entrepreneurs; ● portfolio companies of private equity firms; ● other investment firms that have similar strategies to Stellus Capital Management and are seeking co-investors; ● placement agents and investment banks representing financial sponsors and issuers; ● corporate operating advisers and other financial advisers; and ● consultants, attorneys and other service providers to lower middle-market companies and financial sponsors. 8 Table of Contents We believe that Stellus Capital Management’s broad network of deal origination contacts will provide us with a continuous source of investment opportunities.
Distributions would not be required, but if such distributions are paid, including distributions of net long-term capital gain, they would be taxable to our stockholders as ordinary 32 Table of Contents dividend income to the extent of our current and accumulated earnings and profits.
In any taxable year that we do not qualify as a RIC, distributions would not be required, but if such distributions are paid, including distributions of net long-term capital gain, they would be taxable to our stockholders as ordinary dividend income to the extent of our current and accumulated earnings and profits.
The Investment Advisory Agreement automatically terminates in the event of its assignment, as defined in the 1940 Act, by Stellus Capital Management and may be terminated by either party without penalty upon 60 days’ written notice to the other.
See “ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Subsequent Events .” The Investment Advisory Agreement automatically terminates in the event of its assignment, as defined in the 1940 Act, by Stellus Capital Management and may be terminated by either party without penalty upon 60 days’ written notice to the other.
As of December 31, 2024, $47.8 million of our debt investments at fair value were at fixed interest rates, which represented approximately 5.5% of our total portfolio of debt investments at fair value. (b) Includes unitranche investments, which account for 2.0% of our portfolio at fair value.
As of December 31, 2025, $77.7 million of our debt investments at fair value were at fixed interest rates, which represented approximately 8.4% of our total portfolio of debt investments at fair value. (b) Includes unitranche investments, which accounted for 4.0% of our portfolio at fair value.
In addition, pursuant to our valuation policy, the valuation of each portfolio investment for which a market quotation is not readily available is reviewed by our independent third-party valuation firm at least twice annually.
In addition, pursuant to our valuation policy, the valuation of each portfolio investment for which a market quotation is not readily available is reviewed by our independent third-party valuation firm at least twice annually. As part of the monitoring process, Stellus Capital Management also tracks developments in the broader marketplace.
In some cases, we will be the sole lender, or we, together with our affiliates, will be the sole lender, of unitranche debt, which can provide us with more influence interacting with a borrower in terms of monitoring and, if necessary, remediation in the event of underperformance. 9 Table of Contents Second Lien Debt Second lien debt is structured as junior, secured loans with second priority liens on an issuer’s assets.
In some cases, we will be the sole lender, or we, together with our affiliates, will be the sole lender, of unitranche debt, which can provide us with more influence interacting with a borrower in terms of monitoring and, if necessary, remediation in the event of underperformance.
Since we seek to maintain a debt orientation in our investments, 14 Table of Contents we expect to receive interest income over the course of the investment period, resulting in a return on invested capital well in advance of final exit.
Since we seek to maintain a debt orientation in our investments, we expect to receive interest income over the course of the investment period, resulting in a return on invested capital well in advance of final exit. Derivatives We may utilize hedging techniques such as interest rate swaps to mitigate potential interest rate risk on our indebtedness.
We also may use various hedging and other risk management strategies to seek to manage various risks, including changes in currency exchange rates and market interest rates. Such hedging strategies would be utilized to seek to protect the value of our portfolio investments, for example, against possible adverse changes in the market value of securities held in our portfolio.
Such hedging strategies would be utilized to seek to protect the value of our portfolio investments, for example, against possible adverse changes in the market value of securities held in our portfolio.
Derivatives We may utilize hedging techniques such as interest rate swaps to mitigate potential interest rate risk on our indebtedness. Such interest rate swaps would principally be used to protect us against higher costs on our indebtedness resulting from increases in both short-term and long-term interest rates.
Such interest rate swaps would principally be used to protect us against higher costs on our indebtedness resulting from increases in both short-term and long-term interest rates. We also may use various hedging and other risk management strategies to seek to manage various risks, including changes in currency exchange rates and market interest rates.
Market Opportunity We originate and invest primarily in private lower middle-market companies through first lien (including unitranche), second lien and unsecured debt financing, often with corresponding equity co-investments.
Stellus Capital Management is headquartered in Houston, Texas, and also maintains offices in the Washington, D.C. area and Charlotte, North Carolina. Market Opportunity We originate and invest primarily in private lower middle-market companies through first lien (including unitranche), second lien and unsecured debt financing, often with corresponding equity co-investments.
In addition, Stellus Capital Management’s extensive communications with brokers and dealers allows its investment professionals to monitor market and industry trends that could affect portfolio investments.
Stellus Capital Management’s investment professionals have a wealth of information on the competitive landscape, industry trends, relative valuation metrics, and analyses that assist in the execution of our investment strategy. In addition, Stellus Capital Management’s extensive communications with brokers and dealers allows its investment professionals to monitor market and industry trends that could affect portfolio investments.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSubstantially all of our assets are subject to security interests under the Credit Facility or claims of the SBA with respect to SBA-guaranteed debentures we issue and, if we default on our obligations thereunder, we may suffer adverse consequences, including foreclosure on our assets.
Biggest changeThe calculations in the table below are hypothetical, and actual returns may be higher or lower than those appearing in the table below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Assumed Return on Portfolio (Net of Expenses) ​ ​ (10)% ​ (5)% ​ 0% ​ 5% ​ 10% ​ Corresponding Return to Common Stockholders (1) ​ (37.8) % (23.8) % (9.8) % 4.2 % 18.3 % (1) Based on (i) $1,041.3 million in total assets as of December 31, 2025, (ii) $660.6 million in outstanding indebtedness at par, as of December 31, 2025, (iii) $371.2 million in net assets as of December 31, 2025 and (iv) a weighted average interest rate, including fees (such as fees on undrawn amounts and amortization of financing costs), on our indebtedness, as of December 31, 2025, of 5.50%. ​ Substantially all of our assets are subject to security interests under the Credit Facility or claims of the SBA with respect to SBA-guaranteed debentures we issue and, if we default on our obligations thereunder, we may suffer adverse consequences, including foreclosure on our assets.
As a BDC, we may not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. We believe that most of the investments that we may acquire in the future will constitute qualifying assets.
As a BDC, we may not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. We believe that most of the investments that we acquire in the future will constitute qualifying assets.
If Section 18(a)(1)(B) of the 1940 Act, as modified by Section 61(a)(2) of the 1940 Act, were currently applicable to us in connection with this offering, these provisions would generally prohibit us from declaring any cash dividend or distribution upon any class of our capital stock, or purchasing any such capital stock if our asset coverage, as defined in the 1940 Act, were below 150% at the time of the declaration of the dividend or distribution or the purchase and after deducting the amount of such dividend, distribution or purchase; ● sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets); ● enter into transactions with affiliates; ● create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions; ● make investments; or 65 Table of Contents ● create restrictions on the payment of dividends or other amounts to us from our subsidiaries.
If Section 18(a)(1)(B) of the 1940 Act, as modified by Section 61(a)(2) of the 1940 Act, were currently 65 Table of Contents applicable to us in connection with this offering, these provisions would generally prohibit us from declaring any cash dividend or distribution upon any class of our capital stock, or purchasing any such capital stock if our asset coverage, as defined in the 1940 Act, were below 150% at the time of the declaration of the dividend or distribution or the purchase and after deducting the amount of such dividend, distribution or purchase; ● sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets); ● enter into transactions with affiliates; ● create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions; ● make investments; or ● create restrictions on the payment of dividends or other amounts to us from our subsidiaries.
In particular, the terms of the indenture and the Notes Payable do not place any restrictions on our or our subsidiaries’ ability to: ● issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to the Notes Payable, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the Notes Payable to the extent of the values of the assets securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore is structurally senior to the Notes Payable and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to the Notes Payable with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or other obligation that would cause a violation of Section 18(a)(1)(A) of the 1940 Act, as modified by Section 61(a)(2) of the 1940 Act, or any successor provisions, whether or not we continue to be subject to such provisions of the 1940 Act, but giving effect, in either case, to any exemptive relief granted to us by the SEC, which generally prohibit us from incurring additional indebtedness, including through the issuance of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 150% after such incurrence or issuance; ● pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to the Notes Payable, including subordinated indebtedness, except that we have agreed that, for the period of time during which the Notes Payable are outstanding, we will not violate Section 18(a)(1)(B) of the 1940 Act, as modified by (i) Section 61(a)(2) of the 1940 Act, or any successor provisions and after giving effect to any exemptive relief granted to us by the SEC and (ii) the following two exceptions: (A) we will be permitted to declare a cash dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) of the 1940 Act, as modified by Section 61(a)(2) of the 1940 Act, or any successor provisions, but only up to such amount as is necessary for us to maintain our status as a RIC under Subchapter M of the Code; and (B) this restriction will not be triggered unless and until such time as our asset coverage has not been in compliance with the minimum asset coverage required by Section 18(a)(1)(B) of the 1940 Act, as modified by Section 61(a)(2) of the 1940 Act, or any successor provisions (after giving effect to any exemptive relief granted to us by the SEC) for more than six consecutive months.
In particular, the terms of the indenture and the 2030 Notes Payable do not place any restrictions on our or our subsidiaries’ ability to: ● issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to the 2030 Notes Payable, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the 2030 Notes Payable to the extent of the values of the assets securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore is structurally senior to the 2030 Notes Payable and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to the 2030 Notes Payable with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or other obligation that would cause a violation of Section 18(a)(1)(A) of the 1940 Act, as modified by Section 61(a)(2) of the 1940 Act, or any successor provisions, whether or not we continue to be subject to such provisions of the 1940 Act, but giving effect, in either case, to any exemptive relief granted to us by the SEC, which generally prohibit us from incurring additional indebtedness, including through the issuance of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 150% after such incurrence or issuance; ● pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to the 2030 Notes Payable, including subordinated indebtedness, except that we have agreed that, for the period of time during which the 2030 Notes Payable are outstanding, we will not violate Section 18(a)(1)(B) of the 1940 Act, as modified by (i) Section 61(a)(2) of the 1940 Act, or any successor provisions and after giving effect to any exemptive relief granted to us by the SEC and (ii) the following two exceptions: (A) we will be permitted to declare a cash dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) of the 1940 Act, as modified by Section 61(a)(2) of the 1940 Act, or any successor provisions, but only up to such amount as is necessary for us to maintain our status as a RIC under subchapter M of the Code; and (B) this restriction will not be triggered unless and until such time as our asset coverage has not been in compliance with the minimum asset coverage required by Section 18(a)(1)(B) of the 1940 Act, as modified by Section 61(a)(2) of the 1940 Act, or any successor provisions (after giving effect to any exemptive relief granted to us by the SEC) for more than six consecutive months.
If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, as applicable, in the instruments governing our indebtedness (including the Credit Facility), we could be in default under the terms of the agreements governing such indebtedness, including the Notes Payable.
If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, as applicable, in the instruments governing our indebtedness (including the Credit Facility), we could be in default under the terms of the agreements governing such indebtedness, including the 2030 Notes Payable.
Furthermore, the terms of the indenture and the Notes Payable do not protect holders of the Notes Payable in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, if any, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow, or liquidity.
Furthermore, the terms of the indenture and the 2030 Notes Payable do not protect holders of the 2030 Notes Payable in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, if any, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow, or liquidity.
Our ability to recapitalize, incur additional debt (including additional debt that matures prior to the maturity of the Notes Payable) and take a number of other actions that are not limited by the terms of the Notes Payable may have important consequences for holders of the Notes Payable, including making it more difficult for us to satisfy our obligations with respect to the Notes Payable or negatively affecting the market value of the Notes Payable.
Our ability to recapitalize, incur additional debt (including additional debt that matures prior to the maturity of the 2030 Notes Payable) and take a number of other actions that are not limited by the terms of the 2030 Notes Payable may have important consequences for holders of the 2030 Notes Payable, including making it more difficult for us to satisfy our obligations with respect to the 2030 Notes Payable or negatively affecting the market value of the 2030 Notes Payable.
Legislative or regulatory tax changes could have an adverse impact on us and our stockholders. Legislative or other actions relating to taxes could have a negative effect on us. Matters pertaining to with U.S. federal income taxation are constantly under review by persons involved in the legislative process, and by the Internal Revenue Service, and the U.S. Treasury Department.
Legislative or regulatory tax changes could have an adverse impact on us and our stockholders. Legislative or other actions relating to taxes could have a negative effect on us. Matters pertaining to U.S. federal income taxation are constantly under review by persons involved in the legislative process, and by the Internal Revenue Service, and the U.S. Treasury Department.
Most, if not all, of our investments (other than cash and cash equivalents) are classified as Level 3 under ASC Topic 820. This means that our portfolio valuations are based on unobservable inputs and our own assumptions about how market participants would price the asset or liability in question.
Most, if not all, of our investments (other than cash and cash equivalents) are classified as Level 3 under ASC 820. This means that our portfolio valuations are based on unobservable inputs and our own assumptions about how market participants would price the asset or liability in question.
If the Notes Payable are traded after their initial issuance, they may trade at a discount to their initial offering price depending on prevailing interest rates, the market for similar securities, our credit ratings, our financial condition, performance and prospects, general economic conditions, or other relevant factors.
If the 2030 Notes Payable are traded after their initial issuance, they may trade at a discount to their initial offering price depending on prevailing interest rates, the market for similar securities, our credit ratings, our financial condition, performance and prospects, general economic conditions, or other relevant factors.
If our operating performance declines, we may in the future need to refinance or restructure our debt, including the Notes Payable, sell assets, reduce or delay capital investments, seek to raise additional capital or seek to obtain waivers from the required lenders under the Credit Facility or other debt that we may incur in the future to avoid being in default.
If our operating performance declines, we may in the future need to refinance or restructure our debt, including the 2030 Notes Payable, sell assets, reduce or delay capital investments, seek to raise additional capital or seek to obtain waivers from the required lenders under the Credit Facility or other debt that we may incur in the future to avoid being in default.
Credit ratings are not a recommendation to buy, sell or hold any security, and may be revised or withdrawn at any time by the issuing organization in its sole discretion. Neither we nor the underwriter undertakes any obligation to maintain our credit ratings or to advise holders of Notes Payable of any changes in our credit ratings.
Credit ratings are not a recommendation to buy, sell or hold any security, and may be revised or withdrawn at any time by the issuing organization in its sole discretion. Neither we nor the underwriter undertakes any obligation to maintain our credit ratings or to advise holders of 2030 Notes Payable of any changes in our credit ratings.
Risks Relating to Our Debt Securities The Notes Payable are unsecured and therefore are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future and rank pari passu with, or equal to, all outstanding and future unsecured indebtedness issued by and us and our general liabilities (total liabilities, less debt).
Risks Relating to Our Debt Securities The 2030 Notes Payable are unsecured and therefore are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future and rank pari passu with, or equal to, all outstanding and future unsecured indebtedness issued by and us and our general liabilities (total liabilities, less debt).
In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the holders of the Notes Payable.
In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the holders of the 2030 Notes Payable.
The Maryland General Corporation Law and our charter and bylaws contain provisions that may discourage, delay or make more difficult a change in control of Stellus Capital Investment Corporation or the removal of our directors. We are subject to the Maryland Business Combination Act, subject to any applicable requirements of the 1940 Act.
The Maryland General Corporation Law and our charter and bylaws contain provisions that may discourage, delay or make more difficult a change in control of Stellus Capital Investment Corporation or the removal of our directors. We are subject to the Maryland Business Combination Act, subject to any applicable preempting requirements of the 1940 Act.
Our failure to purchase such tendered Notes Payable upon the occurrence of such Change of Control Repurchase Event would cause an event of default under the indenture governing the Notes Payable and a cross-default under the agreements governing the Credit Facility, which may result in the acceleration of such indebtedness requiring us to repay that indebtedness immediately.
Our failure to purchase such tendered 2030 Notes Payable upon the occurrence of such Change of Control Repurchase Event would cause an event of default under the indenture governing the 2030 Notes Payable and a cross-default under the agreements governing the Credit Facility, which may result in the acceleration of such indebtedness requiring us to repay that indebtedness immediately.
As a result, the Notes Payable are effectively subordinated to any secured indebtedness we or our subsidiaries have incurred and may incur in the future (or any indebtedness that is initially unsecured as to which we subsequently grant security) to the extent of the value of the assets securing such indebtedness.
As a result, the 2030 Notes Payable are effectively subordinated to any secured indebtedness we or our subsidiaries have incurred and may incur in the future (or any indebtedness that is initially unsecured as to which we subsequently grant security) to the extent of the value of the assets securing such indebtedness.
Other debt we issue or incur in the future could contain more protections for its holders than the indenture and the Notes Payable, including additional covenants and events of default. The issuance or incurrence of any such debt with incremental protections could affect the market for, trading levels, and prices of the Notes Payable.
Other debt we issue or incur in the future could contain more protections for its holders than the indenture and the 2030 Notes Payable, including additional covenants and events of default. The issuance or incurrence of any such debt with incremental protections could affect the market for, trading levels, and prices of the 2030 Notes Payable.
Upon a Change of Control Repurchase Event, holders of the Notes Payable may require us to repurchase for cash some or all of the Notes Payable at a repurchase price equal to 100% of the aggregate principal amount of the Notes Payable being repurchased, plus accrued and unpaid interest to, but not including, the repurchase date.
Upon a Change of Control Repurchase Event, holders of the 2030 Notes Payable may require us to repurchase for cash some or all of the 2030 Notes Payable at a repurchase price equal to 100% of the aggregate principal amount of the 2030 Notes Payable being repurchased, plus accrued and unpaid interest to, but not including, the repurchase date.
If prevailing rates are lower at the time of redemption, and we redeem the Notes Payable, you likely would not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the interest rate on the Notes Payable being redeemed.
If prevailing rates are lower at the time of redemption, and we redeem the 2030 Notes Payable, you likely would not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the interest rate on the 2030 Notes Payable being redeemed.
In addition, the occurrence of a Change of Control Repurchase Event enabling the holders of the Notes Payable to require the mandatory purchase of the Notes Payable will constitute an event of default under our Credit Facility, entitling the lenders to accelerate any indebtedness outstanding under our Credit Facility at that time and to terminate our Credit Facility.
In addition, the occurrence of a Change of Control Repurchase Event enabling the holders of the 2030 Notes Payable to require the mandatory purchase of the 2030 Notes Payable will constitute an event of default under our Credit Facility, entitling the lenders to accelerate any indebtedness outstanding under our Credit Facility at that time and to terminate our Credit Facility.
Any public health emergency, including any outbreak of other existing or new pandemics or epidemic diseases, or the threat thereof, and the resulting financial and economic market uncertainty, could have a significant adverse impact on us and the fair value of our investments and our portfolio companies.
Any public health emergency, including any outbreak of existing or new pandemics or epidemic diseases, or the threat thereof, and the resulting financial and economic market uncertainty, could have a significant adverse impact on us and the fair value of our investments and our portfolio companies.
The terms of the indenture and the Notes Payable do not restrict our or any of our subsidiaries’ ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have a material adverse impact on an investment in the Notes Payable.
The terms of the indenture and the 2030 Notes Payable do not restrict our or any of our subsidiaries’ ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have a material adverse impact on an investment in the 2030 Notes Payable.
Because the Credit Facility has, the indenture governing the Notes Payable has, and any future credit facilities will likely have, customary cross-default provisions, if the indebtedness under the Notes Payable, the Credit Facility or under any future credit facility is accelerated, we may be unable to repay or finance the amounts due.
Because the Credit Facility has, the indenture governing the 2030 Notes Payable has, and any future credit facilities will likely have, customary cross-default provisions, if the indebtedness under the 2030 Notes Payable, the Credit Facility or under any future credit facility is accelerated, we may be unable to repay or finance the amounts due.
Except to the extent we are a creditor with recognized claims against our subsidiaries, all claims of creditors of our subsidiaries will have priority over our equity interests in such entities (and therefore the claims of our creditors, including holders of the Notes Payable) with respect to the assets of such entities.
Except to the extent we are a creditor with recognized claims against our subsidiaries, all claims of creditors of our subsidiaries will have priority over our equity interests in such entities (and therefore the claims of our creditors, including holders of the 2030 Notes Payable) with respect to the assets of such entities.
Although the underwriter has informed us that it intends to make a market in the Notes Payable, it is not obligated to do so, and the underwriter may discontinue any market-making in the Notes Payable at any time at its sole discretion.
Although the underwriter has informed us that it intends to make a market in the 2030 Notes Payable, it is not obligated to do so, and the underwriter may discontinue any market-making in the 2030 Notes Payable at any time at its sole discretion.
To the extent an active trading market does not develop, the liquidity and trading price for the Notes Payable may be harmed. Accordingly, you may be required to bear the financial risk of an investment in the Notes Payable for an indefinite period of time.
To the extent an active trading market does not develop, the liquidity and trading price for the 2030 Notes Payable may be harmed. Accordingly, you may be required to bear the financial risk of an investment in the 2030 Notes Payable for an indefinite period of time.
In addition, restrictions and provisions in our Credit Facility, the Notes Payable and any future credit facilities, as well as in the terms of any debt securities we issue, may limit our ability to make distributions in certain circumstances.
In addition, restrictions and provisions in our Credit Facility, the 2030 Notes Payable and any future credit facilities, as well as in the terms of any future debt securities we may issue, may limit our ability to make distributions in certain circumstances.
Accordingly, we cannot assure you that a liquid trading market will develop or be maintained for the Notes Payable, that you will be able to sell your Notes Payable at a particular time or that the price you receive when you sell will be favorable.
Accordingly, we cannot assure you that a liquid trading market will develop or be maintained for the 2030 Notes Payable, that you will be able to sell your 2030 Notes Payable at a particular time or that the price you receive when you sell will be favorable.
We may choose to redeem the Notes Payable when prevailing interest rates are relatively low. The Notes Payable are redeemable in whole or in part upon certain conditions at any time or from time to time at our option.
We may choose to redeem the 2030 Notes Payable when prevailing interest rates are relatively low. The 2030 Notes Payable are redeemable in whole or in part upon certain conditions at any time or from time to time at our option.
There is no active trading market for the Notes Payable. If an active trading market does not develop for the Notes Payable, you may not be able to sell them. The Notes Payable are debt securities for which there currently is no trading market.
There is no active trading market for the 2030 Notes Payable. If an active trading market does not develop for 2030 the Notes Payable, you may not be able to sell them. The 2030 Notes Payable are debt securities for which there currently is no trading market.
We would not be able to borrow under our Credit Facility to finance such a repurchase of the Notes Payable, and we expect that any future credit facility would have similar limitations.
We would not be able to borrow under our Credit Facility to finance such a repurchase of the 2030 Notes Payable, and we expect that any future credit facility would have similar limitations.
If we are unable to implement one or more of these alternatives, we may not be able to meet our payment obligations under the Notes Payable or our other debt.
If we are unable to implement one or more of these alternatives, we may not be able to meet our payment obligations under the 2030 Notes Payable or our other debt.
We may not be able to repurchase the Notes Payable upon a Change of Control Repurchase Event. We may not be able to repurchase the Notes Payable upon a Change of Control Repurchase Event (as defined in the supplemental indenture governing the Notes Payable) because we may not have sufficient funds.
We may not be able to repurchase the 2030 Notes Payable upon a Change of Control Repurchase Event. We may not be able to repurchase the 2030 Notes Payable upon a Change of Control Repurchase Event (as defined in the supplemental indenture governing the 2030 Notes Payable) because we may not have sufficient funds.
In addition, as part of the Investment Advisory Agreement, we have agreed to indemnify Stellus Capital Management and each of its officers, directors, members, managers and employees from and against any claims or liabilities, including reasonable legal fees and other expenses reasonably incurred, arising out of or in connection with our business and operations or any action taken or omitted on our behalf pursuant to authority granted by the Investment Advisory Agreement, except where attributable to gross negligence, willful misfeasance, bad faith or reckless disregard of such person’s duties under the Investment 50 Table of Contents Advisory Agreement.
In addition, as part of the Investment Advisory Agreement, we have agreed to indemnify Stellus Capital Management and each of its officers, directors, members, managers and employees from and against any claims or liabilities, including reasonable legal fees and other expenses reasonably incurred, arising out of or in connection with our business and operations or any action taken or omitted on our behalf pursuant to authority granted by the Investment Advisory Agreement, except where attributable to gross negligence, willful misfeasance, bad faith or reckless disregard of such person’s duties under the Investment Advisory Agreement.
Cybersecurity failures or breaches by Stellus Capital Management and other service providers (including, but not limited to, accountants, custodians, transfer agents and administrators), and the issuers of securities in which we invest, also have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, interference with our ability to calculate its net asset value, impediments to trading, the inability of our stockholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputation damages, reimbursement of 53 Table of Contents other compensation costs, or additional compliance costs.
Cybersecurity failures or breaches by Stellus Capital Management and other service providers (including, but not limited to, accountants, custodians, transfer agents and administrators), and the issuers of securities in which we invest, also have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, interference with our ability to calculate its net asset value, impediments to trading, the inability of our stockholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputation damages, reimbursement of other compensation costs, or additional compliance costs.
Cyber-attacks and other security threats could originate from a wide variety of sources, including cyber criminals, nation state hackers, hacktivists and other outside parties. Additionally, cyber-attacks and other security threats have become increasingly complex as a result of the emergence of new technologies, such as artificial intelligence, which are able to identify and target new vulnerabilities in information technology systems.
Cyber-attacks and other security threats could originate from a wide variety of sources, including cyber criminals, nation state hackers, hacktivists and other outside parties. Additionally, cyber-attacks and other security threats have become increasingly complex as a result of new technologies, such as artificial intelligence, which are able to identify and target new vulnerabilities in information technology systems.
Any such regulatory developments could result in uncertainty about and changes in the ways such regulations apply to us, and may require additional resources to ensure our continued compliance. We cannot predict which, if any, of these actions will be taken or, if taken, their effect on the financial stability of the United States.
Any such regulatory developments could result in uncertainty about and changes in the ways such regulations apply to us and our portfolio companies, and may require additional resources to ensure our continued compliance. We cannot predict which, if any, of these actions will be taken or, if taken, their effect on the financial stability of the United States.
We may choose to redeem the Notes Payable from time to time, especially if prevailing interest rates are lower than the rate borne by the Notes Payable.
We may choose to redeem the 2030 Notes Payable from time to time, especially if prevailing interest rates are lower than the rate borne by the 2030 Notes Payable.
Investors are urged to consult with their tax advisor regarding tax legislative, regulatory, or administrative developments and proposals and their potential effect on an investment in our shares. We may have difficulty paying our required distributions if we recognize income before, or without, receiving cash representing such income.
Investors are urged to consult with their tax advisor regarding tax legislative, regulatory, or administrative developments and proposals and their potential effect on an investment in our securities. We may have difficulty paying our required distributions if we recognize income before, or without, receiving cash representing such income.
We do not intend to list the Notes Payable on any securities exchange or for quotation of the Notes Payable on any automated dealer quotation system.
We do not intend to list the 2030 Notes Payable on any securities exchange or for quotation of the 2030 Notes Payable on any automated dealer quotation system.
If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes Payable.
If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the 2030 Notes Payable.
In accordance with certain applicable Treasury regulations and published guidance issued by the Internal Revenue Service, a publicly offered RIC may treat a distribution of its own stock as fulfilling the RIC distribution requirements if each stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC, subject to a limitation that the aggregate amount of cash to be distributed to all stockholders must be at least 20% of the aggregate declared distribution.
In accordance with certain applicable Treasury regulations and published guidance issued by the Internal Revenue Service, a publicly offered RIC may treat a distribution of its own stock as fulfilling the Annual Distribution Requirement if each stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC, subject to a limitation that the aggregate amount of cash to be distributed to all stockholders must be at least 20% of the aggregate declared distribution.
Because we borrow money to make investments and may in the future issue additional senior securities including preferred stock and debt securities, our net investment income will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we invests those funds.
Because we borrow money to make investments and have issued, and may in the future issue additional senior securities including preferred stock and debt securities, our net investment income will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we invests those funds.
Treasury regulations, administrative interpretations or court decisions interpreting such legislation could have adverse consequences, including affecting our ability to qualify as a RIC or otherwise impacting the U.S. federal income tax consequences applicable to us and our investors.
New legislation and any U.S. Treasury regulations, administrative interpretations or court decisions interpreting such legislation could have adverse consequences, including affecting our ability to qualify as a RIC or otherwise impacting the U.S. federal income tax consequences applicable to us and our investors.
A proposal approved by our stockholders at our 2024 annual stockholders meeting authorizes us to sell shares equal to up to 25% of our outstanding common stock below the then-current net asset value per share of our common stock in one or more offerings.
A proposal approved by our stockholders at our 2025 annual stockholders meeting authorizes us to sell shares equal to up to 25% of our outstanding common stock below the then-current net asset value per share of our common stock in one or more offerings.
Because we use debt to finance our investments and may in the future issue senior securities including preferred stock and debt securities, if market interest rates were to increase, our cost of capital could increase, which could reduce our net investment income.
Because we use debt to finance our investments and have issued, and may in the future issue, senior securities including preferred stock and debt securities, if market interest rates were to increase, our cost of capital could increase, which could reduce our net investment income.
Certain of our portfolio companies are in industries that have been impacted by inflation. Recent inflationary pressures have increased the costs of labor, energy and raw materials and have adversely affected consumer spending, economic growth and our portfolio companies’ operations.
Certain of our portfolio companies are in industries that have been impacted by inflation. Ongoing inflationary pressures have increased the costs of labor, energy and raw materials and have adversely affected consumer spending, economic growth and our portfolio companies’ operations.
The Notes Payable are not and will not be secured by any of our assets or any of the assets of any of our subsidiaries.
The 2030 Notes Payable are not and will not be secured by any of our assets or any of the assets of any of our subsidiaries.
As of December 31, 2024, substantially all of our assets were pledged as collateral under the Credit Facility or are subject to a superior claim over the holders of our common stock by the SBA pursuant to the SBA-guaranteed debentures.
As of December 31, 2025, substantially all of our assets were pledged as collateral under the Credit Facility or are subject to a superior claim over the holders of our common stock by the SBA pursuant to the SBA-guaranteed debentures.
We may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates. Use of these hedging instruments may expose us to counter- 45 Table of Contents party credit risk.
We may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates. Use of these hedging instruments may expose us to counter-party credit risk.
Such scrutiny of ESG-related practices could expose the us and our portfolio companies to the risk of investigations or challenges by federal authorities, result in reputational harm and discourage certain investors from investing in us. ​ 36 Table of Contents We are dependent upon key personnel of Stellus Capital Management for our future success.
Such scrutiny of ESG-related practices could expose the us and our portfolio companies to the risk of investigations or challenges by federal authorities, result in reputational harm and discourage certain investors from investing in us. ​ We are dependent upon key personnel of Stellus Capital Management for our future success.
We are partially dependent on our SBIC subsidiaries for cash distributions to enable us to meet the RIC distribution requirements. Our SBIC subsidiaries may be limited by the Small Business Investment Act of 1958, as amended, and SBA regulations governing SBICs, from making certain distributions to us that may be necessary to maintain our tax treatment as a RIC.
We are partially dependent on our SBIC subsidiaries for cash distributions to enable us to meet the RIC distribution requirements. Our SBIC subsidiaries may be limited by the Small Business Investment Act and SBA regulations governing SBICs, from making certain distributions to us that may be necessary to maintain our tax treatment as a RIC.
To the extent we and an affiliate both hold investments in the same portfolio company that are of a different character, we may also face restrictions on our ability to become actively involved in the event that portfolio company becomes distressed as a result of the restrictions imposed on transactions involving affiliates under the 1940 Act.
To the extent we and an affiliate both hold investments in the same portfolio company that are of a different character, we may also face restrictions on our ability to become actively involved in the event that portfolio company becomes distressed 61 Table of Contents as a result of the restrictions imposed on transactions involving affiliates under the 1940 Act.
To the extent that we assume large positions in the securities of a small number of issuers or our investments are concentrated in relatively few industries, our net asset value may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer.
To the extent that we assume large positions in the securities of a small 58 Table of Contents number of issuers or our investments are concentrated in relatively few industries, our net asset value may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer.
Similarly, Stellus Capital Management and its affiliates may have other clients with similar, different or competing investment objectives. In serving in these multiple capacities, they may have obligations to other clients or investors in those entities, the fulfillment of which may 37 Table of Contents not be in the best interests of us or our stockholders.
Similarly, Stellus Capital Management and its affiliates may have other clients with similar, different or competing investment objectives. In serving in these multiple capacities, they may have obligations to other clients or investors in those entities, the fulfillment of which may not be in the best interests of us or our stockholders.
We may utilize instruments such as forward contracts, currency options and 44 Table of Contents interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates to the extent permitted by the 1940 Act.
We may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates to the extent permitted by the 1940 Act.
Our net asset value could be adversely affected if our determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such loans and securities. ​ We may expose ourselves to risks if we engage in hedging transactions.
Our net asset value could be adversely affected if our determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such loans and securities. ​ 45 Table of Contents We may expose ourselves to risks if we engage in hedging transactions.
Stellus Capital Management’s investment committee, which provides oversight over our investment activities, is provided to us by Stellus Capital Management under the Investment Advisory Agreement. Stellus Capital Management’s investment committee consists of four members, including Messrs. Ladd, and D’Angelo, each a member of our Board and a senior investment professional of Stellus Capital Management, Mr.
Stellus Capital Management’s investment committee, which provides oversight over our investment activities, is provided to us by Stellus Capital Management under the Investment Advisory Agreement. Stellus Capital Management’s 36 Table of Contents investment committee consists of four members, including Messrs. Ladd, and D’Angelo, each a member of our Board and a senior investment professional of Stellus Capital Management, Mr.
The senior investment professionals and other investment team members of Stellus Capital Management, including members of Stellus Capital Management’s investment committee, may serve as directors of, or in a similar capacity with, portfolio companies in which we invest, the securities of which are purchased or sold on our behalf.
The senior investment professionals and other investment team members of Stellus Capital Management, including members of Stellus Capital Management’s investment committee, may serve as directors of, or in a similar capacity 37 Table of Contents with, portfolio companies in which we invest, the securities of which are purchased or sold on our behalf.
All distributions will be made at the discretion of our Board and will depend on our earnings, financial condition, maintenance of RIC status, compliance with applicable BDC requirements and SBA regulations and such other factors as our Board may deem relative from time to time.
All distributions will be made at the discretion of our Board and will depend on our 62 Table of Contents earnings, financial condition, maintenance of RIC status, compliance with applicable BDC requirements and SBA regulations and such other factors as our Board may deem relative from time to time.
Any default under the agreements governing our indebtedness, including a default under the Credit Facility or other indebtedness to which we may be a party, that is not waived by the required lenders or holders, and the remedies sought by the lenders or holders of such indebtedness could make us unable to pay principal, premium, if any, and interest on the Notes Payable and substantially decrease the market value of the Notes Payable.
Any default under the agreements governing our indebtedness, including a default under the Credit Facility or other indebtedness to which we may be a party, that is not waived by the required lenders or holders, and the remedies sought by the lenders or holders of such indebtedness could make us unable to pay principal, premium, if any, and interest on 66 Table of Contents the 2030 Notes Payable and substantially decrease the market value of the 2030 Notes Payable.
If the value of our assets declines, we may be unable to satisfy this test. If that happens, we would not be able to borrow additional funds until we were able to comply with the 150% asset coverage ratio applicable to us under the 1940 Act.
If the value of 41 Table of Contents our assets declines, we may be unable to satisfy this test. If that happens, we would not be able to borrow additional funds until we were able to comply with the 150% asset coverage ratio applicable to us under the 1940 Act.
If either of our SBIC subsidiaries fails to comply with 47 Table of Contents applicable SBA regulations, the SBA could, depending on the severity of the violation, limit or prohibit its use of debentures, declare outstanding debentures immediately due and payable, and/or limit it from making new investments.
If either of our SBIC subsidiaries fails to comply with applicable SBA regulations, the SBA could, depending on the severity of the violation, limit or prohibit its use of debentures, declare outstanding debentures immediately due and payable, and/or limit it from making new investments.
We cannot assure you that we will make distributions to our stockholders in the future. 62 Table of Contents Our ability to pay distributions might be adversely affected by the impact of one or more of the risk factors described in this Annual Report on Form 10-K.
We cannot assure you that we will make distributions to our stockholders in the future. Our ability to pay distributions might be adversely affected by the impact of one or more of the risk factors described in this Annual Report on Form 10-K.
In such instances, we or our affected portfolio companies would not recover such excess, uninsured amounts, and they may not be able to cure any defaults. Additionally, unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us.
In such instances, we or our affected portfolio companies would not recover such excess, uninsured amounts, and they may not be able to cure any defaults. Additionally, unfavorable economic conditions also could 56 Table of Contents increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us.
Such developments may be accompanied by a deterioration in the value of any collateral securing the 56 Table of Contents investment and/or equity co-investments we hold and a reduction in the likelihood of our realizing any guarantees that we may have obtained in connection with our investment.
Such developments may be accompanied by a deterioration in the value of any collateral securing the investment and/or equity co-investments we hold and a reduction in the likelihood of our realizing any guarantees that we may have obtained in connection with our investment.
As a result, the incentives for Stellus Capital Management to cause us to use additional leverage may be greater, which could result in our investing in more speculative securities than would otherwise be the case, resulting in higher investment losses, particularly during economic downturns. 38 Table of Contents Our incentive fee may induce Stellus Capital Management to make speculative investments.
As a result, the incentives for Stellus Capital Management to cause us to use additional leverage may be greater, which could result in our investing in more speculative securities than would otherwise be the case, resulting in higher investment losses, particularly during economic downturns. Our incentive fee may induce Stellus Capital Management to make speculative investments.
We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. 58 Table of Contents Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio.
We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio.
In such cases, we may be unable to exercise rights we may otherwise have to protect our interests as security holders in such portfolio company. 61 Table of Contents If we make subordinated investments, the obligors or the portfolio companies may not generate sufficient cash flow to service their debt obligations to us.
In such cases, we may be unable to exercise rights we may otherwise have to protect our interests as security holders in such portfolio company. If we make subordinated investments, the obligors or the portfolio companies may not generate sufficient cash flow to service their debt obligations to us.
In the past, we have entered into certain hedging transactions to mitigate our 35 Table of Contents exposure to adverse fluctuations in interest rates, and we may do so again in the future. However, we cannot assure you that such transactions will be successful in mitigating our exposure to interest rate risk.
In the past, we have entered into certain hedging transactions to mitigate our exposure to adverse fluctuations in interest rates, and we may do so again in the future. However, we cannot assure you that such transactions will be successful in mitigating our exposure to interest rate risk.
Our investments in portfolio companies may be speculative and, therefore, an investment in our securities may not be suitable for someone with lower risk tolerance. The market price of our securities may fluctuate significantly.
Our investments in portfolio companies may be speculative and, therefore, an investment in our securities may not be suitable for someone with lower risk tolerance. 63 Table of Contents The market price of our securities may fluctuate significantly.
We will be subject to U.S. federal income tax if we are unable to maintain our tax treatment as a RIC under Subchapter M of the Code. To maintain our tax treatment as a RIC under Subchapter M of the Code, we must meet certain source-of-income, asset diversification and distribution requirements.
We will be subject to U.S. federal income tax imposed at corporate rates if we are unable to maintain our tax treatment as a RIC under subchapter M of the Code. To maintain our tax treatment as a RIC under subchapter M of the Code, we must meet certain source-of-income, asset diversification and distribution requirements.
We expect that our investments will generally allow for repayment at any time subject to certain penalties. When this occurs, we intend to generally reinvest these proceeds in temporary investments, pending their future investment in accordance with our investment strategy.
We expect that our investments will generally allow for repayment at any time subject to certain penalties. When this occurs, we intend to generally reinvest these proceeds in temporary investments, pending their future 59 Table of Contents investment in accordance with our investment strategy.
The effect of global climate change may impact the operations of our portfolio companies. Climate change creates physical and financial risk and some of our portfolio companies may be adversely affected by climate change. For example, the needs of customers of energy companies vary with weather conditions, primarily temperature and humidity.
Climate change creates physical and financial risk and some of our portfolio companies may be adversely affected by climate change. For example, the needs of customers of energy companies vary with weather conditions, primarily temperature and humidity.
Losses from terrorist attacks are generally uninsurable. 55 Table of Contents Risks Related to our Investments Our business and our portfolio companies may be susceptible to economic slowdowns or recessions which would harm our operating results.
Losses from terrorist attacks are generally uninsurable. Risks Related to our Investments Our business and our portfolio companies may be susceptible to economic slowdowns or recessions which would harm our operating results.
Consequently, the Notes Payable are structurally subordinated to all indebtedness and other liabilities, including trade payables, of any of our existing or future subsidiaries, including the SBIC subsidiaries. As of December 31, 2024, our subsidiaries had total indebtedness outstanding of $325.0 million.
Consequently, the 2030 Notes Payable are structurally subordinated to all indebtedness and other liabilities, including trade payables, of any of our existing or future subsidiaries, including the SBIC subsidiaries. As of December 31, 2025, our subsidiaries had total indebtedness outstanding of $299.0 million.
Supreme Court. For example, the U.S. Supreme Court’s decision could significantly impact consumer protection, advertising, privacy, artificial intelligence, anti-corruption and anti-money laundering practices and other regulatory regimes with which we are required to comply.
For example, the decision could significantly impact consumer protection, advertising, privacy, artificial intelligence, anti-corruption and anti-money laundering practices and other regulatory regimes with which we are required to comply.
In addition, our executive officers, directors and Stellus Capital Management may, in the ordinary course of business, be named as defendants in litigation arising from our investments in portfolio companies, the commencement and duration of which could distract from their roles or service to us and negatively impact our business.
In addition, our executive officers, directors and Stellus Capital Management may, in the ordinary course of business, be named as defendants in litigation arising from our investments in portfolio companies, the commencement and duration of which could distract from their roles or service to us and negatively impact our business. 57 Table of Contents The lack of liquidity in our investments may adversely affect our business.
In addition, the Notes Payable rank pari passu with, or equal to, all outstanding and future unsecured, unsubordinated indebtedness issued by us and our general liabilities (total liabilities, less debt). As of December 31, 2024, we had $175.4 million in outstanding indebtedness under our Credit Facility.
In addition, the 2030 Notes Payable rank pari passu with, or equal to, all outstanding and future unsecured, unsubordinated indebtedness issued by us and our general liabilities (total liabilities, less debt). As of December 31, 2025, we had $236.6 million in outstanding indebtedness under our Credit Facility.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeSuch reports include, among other things, an overview of the controls and procedures related to assessing, identifying, and managing risks related to cybersecurity threats, oversight of third-party service providers and related cybersecurity threats, and Information Security Team's evaluation of cybersecurity risks that are material to us.
Biggest changeSuch reports include, among other things, an overview of the controls and procedures related to assessing, identifying, and managing risks related to cybersecurity 68 Table of Contents threats, oversight of third-party service providers and related cybersecurity threats, and Information Security Team's evaluation of cybersecurity risks that are material to us. ​

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWhile the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations. Item 4. Mine Safety Disclosures Not applicable. ​ 68 Table of Contents PART II
Biggest changeWhile the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations. Item 4. Mine Safety Disclosures Not applicable. ​ 69 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table sets forth, for each fiscal quarter of the three most recent fiscal years, the range of high and low closing prices of our common stock as reported on the NYSE and the sales price as a percentage of our net asset value (“NAV”). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Premium or Premium or ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Discount of ​ Discount of ​ ​ NAV Per ​ Closing Sales Price (2) ​ High Sales ​ Low Sales Fiscal Year Ended ​ Share (1) High Low NAV (3) NAV (3) December 31, 2024 ​ ​ ​ ​ Fourth quarter ​ $ 13.46 ​ $ 14.33 ​ $ 13.14 6.46 % (2.38) % Third quarter ​ $ 13.55 ​ $ 14.41 ​ $ 13.39 6.35 % (1.18) % Second quarter ​ $ 13.36 ​ $ 14.35 ​ $ 12.97 7.41 % (2.92) % First quarter ​ $ 13.41 ​ $ 13.48 ​ $ 12.56 0.52 % (6.34) % December 31, 2023 ​ ​ ​ ​ Fourth quarter ​ $ 13.26 ​ $ 13.73 ​ $ 12.34 3.54 % (6.94) % Third quarter ​ $ 13.19 ​ $ 15.27 ​ $ 13.60 15.77 % 3.11 % Second quarter ​ $ 13.67 ​ $ 15.00 ​ $ 13.64 9.73 % (0.22) % First quarter ​ $ 13.87 ​ $ 15.97 ​ $ 13.14 15.14 % (5.26) % December 31, 2022 ​ ​ ​ ​ Fourth quarter ​ $ 14.02 ​ $ 13.96 ​ $ 11.98 (0.43) % (14.55) % Third quarter ​ $ 14.15 ​ $ 14.08 ​ $ 11.44 (0.49) % (19.15) % Second quarter ​ $ 14.07 ​ $ 14.20 ​ $ 11.13 0.92 % (20.90) % First quarter ​ $ 14.03 ​ $ 14.15 ​ $ 13.08 0.86 % (6.77) % (1) NAV is determined as of the last date in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices.
Biggest changeThe following chart outlines such purchases of our common stock during the year ended December 31, 2025: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Number ​ ​ ​ Average Price ​ ​ of Shares ​ Paid Per Period ​ Purchased ​ Share January 1, 2025 – January 31, 2025 14,267 ​ $ 13.96 February 1, 2025 – February 28, 2025 13,721 ​ 15.22 March 1, 2025 – March 31, 2025 15,314 ​ 13.92 April 1, 2025 – April 30, 2025 16,015 ​ 12.81 May 1, 2025 – May 31, 2025 14,687 ​ 13.37 June 1, 2025 – June 30, 2025 14,885 ​ 13.80 July 1, 2025 – July 31, 2025 11,444 ​ 15.22 August 1, 2025 – August 31, 2025 12,684 ​ 14.64 September 1, 2025 – September 30, 2025 13,300 ​ 14.11 October 1, 2025 – October 31, 2025 16,612 ​ 12.27 November 1, 2025 – November 30, 2025 14,162 ​ 12.07 December 1, 2025 – December 31, 2025 15,858 ​ 12.47 Total 172,949 ​ $ 13.58 ​ Price Range of Common Stock Our shares of common stock are traded on the NYSE under the symbol “SCM.” In connection with our initial public offering, our shares of common stock began trading on November 8, 2012, and before that date, there was no established trading market for shares of our common stock. 72 Table of Contents The following table sets forth, for each fiscal quarter of the three most recent fiscal years, the range of high and low closing prices of our common stock as reported on the NYSE and the sales price as a percentage of our net asset value (“NAV”). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Premium or ​ ​ ​ Premium or ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Discount of ​ Discount of ​ ​ NAV Per ​ Closing Sales Price (2) ​ High Sales ​ Low Sales Fiscal Year Ended ​ Share (1) ​ ​ ​ High ​ ​ ​ Low ​ ​ ​ NAV (3) ​ ​ ​ NAV (3) December 31, 2025 ​ ​ ​ ​ ​ ​ ​ ​ ​ Fourth quarter ​ $ 12.82 ​ $ 13.10 ​ $ 11.59 2.18 % (9.59) % Third quarter ​ $ 13.05 ​ $ 15.29 ​ $ 13.04 17.16 % (0.08) % Second quarter ​ $ 13.21 ​ $ 14.00 ​ $ 11.69 5.98 % (11.51) % First quarter ​ $ 13.25 ​ $ 15.50 ​ $ 13.64 16.98 % 2.94 % December 31, 2024 ​ ​ ​ ​ ​ ​ ​ ​ ​ Fourth quarter ​ $ 13.46 ​ $ 14.33 ​ $ 13.14 6.46 % (2.38) % Third quarter ​ $ 13.55 ​ $ 14.41 ​ $ 13.39 6.35 % (1.18) % Second quarter ​ $ 13.36 ​ $ 14.35 ​ $ 12.97 7.41 % (2.92) % First quarter ​ $ 13.41 ​ $ 13.48 ​ $ 12.56 0.52 % (6.34) % December 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ Fourth quarter ​ $ 13.26 ​ $ 13.73 ​ $ 12.34 3.54 % (6.94) % Third quarter ​ $ 13.19 ​ $ 15.27 ​ $ 13.60 15.77 % 3.11 % Second quarter ​ $ 13.67 ​ $ 15.00 ​ $ 13.64 9.73 % (0.22) % First quarter ​ $ 13.87 ​ $ 15.97 ​ $ 13.14 15.14 % (5.26) % (1) NAV is determined as of the last date in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices.
In March 2023, we sold 547,802 shares of common stock through the ATM Program for net proceeds of $7,832,670, which was used to repay borrowings under the Credit Facility. 69 Table of Contents In April 2023, we sold 587,363 shares of common stock through the ATM Program for net proceeds of $8,027,626, which was used to repay borrowings under the Credit Facility.
In March 2023, we sold 547,802 shares of common stock through the ATM Program for net proceeds of $7,832,670, which was used to repay borrowings under the Credit Facility. 70 Table of Contents In April 2023, we sold 587,363 shares of common stock through the ATM Program for net proceeds of $8,027,626, which was used to repay borrowings under the Credit Facility.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is traded on the NYSE under the symbol “SCM.” As of March 4, 2025, we had eight stockholders of record, which did not include stockholders for whom shares are held in nominee or street name.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is traded on the NYSE under the symbol “SCM.” As of March 11, 2026, we had eight stockholders of record, which did not include stockholders for whom shares are held in nominee or street name.
We generally intend to pay distributions to our stockholders out of assets legally available for distribution. Our distributions and their frequency, if any, will be determined by our Board. For the period January 2022 through March 2022, we paid monthly distributions of $0.0933 per share on our common shares.
We generally intend to pay distributions to our stockholders out of assets legally available for distribution. Our distributions and their frequency, if any, will be determined by our Board. During the period from January 2022 through March 2022, we paid monthly distributions of $0.0933 per share on our common stock.
The NAVs shown are based on outstanding shares at the end of each period. (2) Closing sales price is determined as the high or low closing sales price noted within the respective quarter, not adjusted for dividends.
The NAVs shown are based on outstanding shares at the end of each period. (2) Closing sales price is determined as the high or low closing sales price noted within the respective quarter, not adjusted for dividends. (3) Calculated as of the respective high or low sales price divided by the quarter-end NAV.
For the period April 2022 through December 2024, we paid monthly distributions of $0.1333 per share on our common shares. Payment of dividends on our common shares is within the discretion of the Board, and depends on, among other factors, net earnings, capital requirements and our financial condition.
During the period from April 2022 through December 2025, we paid monthly distributions of $0.1333 per share on our common stock. Payment of dividends on our common stock is within the discretion of the Board, and depends on, among other factors, net earnings, capital requirements and our financial condition.
On August 11, 2023, we entered into an equity distribution agreement (the “2023 Equity Distribution Agreement” and together with the 2021 Equity Distribution Agreement, the “Equity Distribution Agreements”) with Keefe Bruyette & Woods, Inc. and Raymond James & Associates, Inc., as sales agents and/or principals thereunder.
On August 11, 2023, we entered into an equity distribution agreement with Keefe Bruyette & Woods, Inc. and Raymond James & Associates, Inc., as sales agents and/or principals thereunder.
The stock price performance included in the above graph is not necessarily indicative of future stock price performance. ​
The stock price performance included in the above graph is not necessarily indicative of future stock price performance. ​ Item 6. [Reserved] ​ 74 Table of Contents
Upon execution of the 2023 Equity Distribution Agreement, we no longer sold any shares under the 2021 Equity Distribution Agreement. We refers to the issuance and sale of shares under the Equity Distribution Agreements as the "ATM Program".
Upon execution of the 2023 Equity Distribution Agreement, we no longer sold any shares under the 2021 Equity Distribution Agreement .
In November 2022, we sold 120,834 shares of common stock through the ATM Program for net proceeds of $1,648,854, which was used to repay borrowings under the Credit Facility. In January 2023, we sold 33,812 shares of common stock through the ATM Program for net proceeds of $459,187, which was used to repay borrowings under the Credit Facility.
We refer to our issuance and sale of shares under the Equity Distribution Agreements as the “ATM Program.” In January 2023, we sold 33,812 shares of common stock through the ATM Program for net proceeds of $459,187, which was used to repay borrowings under the Credit Facility.
In March 2022, we sold 14,924 shares of common stock through the ATM Program for net proceeds of $205,870, which was used to repay borrowings under the Credit Facility. In April 2022, we sold 13,416 shares of common stock through the ATM Program for net proceeds of $185,144, which was used to repay borrowings under the Credit Facility.
In April 2025, we sold 278,945 shares of common stock through the ATM Program for net proceeds of $3,837,828, which was used to repay borrowings under the Credit Facility.
Purchases of Equity Securities Dividend Reinvestment Plan During the year ended December 31, 2024, as a part of our distribution reinvestment plan ("DRIP"), we purchased 182,184 shares of our common stock for an average price per share of $13.68 in the open market in order to satisfy the 70 Table of Contents reinvestment portion of our dividends.
In September 2025, we sold 531,106 shares of common stock through the ATM Program for net proceeds of $7,324,060, which was used to repay borrowings under the Credit Facility. 71 Table of Contents Purchases of Equity Securities Dividend Reinvestment Plan During the year ended December 31, 2025, as a part of our DRIP, we purchased 172,949 shares of our common stock for an average price per share of $13.58 in the open market in order to satisfy the reinvestment portion of our dividends.
Stock Performance Graph This graph compares the return on our shares of common stock with that of the Standard & Poor’s 500 Stock Index, the Russell 2000 Financial Services Index, and the Raymond James BDC Index, for the period from inception through December 31, 2024.
Since our shares of common stock began trading on November 8, 2012, in connection with our initial public offering, our shares of common stock have traded at times at a discount to the NAV attributable to those shares of common stock. 73 Table of Contents Stock Performance Graph This graph compares the return on our shares of common stock with that of the Standard & Poor’s 500 Stock Index, the Russell 2000 Financial Services Index, and the Raymond James BDC Index, for the period from inception through December 31, 2025.
(3) Calculated as of the respective high or low sales price divided by the quarter-end NAV. 71 Table of Contents On March 3 2025, the last reported closing sales price of our common stock on the NYSE was $15.50 per share, which represented a premium of approximately 15.2% to the NAV per share reported by us as of December 31, 2024.
On March 10, 2026, the last reported closing sales price of our common stock on the NYSE was $9.58 per share, which represented a discount of approximately 25.27% to the NAV per share reported by us as of December 31, 2025.
Removed
The following chart outlines such purchases of our common stock during the year ended December 31, 2024: ​ ​ ​ ​ ​ ​ ​ ​ Total Number Average Price ​ ​ of Shares ​ Paid Per Period ​ Purchased ​ Share January 1, 2024 – January 31, 2024 16,071 ​ $ 12.87 February 1, 2024 – February 29, 2024 15,969 ​ 12.95 March 1, 2024 – March 31, 2024 16,111 ​ 13.09 April 1, 2024 – April 30, 2024 15,830 ​ 13.42 May 1, 2024 – May 31, 2024 15,081 ​ 14.21 June 1, 2024 – June 30, 2024 15,767 ​ 13.81 July 1, 2024 – July 31, 2024 15,487 ​ 14.36 August 1, 2024 – August 31, 2024 15,260 ​ 13.95 September 1, 2024 – September 30, 2024 15,318 ​ 13.71 October 1, 2024 – October 31, 2024 14,209 ​ 14.11 November 1, 2024 – November 30, 2024 12,705 ​ 13.95 December 1, 2024 – December 31, 2024 14,376 ​ 13.89 Total 182,184 ​ $ 13.68 ​ Price Range of Common Stock Our shares of common stock are traded on the NYSE under the symbol “SCM.” In connection with our initial public offering, our shares of common stock began trading on November 8, 2012, and before that date, there was no established trading market for shares of our common stock.
Added
On September 9, 2025, we entered into an equity distribution agreement (the “2025 Equity Distribution Agreement” and together with the 2023 Equity Distribution Agreement and the 2021 Equity Distribution Agreement, the “Equity Distribution Agreements”) with Keefe Bruyette & Woods, Inc. and Raymond James & Associates, Inc., as sales agents and/or principal thereunder.
Removed
Since our shares of common stock began trading on November 8, 2012, in connection with our initial public offering, our shares of common stock have traded at times at a discount to the NAV attributable to those shares of common stock.
Added
Under the 2025 Equity Distribution Agreement, we may issue and sell, from time to time, up to $100.0 million in aggregate offering price of shares of our common stock, par value $0.001 per share, with the intention to use the net proceeds from this at-the-market sales program to repay certain outstanding indebtedness and make investments in portfolio companies in accordance with its investment objective and strategies.
Added
Upon execution of the 2025 Equity Distribution Agreement, we no longer sold any shares under the 2023 Equity Distribution Agreement.
Added
In January 2025, we sold 38,388 shares of common stock through the ATM Program for net proceeds of $524,560, which was used to repay borrowings under the Credit Facility. In March 2025, we sold 617,697 shares of common stock through the ATM Program for net proceeds of $8,593,514, which was used to repay borrowings under the Credit Facility.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeAs of December 31, 2024, we had sufficient liquidity (through cash on hand and available borrowings under the Credit Facility) to fund such unfunded commitments should the need arise. 75 Table of Contents The following is a summary of geographical concentration of our investment portfolio as of December 31, 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % of Total ​ ​ ​ ​ ​ ​ ​ ​ Investments at ​ ​ ​ Cost ​ Fair Value ​ Fair Value Texas $ 159,028,754 $ 154,041,942 16.15 % California ​ 160,285,777 ​ 152,583,692 16.00 % Florida ​ 108,434,730 ​ 104,718,969 10.98 % Illinois ​ 66,486,029 ​ 56,591,435 5.94 % Pennsylvania ​ 53,271,774 ​ 54,438,594 5.71 % Arizona ​ 43,552,887 ​ 46,839,063 4.91 % New York ​ 36,116,358 ​ 36,306,098 3.81 % Ohio ​ 33,645,676 ​ 35,847,804 3.76 % Canada ​ 32,107,256 ​ 32,375,749 3.40 % Colorado ​ 31,283,806 ​ 28,218,186 2.96 % Wisconsin ​ 27,935,159 ​ 23,352,084 2.45 % District of Columbia ​ 22,711,852 ​ 26,654,283 2.80 % Georgia ​ 12,391,680 ​ 23,345,077 2.45 % North Carolina ​ 20,946,327 ​ 22,314,018 2.34 % Tennessee ​ 20,490,429 ​ 20,703,772 2.17 % Massachusetts ​ 19,965,590 ​ 20,559,398 2.16 % Missouri ​ 18,590,476 ​ 18,712,569 1.96 % Iowa ​ 13,486,486 ​ 13,486,486 1.41 % Idaho ​ 11,763,648 ​ 11,830,192 1.24 % New Jersey ​ 11,181,815 ​ 11,754,323 1.23 % Michigan ​ 11,389,446 ​ 11,510,608 1.21 % Louisiana ​ 9,216,389 ​ 9,371,830 0.98 % Virginia ​ 9,293,896 ​ 9,373,367 0.98 % Washington ​ 8,193,234 ​ 8,216,962 0.86 % Maryland ​ 7,529,294 ​ 7,526,300 0.79 % Minnesota ​ 6,448,091 ​ 6,452,144 0.68 % South Carolina ​ 4,836,178 ​ 4,984,667 0.52 % Indiana ​ 743,770 ​ 920,343 0.10 % United Kingdom ​ 461,899 ​ 467,733 0.05 % Total Investments ​ $ 961,788,706 ​ $ 953,497,688 100.00 % ​ 76 Table of Contents The following is a summary of geographical concentration of our investment portfolio as of December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % of Total ​ ​ ​ ​ ​ ​ ​ ​ Investments ​ ​ Cost ​ Fair Value ​ at Fair Value Texas $ 182,531,256 $ 175,311,724 20.04 % California ​ 175,207,692 ​ 167,713,589 19.18 % Florida ​ 93,155,844 ​ 92,297,574 10.55 % Pennsylvania ​ 49,939,315 ​ 50,188,102 5.74 % Illinois ​ 58,633,617 ​ 49,834,429 5.70 % Arizona ​ 42,136,322 ​ 44,558,279 5.10 % Ohio ​ 31,805,370 ​ 34,370,277 3.93 % Colorado ​ 31,525,420 ​ 30,971,079 3.54 % Wisconsin ​ 27,452,444 ​ 26,190,771 3.00 % Washington ​ 24,321,085 ​ 24,540,695 2.81 % Georgia ​ 9,100,050 ​ 18,885,409 2.16 % Maryland ​ 16,676,194 ​ 16,718,728 1.91 % New York ​ 14,692,043 ​ 14,931,263 1.71 % Indiana ​ 14,235,403 ​ 14,488,700 1.66 % North Carolina ​ 13,891,930 ​ 14,532,532 1.66 % District of Columbia ​ 13,030,899 ​ 14,006,563 1.60 % New Jersey ​ 10,461,226 ​ 11,191,295 1.28 % Michigan ​ 10,664,100 ​ 10,736,783 1.23 % Massachusetts ​ 10,151,621 ​ 10,515,487 1.20 % Tennessee ​ 9,390,657 ​ 9,379,311 1.07 % Missouri ​ 8,862,512 ​ 8,850,162 1.01 % Canada ​ 8,700,383 ​ 8,813,132 1.01 % Idaho ​ 8,405,946 ​ 8,470,065 0.97 % Minnesota ​ 5,976,818 ​ 5,907,639 0.68 % Louisiana ​ 5,538,823 ​ 5,536,231 0.63 % South Carolina ​ 4,946,375 ​ 5,083,862 0.58 % United Kingdom ​ 20,710,205 ​ 437,002 0.05 % Total Investments ​ $ 902,143,550 ​ $ 874,460,683 100.00 % ​ 77 Table of Contents The following is a summary of industry concentration of our investment portfolio as of December 31, 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % of Total ​ ​ ​ ​ ​ ​ ​ ​ Investments at ​ ​ ​ Cost ​ Fair Value ​ Fair Value Services: Business ​ $ 219,665,133 ​ $ 234,908,112 24.64 % High Tech Industries ​ 91,135,577 ​ ​ 93,468,792 9.81 % Healthcare & Pharmaceuticals ​ 85,300,317 ​ ​ 85,478,418 8.97 % Media: Advertising, Printing & Publishing ​ 71,318,416 ​ ​ 72,291,584 7.58 % Beverage & Food ​ 64,052,951 ​ ​ 68,902,142 7.23 % Consumer Goods: Non-Durable ​ 67,123,135 ​ ​ 54,473,282 5.71 % Services: Consumer ​ 49,388,222 ​ ​ 46,066,301 4.83 % Capital Equipment ​ 41,322,214 ​ ​ 43,647,466 4.58 % Consumer Goods: Durable ​ 43,393,413 ​ ​ 42,094,390 4.41 % Chemicals, Plastics, & Rubber ​ 36,693,101 ​ ​ 36,907,602 3.87 % Construction & Building ​ 32,374,992 ​ ​ 32,979,859 3.46 % Aerospace & Defense ​ 26,014,106 ​ ​ 21,624,091 2.27 % Environmental Industries ​ 18,903,681 ​ ​ 18,282,056 1.92 % Transportation & Logistics ​ 17,244,131 ​ ​ 17,532,488 1.84 % Retail ​ 14,799,085 ​ ​ 14,723,620 1.54 % Media: Broadcasting & Subscription ​ 12,170,577 ​ ​ 14,314,711 1.50 % Containers, Packaging, & Glass ​ 18,007,571 ​ ​ 12,911,794 1.35 % Energy: Oil & Gas ​ 11,353,959 ​ ​ 10,728,031 1.13 % Hotel, Gaming, & Leisure ​ 7,113,661 ​ ​ 8,142,050 0.85 % FIRE: Real Estate ​ 17,934,808 ​ ​ 7,652,436 0.80 % Media: Diversified & Production ​ 5,822,637 ​ ​ 5,934,853 0.62 % Education ​ 10,537,738 ​ ​ 5,341,151 0.56 % Finance ​ 119,281 ​ ​ 5,092,459 0.53 % Total Investments ​ $ 961,788,706 ​ $ 953,497,688 100.00 % ​ 78 Table of Contents The following is a summary of industry concentration of our investment portfolio as of December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % of Total ​ ​ ​ ​ ​ ​ ​ ​ Investments ​ ​ Cost ​ Fair Value ​ at Fair Value Services: Business ​ $ 198,018,290 ​ $ 207,963,749 23.78 % Healthcare & Pharmaceuticals ​ 100,724,952 ​ ​ 102,915,887 11.77 % High Tech Industries ​ 90,795,799 ​ ​ 91,992,012 10.52 % Media: Advertising, Printing & Publishing ​ 57,640,321 ​ ​ 58,741,061 6.72 % Consumer Goods: Non-Durable ​ 63,145,301 ​ ​ 52,938,611 6.05 % Beverage, Food, & Tobacco ​ 42,554,582 ​ ​ 45,074,817 5.15 % Consumer Goods: Durable ​ 49,046,730 ​ ​ 43,725,324 5.00 % Capital Equipment ​ 32,517,673 ​ ​ 33,879,801 3.87 % Services: Consumer ​ 33,976,976 ​ ​ 33,260,111 3.80 % Construction & Building ​ 30,319,119 ​ ​ 30,486,411 3.49 % Aerospace & Defense ​ 46,745,104 ​ ​ 24,541,921 2.81 % Environmental Industries ​ 24,219,811 ​ ​ 22,997,844 2.63 % Media: Broadcasting & Subscription ​ 17,952,103 ​ ​ 20,760,920 2.37 % Transportation & Logistics ​ 17,235,150 ​ ​ 17,661,859 2.02 % Chemicals, Plastics, & Rubber ​ 18,338,366 ​ ​ 17,569,176 2.01 % Metals & Mining ​ 16,580,562 ​ ​ 16,625,000 1.90 % Containers, Packaging, & Glass ​ 17,432,252 ​ ​ 15,539,555 1.78 % Utilities: Oil & Gas ​ 9,943,041 ​ ​ 10,000,000 1.14 % Education ​ 10,251,179 ​ ​ 8,367,469 0.96 % FIRE: Real Estate ​ 17,285,138 ​ ​ 6,175,994 0.71 % Media: Diversified & Production ​ 5,662,174 ​ ​ 5,763,247 0.66 % Finance ​ 569,039 ​ ​ 5,736,868 0.66 % Hotel, Gaming, & Leisure ​ — ​ ​ 890,968 0.10 % Energy: Oil & Gas ​ 1,189,888 ​ ​ 852,078 0.10 % Total Investments ​ $ 902,143,550 ​ $ 874,460,683 100.00 % ​ At December 31, 2024, our average portfolio company investment at amortized cost and fair value was approximately $9.2 million and $9.2 million, respectively, and our largest portfolio company investment at amortized cost and fair value was approximately $23.2 million and $21.2 million, respectively.
Biggest changeAs of December 31, 2025, we had sufficient liquidity (through cash on hand and available borrowings under the Credit Facility) to fund such unfunded commitments should the need arise. 77 Table of Contents The following is a summary of geographical concentration of our investment portfolio as of December 31, 2025: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % of Total ​ ​ ​ ​ ​ ​ ​ ​ Investments at ​ ​ ​ Cost ​ Fair Value ​ Fair Value California $ 199,175,312 $ 192,583,333 19.12 % Texas ​ 149,955,251 ​ 147,396,649 14.63 % Florida ​ 102,086,659 ​ 96,730,609 9.60 % New York ​ 59,320,592 ​ 59,952,294 5.95 % Illinois ​ 69,282,731 ​ 55,796,619 5.54 % Pennsylvania ​ 47,721,299 ​ 49,296,019 4.89 % Colorado ​ 41,413,399 ​ 39,386,741 3.91 % Arizona ​ 34,208,744 ​ 37,526,211 3.72 % Ohio ​ 35,249,934 ​ 36,769,186 3.65 % Canada ​ 36,116,171 ​ 36,140,789 3.59 % North Carolina ​ 31,163,913 ​ 32,456,489 3.22 % Massachusetts ​ 24,283,990 ​ 25,043,277 2.49 % Iowa ​ 22,351,338 ​ 22,467,248 2.23 % New Jersey ​ 19,768,069 ​ 19,924,612 1.98 % Tennessee ​ 20,495,678 ​ 18,827,946 1.87 % Virginia ​ 17,506,416 ​ 17,764,137 1.76 % Georgia ​ 5,876,197 ​ 17,168,351 1.70 % District of Columbia ​ 10,685,508 ​ 14,469,710 1.44 % Michigan ​ 12,060,200 ​ 12,255,578 1.22 % Minnesota ​ 11,769,582 ​ 11,916,373 1.18 % Missouri ​ 10,898,062 ​ 11,109,063 1.10 % Idaho ​ 9,479,007 ​ 9,517,417 0.94 % Louisiana ​ 9,153,384 ​ 9,297,784 0.92 % Oregon ​ 8,860,277 ​ 9,202,699 0.91 % Maryland ​ 7,530,655 ​ 7,549,733 0.75 % Wisconsin ​ 21,458,139 ​ 7,360,720 0.73 % South Carolina ​ 4,847,580 ​ 4,966,273 0.49 % Washington ​ 1,273,384 ​ 2,605,719 0.26 % United Kingdom ​ 2,148,215 ​ 2,141,816 0.21 % Total Investments ​ $ 1,026,139,686 ​ $ 1,007,623,395 100.00 % ​ 78 Table of Contents The following is a summary of geographical concentration of our investment portfolio as of December 31, 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % of Total ​ ​ ​ ​ ​ ​ ​ ​ Investments ​ ​ Cost ​ Fair Value ​ at Fair Value Texas $ 159,028,754 $ 154,041,942 16.15 % California ​ 160,285,777 ​ 152,583,692 16.00 % Florida ​ 108,434,730 ​ 104,718,969 10.98 % Illinois ​ 66,486,029 ​ 56,591,435 5.94 % Pennsylvania ​ 53,271,774 ​ 54,438,594 5.71 % Arizona ​ 43,552,887 ​ 46,839,063 4.91 % New York ​ 36,116,358 ​ 36,306,098 3.81 % Ohio ​ 33,645,676 ​ 35,847,804 3.76 % Canada ​ 32,107,256 ​ 32,375,749 3.40 % Colorado ​ 31,283,806 ​ 28,218,186 2.96 % Wisconsin ​ 27,935,159 ​ 23,352,084 2.45 % District of Columbia ​ 22,711,852 ​ 26,654,283 2.80 % Georgia ​ 12,391,680 ​ 23,345,077 2.45 % North Carolina ​ 20,946,327 ​ 22,314,018 2.34 % Tennessee ​ 20,490,429 ​ 20,703,772 2.17 % Massachusetts ​ 19,965,590 ​ 20,559,398 ​ 2.16 % Missouri ​ 18,590,476 ​ 18,712,569 ​ 1.96 % Iowa ​ 13,486,486 ​ 13,486,486 1.41 % Idaho ​ 11,763,648 ​ 11,830,192 1.24 % New Jersey ​ 11,181,815 ​ 11,754,323 1.23 % Michigan ​ 11,389,446 ​ 11,510,608 1.21 % Louisiana ​ 9,216,389 ​ 9,371,830 0.98 % Virginia ​ 9,293,896 ​ 9,373,367 0.98 % Washington ​ 8,193,234 ​ 8,216,962 0.86 % Maryland ​ 7,529,294 ​ 7,526,300 0.79 % Minnesota ​ 6,448,091 ​ 6,452,144 0.68 % South Carolina ​ 4,836,178 ​ 4,984,667 0.52 % Indiana ​ 743,770 ​ 920,343 0.10 % United Kingdom ​ 461,899 ​ 467,733 0.05 % Total Investments ​ $ 961,788,706 ​ $ 953,497,688 100.00 % ​ 79 Table of Contents The following is a summary of industry concentration of our investment portfolio as of December 31, 2025: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % of Total ​ ​ ​ ​ ​ ​ ​ ​ Investments at ​ ​ ​ Cost ​ Fair Value ​ Fair Value Services: Business ​ $ 265,116,204 ​ $ 266,803,107 26.48 % High Tech Industries ​ 103,212,518 ​ ​ 106,937,496 10.61 % Healthcare & Pharmaceuticals ​ 92,736,458 ​ ​ 92,182,392 9.15 % Media: Advertising, Printing & Publishing ​ 78,965,841 ​ ​ 79,030,004 7.84 % Capital Equipment ​ 61,644,736 ​ ​ 65,191,527 6.47 % Beverage & Food ​ 54,323,129 ​ ​ 58,129,551 5.77 % Consumer Goods: Non-Durable ​ 61,701,885 ​ ​ 53,502,252 5.31 % Services: Consumer ​ 42,793,668 ​ ​ 40,569,003 4.03 % Construction & Building ​ 36,950,838 ​ ​ 37,219,214 3.69 % Consumer Goods: Durable ​ 35,569,885 ​ ​ 31,655,077 3.14 % Aerospace & Defense ​ 28,192,548 ​ ​ 25,968,951 2.58 % Environmental Industries ​ 20,190,193 ​ ​ 22,323,773 2.22 % Chemicals, Plastics, & Rubber ​ 20,054,202 ​ ​ 19,792,281 1.96 % Transportation & Logistics ​ 16,593,938 ​ ​ 16,791,026 1.67 % Media: Broadcasting & Subscription ​ 12,057,869 ​ ​ 15,196,592 1.51 % Retail ​ 14,715,878 ​ ​ 14,756,518 1.46 % Energy: Oil & Gas ​ 11,802,297 ​ ​ 11,077,160 1.10 % Hotel, Gaming, & Leisure ​ 9,181,622 ​ ​ 9,331,063 0.93 % Wholesale ​ 8,900,149 ​ ​ 8,921,351 0.89 % FIRE: Real Estate ​ 18,419,200 ​ ​ 8,379,604 0.83 % Media: Diversified & Production ​ 7,495,599 ​ ​ 7,566,694 0.75 % Containers, Packaging, & Glass ​ 20,714,369 ​ ​ 6,360,684 0.63 % Finance ​ - ​ ​ 6,187,401 0.61 % Education ​ 4,806,660 ​ ​ 3,750,674 0.37 % Total Investments ​ $ 1,026,139,686 ​ $ 1,007,623,395 100.00 % ​ 80 Table of Contents The following is a summary of industry concentration of our investment portfolio as of December 31, 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % of Total ​ ​ ​ ​ ​ ​ ​ ​ Investments ​ ​ Cost ​ Fair Value ​ at Fair Value Services: Business ​ $ 219,665,133 ​ $ 234,908,112 24.64 % High Tech Industries ​ 91,135,577 ​ ​ 93,468,792 9.81 % Healthcare & Pharmaceuticals ​ 85,300,317 ​ ​ 85,478,418 8.97 % Media: Advertising, Printing & Publishing ​ 71,318,416 ​ ​ 72,291,584 7.58 % Beverage & Food ​ 64,052,951 ​ ​ 68,902,142 7.23 % Consumer Goods: Non-Durable ​ 67,123,135 ​ ​ 54,473,282 5.71 % Services: Consumer ​ 49,388,222 ​ ​ 46,066,301 4.83 % Capital Equipment ​ 41,322,214 ​ ​ 43,647,466 4.58 % Consumer Goods: Durable ​ 43,393,413 ​ ​ 42,094,390 4.41 % Chemicals, Plastics, & Rubber ​ 36,693,101 ​ ​ 36,907,602 3.87 % Construction & Building ​ 32,374,992 ​ ​ 32,979,859 3.46 % Aerospace & Defense ​ 26,014,106 ​ ​ 21,624,091 2.27 % Environmental Industries ​ 18,903,681 ​ ​ 18,282,056 1.92 % Transportation & Logistics ​ 17,244,131 ​ ​ 17,532,488 1.84 % Retail ​ 14,799,085 ​ ​ 14,723,620 1.54 % Media: Broadcasting & Subscription ​ 12,170,577 ​ ​ 14,314,711 1.50 % Containers, Packaging, & Glass ​ 18,007,571 ​ ​ 12,911,794 1.35 % Energy: Oil & Gas ​ 11,353,959 ​ ​ 10,728,031 1.13 % Hotel, Gaming, & Leisure ​ 7,113,661 ​ ​ 8,142,050 0.85 % FIRE: Real Estate ​ 17,934,808 ​ ​ 7,652,436 0.80 % Media: Diversified & Production ​ 5,822,637 ​ ​ 5,934,853 0.62 % Education ​ 10,537,738 ​ ​ 5,341,151 0.56 % Finance ​ 119,281 ​ ​ 5,092,459 0.53 % Total Investments ​ $ 961,788,706 ​ $ 953,497,688 100.00 % ​ At December 31, 2025, our average portfolio company investment at amortized cost and fair value was approximately $8.9 million and $8.7 million, respectively, and our largest portfolio company investment at amortized cost and fair value was approximately $26.1 million and $19.2 million, respectively.
Unitranche structures may combine characteristics of first lien senior secured as well as second lien and/or subordinated loans. Our unitranche loans will expose us to the risks associated with second lien and subordinated loans to the extent we invest in the “last-out” tranche.
Unitranche structures may combine characteristics of first lien senior secured loans, as well as second lien and/or subordinated loans. Our unitranche loans will expose us to the risks associated with second lien and subordinated loans to the extent we invest in the “last-out” tranche.
The decrease in interest income from the year ended December 31, 2023 to the year ended December 31, 2024 was due primarily to falling interest rates and increased loans on non-accrual, offset by growth in the overall investment portfolio.
The decrease in investment income from the year ended December 31, 2023 to the year ended December 31, 2024 was due primarily to falling interest rates and increased loans on non-accrual, offset by growth in the overall investment portfolio.
Net Realized Gains and Losses We measure realized gains or losses by the difference between the net proceeds from the repayment, sale or other disposition and the amortized cost basis of the investment, using the specific identification method, without regard to unrealized appreciation or depreciation previously recognized.
Net Realized Gains (Losses) We measure net realized gains or losses by the difference between the net proceeds from the repayment, sale or other disposition and the amortized cost basis of the investment, using the specific identification method, without regard to unrealized appreciation or depreciation previously recognized.
The net increase in net assets resulting from operations for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was primarily due to a decrease in realized losses and increase on unrealized appreciation.
The increase in the net increase in net assets resulting from operations for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was primarily due to a decrease in realized losses and increase on unrealized appreciation.
Liquidity and Capital Resources Our liquidity and capital resources are derived from the Credit Facility, Notes Payable, SBA-guaranteed debentures and cash flows from operations, including investment sales and repayments, the ATM Program, and income earned.
Liquidity and Capital Resources Our liquidity and capital resources are derived from the Credit Facility, Notes Payable, the ATM Program, SBA-guaranteed debentures and cash flows from operations, including investment sales and repayments and income earned.
Although we expect to fund the growth of our investment portfolio through the net proceeds from future public and private equity offerings and issuances of senior securities or future borrowings to the extent permitted by the 1940 Act, our plans to raise capital may not be successful.
Although we expect to fund the growth of our investment portfolio through net proceeds from future public and private equity offerings and issuances of senior securities or future borrowings to the extent permitted by the 1940 Act, our plans to raise capital may not be successful.
To qualify for RIC tax treatment, we generally must, among other things, distribute, with respect to each taxable year, at least 90% of our investment company net taxable income (i.e., our net ordinary income and our realized net short-term capital gains in excess of realized net long-term capital losses, if any).
To qualify for RIC tax treatment, we generally must, among other things, distribute to our stockholders, with respect to each taxable year, at least 90% of our investment company net taxable income (i.e., our net ordinary income and our realized net short-term capital gains in excess of realized net long-term capital losses, if any).
Our debt investments typically have a term of five to seven years and bear interest at primarily floating rates. Interest on our debt securities is generally payable quarterly. Payments of principal on our debt investments may be amortized over the stated term of the investment, deferred for several years or due entirely at maturity.
Our debt investments typically have a term of five to seven years and bear interest at primarily floating rates. Interest on our debt investments is generally payable quarterly. Payments of principal on our debt investments may be amortized over the stated term of the investment, deferred for several years or due entirely at maturity.
The Taxable Subsidiaries permit us to hold equity investments in portfolio companies which are “pass through” entities for U.S. federal income tax purposes and continue to comply with the “source income” requirements contained in RIC tax provisions of the Code.
The Taxable Subsidiaries permit us to indirectly hold equity investments in portfolio companies which are “pass-through” entities for U.S. federal income tax purposes and continue to comply with the “source income” requirements contained in RIC tax provisions of the Code.
All new loans are initially rated 2. ● Investment Category 3 is used for investments that are performing below expectations and that require closer monitoring, but where no loss of return or principal is expected.
All new loans are initially rated 2. ● Investment Category 3 is used for investments that are performing below expectations and that require closer monitoring, but no loss of return or principal is expected.
We bear all other out-of-pocket costs and expenses of our operations and transactions, which may include: ● organization and offering costs; ● valuing our assets and calculating our net asset value (including the cost and expenses of any independent valuation firm); ● fees and expenses payable to third parties, including agents, consultants or other advisors, in monitoring financial and legal affairs for us and in monitoring our investments and performing due diligence on our prospective portfolio companies or otherwise relating to, or associated with, evaluating and making investments; ● interest payable on debt, if any, incurred to finance our investments and expenses related to unsuccessful portfolio acquisition efforts; ● base management and incentive fees; ● offerings of our common stock and other securities; ● a dministration fees and expenses, if any, payable under the Administration Agreement (including our allocable portion of Stellus Capital Management’s overhead in performing its obligations under the Administration Agreement, including rent and the allocable portion of the cost of our Chief Compliance Officer and Chief Financial Officer and his respective staffs); ● transfer agent, dividend agent and custodial fees and expenses; ● U.S. federal and state registration fees; ● all costs of registration and listing our securities on any securities exchange; 82 Table of Contents ● U.S. federal, state and local taxes; ● independent directors’ fees and expenses; ● costs of preparing and filing reports or other documents required by the SEC or other regulators; ● costs of any reports, proxy statements or other notices to stockholders, including printing costs; ● costs and fees associated with any fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; ● direct costs and expenses of administration and operation, including printing, mailing, long distance telephone, copying, secretarial and other staff, independent auditors and outside legal costs; ● proxy voting expenses; and ● all other expenses incurred by us or Stellus Capital Management in connection with administering our business.
We bear all other out-of-pocket costs and expenses of our operations and transactions, which may include: ● organization and offering costs; ● valuing our assets and calculating our net asset value (including the cost and expenses of any independent valuation firm); ● fees and expenses payable to third parties, including agents, consultants or other advisors, in monitoring financial and legal affairs for us and in monitoring our investments and performing due diligence on our prospective portfolio companies or otherwise relating to, or associated with, evaluating and making investments; ● interest payable on debt, if any, incurred to finance our investments and expenses related to unsuccessful portfolio acquisition efforts; ● base management and incentive fees; ● offerings of our common stock and other securities; ● a dministration fees and expenses, if any, payable under the Administration Agreement (including our allocable portion of Stellus Capital Management’s overhead in performing its obligations under the Administration Agreement, including rent and the allocable portion of the cost of our Chief Compliance Officer and Chief Financial Officer and his respective staffs); ● transfer agent, dividend agent and custodial fees and expenses; ● U.S. federal and state registration fees; ● all costs of registration and listing our securities on any securities exchange; 84 Table of Contents ● U.S. federal, state and local taxes; ● independent directors’ fees and expenses; ● costs of preparing and filing reports or other documents required by the SEC or other regulators; ● costs of any reports, proxy statements or other notices to stockholders, including printing costs; ● costs and fees associated with any fidelity bond, directors’ and officers’/errors and omissions liability insurance, and any other insurance premiums; ● direct costs and expenses of administration and operation, including printing, mailing, long distance telephone, copying, secretarial and other staff, independent auditors and outside legal costs; ● proxy voting expenses; and ● all other expenses incurred by us or Stellus Capital Management in connection with administering our business.
Net Change in Unrealized Appreciation (Depreciation) of Investments Net change in unrealized appreciation (depreciation) primarily reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded appreciation or depreciation when gains or losses are realized.
Net Change in Unrealized Appreciation (Depreciation) Net change in unrealized appreciation (depreciation) primarily reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded appreciation or depreciation when gains or losses are realized.
You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. 73 Table of Contents Overview We were organized as a Maryland corporation on May 18, 2012 and formally commenced operations on November 7, 2012.
You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. 75 Table of Contents Overview We were organized as a Maryland corporation on May 18, 2012 and formally commenced operations on November 7, 2012.
The fair value of the SBA-guaranteed debentures is estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. At December 31, 2024 and 2023, the SBA-guaranteed debentures would be deemed to be Level 3, as defined in Note 6 to our Consolidated Financial Statements.
The fair value of the SBA-guaranteed debentures is estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. At December 31, 2025 and 2024, the SBA-guaranteed debentures would be deemed to be Level 3, as defined in Note 6 to our Consolidated Financial Statements.
Benefit (Provision) for Taxes on Unrealized Depreciation(Appreciation) on Investments We have direct wholly owned subsidiaries that have elected to be treated as corporations for U.S. federal income tax purposes (the "Taxable Subsidiaries") , and as a result, the income of the Taxable Subsidiaries is subject to U.S. federal income tax imposed at corporate rates .
Benefit (Provision) for Taxes on Unrealized Depreciation(Appreciation) on Investments We have direct wholly owned subsidiaries that have elected to be treated as corporations for U.S. federal income tax purposes (the ”Taxable Subsidiaries”) , and, as a result, the income of the Taxable Subsidiaries is subject to U.S. federal income tax imposed at corporate rates .
For the years ended December 31, 2024 and 2023, we recognized tax benefit related to losses realized on certain equity investments held at our Taxable Subsidiaries of less than $0.1 million and $3.0 million, respectively. There was no such tax expense for the year ended December 31, 2022.
For the years ended December 31, 2024 and 2023, we recognized tax benefit related to losses realized on certain equity investments held at our Taxable Subsidiaries of less than $0.1 million and $3.0 million, respectively. There was no such tax expense for the year ended December 31, 2025.
One or more of these factors may contribute to increased market volatility and may have long- and short-term effects in the United States and worldwide financial markets. ​ 74 Table of Contents Portfolio Composition and Investment Activity Portfolio Composition We originate and invest primarily in privately held lower middle-market companies (typically those with $5.0 million to $50.0 million of EBITDA) through first lien (including unitranche), second lien, and unsecured debt financing, often with a corresponding equity investment.
One or more of these factors may contribute to increased market volatility and may have long- and short-term effects in the United States and worldwide financial markets. ​ Portfolio Composition and Investment Activity Portfolio Composition We originate and invest primarily in privately held lower middle-market companies (typically those with $5.0 million to $50.0 million of EBITDA) through first lien (including unitranche), second lien, and unsecured debt financing, often with a corresponding equity investment.
Additionally, $0.3 million of costs from a prior credit facility will continue to be amortized over the remaining life of the Credit Facility. As of December 31, 2024 and 2023, $3.1 million and $3.5 million of such prepaid loan structure fees and administration fees had yet to be amortized, respectively.
Additionally, $0.3 million of costs from a prior credit facility will continue to be amortized over the remaining life of the Credit Facility. As of December 31, 2025 and 2024, $3.5 million and $3.1 million of such prepaid loan structure fees and administration fees had yet to be amortized, respectively.
Under the 2023 Equity Distribution Agreement, we may issue and sell, from time to time, up to $100,000,000 in aggregate offering price of shares of our common stock, par value $0.001 per share, with the intention to use the net proceeds from this at-the-market sales program to repay certain outstanding indebtedness and make investments in portfolio companies in accordance with its investment objective and strategies.
Under the 2023 Equity Distribution Agreement, we may issue and sell, from time to time, up to $100.0 million in aggregate offering price of shares of our common stock, par value $0.001 per share, with the intention to use the net proceeds from this at-the-market sales program to repay certain outstanding indebtedness and make investments in portfolio companies in accordance with our investment objective and strategies.
A proposal approved by our stockholders at our 2024 annual stockholders meeting authorizes us to sell up to 25% of our outstanding common stock at a price equal to or below the then-current net asset value per share in one or more offerings.
A proposal approved by our stockholders at our 2025 annual stockholders meeting authorizes us to sell up to 25% of our outstanding common stock at a price equal to or below the then-current net asset value per share in one or more offerings.
The following table summarizes the interest expense and amortized loan fees on the Credit Facility for the years ended December 31, 2024, 2023, and 2022 (dollars in millions): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ ​ December 31, 2024 ​ December 31, 2023 ​ December 31, 2022 ​ Interest expense ​ $ 13.6 ​ $ 14.7 ​ $ 9.2 ​ Loan fee amortization ​ ​ 1.1 ​ 0.7 ​ 0.6 Total interest and financing expenses ​ $ 14.7 ​ $ 15.4 ​ $ 9.8 ​ Weighted average interest rate ​ 8.3 % 7.9 % 4.4 % Effective interest rate (including fee amortization) ​ 8.9 % 8.3 % 4.8 % Average debt outstanding ​ $ 164.3 ​ $ 186.1 ​ $ 204.3 ​ Cash paid for interest and unused fees ​ $ 13.5 ​ $ 14.5 ​ $ 9.0 ​ ​ SBA-guaranteed debentures Due to the SBIC subsidiaries’ status as licensed SBICs, we can issue debentures guaranteed by the SBA at favorable interest rates.
The following table summarizes the interest expense and amortized loan fees on the Credit Facility for the years ended December 31, 2025, 2024, and 2023 (dollars in millions): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ ​ December 31, 2025 ​ December 31, 2024 ​ December 31, 2023 ​ Interest expense ​ $ 13.0 ​ $ 13.6 ​ $ 14.7 ​ Loan fee amortization ​ 1.2 ​ 1.1 ​ 0.7 Total interest and financing expenses ​ $ 14.2 ​ $ 14.7 ​ $ 15.4 ​ Weighted average interest rate ​ 7.2 % 8.3 % 7.9 % Effective interest rate (including fee amortization) ​ 7.9 % 8.9 % 8.3 % Average debt outstanding ​ $ 180.2 ​ $ 164.3 ​ $ 186.1 ​ Cash paid for interest and unused fees ​ $ 12.9 ​ $ 13.5 ​ $ 14.5 ​ ​ SBA-Guaranteed Debentures Due to the SBIC subsidiaries’ status as licensed SBICs, we can issue debentures guaranteed by the SBA at favorable interest rates.
We have elected to be treated, qualify, and intend to continue to qualify annually for tax purposes as a RIC under Subchapter M of the Code . To maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. As of December 31, 2024, we were in compliance with the RIC requirements.
We have elected, qualified, and intend to continue to qualify annually to be treated for tax purposes as a RIC under subchapter M of the Code . To maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. As of December 31, 2025, we were in compliance with the RIC requirements.
Net unrealized appreciation (depreciation) on investments is the net change in the fair value of our investment portfolio. Comparison of the Years Ended December 31, 2024, 2023, and 2022 Revenues We generate revenue in the form of interest income on debt investments and capital gains and distributions, if any, on investment securities that we may acquire in portfolio companies.
Net unrealized appreciation (depreciation) on investments is the net change in the fair value of our investment portfolio. Comparison of the Years Ended December 31, 2025, 2024, and 2023 Revenues We generate revenue in the form of interest income on debt investments and capital gains and distributions, if any, on equity securities that we may acquire in portfolio companies.
Treasury Notes plus a market spread and have a maturity of ten years with interest payable semi-annually. The principal amount 87 Table of Contents of the SBA-guaranteed debentures is not required to be paid before maturity, but may be pre-paid at any time with no prepayment penalty.
Treasury Notes plus a market spread and have a maturity of ten years with interest payable semi-annually. The principal amount of the SBA-guaranteed debentures is not required to be paid before maturity, but may be pre-paid at any time with no prepayment penalty.
As of December 31, 2024, our only off-balance sheet arrangements consisted 89 Table of Contents of $41.0 million of unfunded commitments to provide debt financing to 70 existing portfolio companies and $0.3 million in unfunded equity commitments to one existing portfolio company.
As of December 31, 2024, our only off-balance sheet arrangements consisted of $41.0 million of unfunded commitments to provide debt financing to 70 existing portfolio companies and $0.3 million in unfunded equity commitments to one existing portfolio company.
This authorization will expire on the earlier of June 20, 2025, the one-year anniversary of our 2024 annual stockholders meeting, or the date of our 2025 annual stockholders meeting. We would need similar future approval from our stockholders to issue shares below the then current net asset value per share any time after the expiration of the current approval.
This authorization will expire on the earlier of June 17, 2026, the one-year anniversary of our 2025 annual stockholders meeting, or the date of our 2026 annual stockholders meeting. We would need similar future approval from our stockholders to issue shares below the then-current net asset value per share any time after the expiration of the current approval.
We have incurred $11.1 million in financing costs related to the SBA-guaranteed debentures since the SBIC subsidiaries received their licenses, which were recorded as prepaid loan fees. As of December 31, 2024 and 2023, $3.7 million and $4.7 million of prepaid financing costs had yet to be amortized, respectively.
We have incurred $11.1 million in financing costs related to the SBA-guaranteed debentures since the SBIC subsidiaries received their licenses, which were recorded as prepaid loan fees. As of December 31, 2025 and 2024, $3.0 million and $3.7 million of prepaid financing costs had yet to be amortized, respectively.
As of December 31, 2024 and 2023, our investment portfolio at fair value represented approximately 97.2% and 96.3% of our total assets, respectively. We are required to report our investments for which market quotations are not readily available at fair value. We follow the provisions of ASC 820.
As of December 31, 2025 and 2024, our investment portfolio at fair value represented approximately 96.8% and 97.2% of our total assets, respectively. We are required to report our investments for which market quotations are not readily available at fair value. We follow the provisions of ASC 820.
Our level of investment activity can vary substantially from period to period depending on many factors, including the amount of debt and equity capital to lower middle-market companies, the level of merger and acquisition activity, the general economic environment and the competitive environment for the types of investments we make.
Our level of investment activity can vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to lower middle-market companies, the level of merger and acquisition activity in that sector, the general economic environment and the competitive environment for the types of investments we make.
We used, and expect to continue to use, 85 Table of Contents these capital resources as well as proceeds from turnover within our portfolio and from public and private offerings of securities to finance our investment activities.
We used, and expect to continue to use, these capital resources, as well as proceeds from turnover within our portfolio and from public and private offerings of securities, to finance our investment activities.
The fair value of the Credit Facility is estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. We have incurred costs of $7.3 million in connection with the current Credit Facility, which were capitalized and are being amortized over the life of the facility.
The fair value of the Credit Facility is estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. We have incurred costs of $8.9 million in connection with the Credit Facility, which were capitalized and are being amortized over the life of the facility.
The weighted average yield on all of our debt investments as of December 31, 2024 and December 31, 2023 was approximately 10.3% and 11.9%, respectively, including debt investments on non-accrual status.
The weighted average yield on all of our debt investments as of December 31, 2025 and December 31, 2024 was approximately 9.3% and 10.3%, respectively, including debt investments on non-accrual status.
As of December 31, 2024, we had sufficient liquidity (through cash on hand and available borrowings under the Credit Facility ) to fund such unfunded commitments should the need arise. RIC Status and Dividends We have elected to be treated and intend to qualify annually as a RIC under Subchapter M of the Code.
As of December 31, 2025, we had sufficient liquidity (through cash on hand and available borrowings under the Credit Facility ) to fund such unfunded commitments should the need arise. 92 Table of Contents RIC Status and Dividends We have elected to be treated and intend to qualify annually as a RIC under subchapter M of the Code.
Ultimately, we only intend to use leverage if the expected returns from borrowing to make investments will exceed the cost of such borrowing. As of December 31, 2024 and December 31, 2023, we had cash and cash equivalents of $20.1 million and $26.1 million, respectively.
Ultimately, we only intend to use leverage if the expected returns from borrowing to make investments will exceed the cost of such borrowing. As of December 31, 2025 and December 31, 2024, we had cash and cash equivalents of $25.1 million and $20.1 million, respectively.
Proceeds from repayments of investments and amortization of certain other investments for the year ended December 31, 2023 totaled $141.3 million resulting in net realized losses on investments totaling ($30.2) million and net realized losses on foreign currency translations of ($0.1) million, primarily from losses from the realization of our debt investments in certain portfolio companies, partially offset from gains from the realization of our equity investments.
Proceeds from repayments of investments and amortization of certain other investments for the year ended December 31, 2023 totaled $141.3 million resulting in net realized losses on investments totaling ($30.2) million, primarily from losses from the realization of our debt investments in certain portfolio companies, partially offset from gains from the realization of our equity investments.
If we maintain our qualification as a RIC, we must also satisfy certain distribution requirements each calendar year to avoid a U.S. federal excise tax on our undistributed earnings of a RIC. As of December 31, 2024, we had $45.4 million of undistributed taxable income that will be carried forward toward distributions paid during the year ending December 31, 2025.
If we maintain our qualification as a RIC, we must also satisfy certain distribution requirements each calendar year to avoid a U.S. federal excise tax on our undistributed earnings of a RIC. As of December 31, 2025, we had $37.0 million of undistributed taxable income that will be carried forward toward distributions paid during the year ending December 31, 2026.
Under the 2021 Equity Distribution Agreement, as amended, we could issue and sell, from time to time, up to $50,000,000 in aggregate offering price of shares of our common stock, par value $0.001 per share, with the intention to use the net proceeds from this at-the-market sales program to repay certain outstanding indebtedness and make investments in portfolio companies in accordance with our investment objective and strategies.
Under the 2021 Equity Distribution Agreement, we were permitted to issue and sell, from time to time, up to $50.0 million in aggregate offering price of shares of our common stock, par value $0.001 per share, with the intention to use the net proceeds from this at-the-market sales program to repay certain outstanding indebtedness and make investments in portfolio companies in accordance with our investment objective and strategies.
Unitranche structures may combine characteristics of first lien senior secured as well as second lien and/or subordinated loans. Our unitranche loans will expose us to the risks associated with second lien and subordinated loans to the extent we invest in the “last-out” tranche. As of December 31, 2023, we had $874.5 million (at fair value) invested in 93 companies.
Unitranche structures may combine characteristics of first lien senior secured loans, as well as second lien and/or subordinated loans. Our unitranche loans will expose us to the risks associated with second lien and subordinated loans to the extent we invest in the “last-out” tranche. As of December 31, 2024, we had $953.5 million (at fair value) invested in 105 companies.
In addition, we may generate revenue in the form of prepayment fees, commitment, loan origination, structuring or due diligence fees, fees for providing significant managerial assistance and consulting fees. 81 Table of Contents The following shows the breakdown of investment income for the years ended December 31, 2024, 2023, and 2022 (in millions). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ December 31, 2024 ​ December 31, 2023 ​ December 31, 2022 Interest income (1) ​ $ 95.4 ​ $ 96.9 ​ $ 70.8 PIK interest ​ ​ 3.3 ​ ​ 3.8 ​ ​ 1.4 Miscellaneous fees (1) ​ ​ 6.0 ​ 5.1 ​ 2.9 Total ​ $ 104.7 ​ $ 105.8 ​ $ 75.1 (1) For the years ended December 31, 2024, 2023, and 2022, we recognized $2.5 million, $2.7 million and $1.2 million of non-recurring income, respectively.
In addition, we may generate revenue in the form of prepayment fees, commitment, loan origination, structuring or due diligence fees, fees for providing significant managerial assistance and consulting fees. 83 Table of Contents The following shows the breakdown of our investment income for the years ended December 31, 2025, 2024, and 2023 (in millions). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ ​ ​ December 31, 2025 ​ December 31, 2024 ​ December 31, 2023 Interest income (1) ​ $ 91.5 ​ $ 95.4 ​ $ 96.9 PIK interest ​ ​ 5.7 ​ ​ 3.3 ​ ​ 3.8 Miscellaneous fees (1) ​ 4.9 ​ 6.0 ​ 5.1 Total ​ $ 102.1 ​ $ 104.7 ​ $ 105.8 (1) For the years ended December 31, 2025, 2024, and 2023, we recognized $2.5 million, $2.5 million and $2.7 million of non-recurring income, respectively.
The average per share offering price of shares issued in the ATM Program during the fiscal years ended December 31, 2024 and 2023 was $13.86 and $14.10, respectively.
The average per share offering price of shares issued in the ATM Program during the fiscal years ended December 31, 2025 and 2024 was $14.04 and $13.86, respectively.
SBA-guaranteed debentures are also subject to certain fees payable by the SBIC subsidiaries calculated at the time such debentures are drawn. As of both December 31, 2024 and 2023, the SBIC subsidiaries had $325.0 million of the SBA-guaranteed debentures outstanding.
SBA-guaranteed debentures are also subject to certain fees payable by the SBIC subsidiaries calculated at the time such debentures are drawn. As of December 31, 2025 and 2024, the SBIC subsidiaries had $299.0 million and $325.0 million of the SBA-guaranteed debentures outstanding, respectively.
As of December 31, 2023, we had $37.0 million of undistributed taxable income that was carried forward toward distributions paid during the year ending December 31, 2024. We intend to distribute to our stockholders between 90% and 100% of our annual taxable income (which includes our taxable interest and fee income).
As of December 31, 2024, we had $45.4 million of undistributed taxable income that was carried forward toward distributions paid during the year ending December 31, 2025. We intend to distribute to our stockholders between 90% and 100% of our annual taxable income (which includes our taxable interest and fee income).
Financial Condition, Liquidity and Capital Resources Cash Flows from Operating and Financing Activities Our operating activities used net cash of $28.6 million for the year ended December 31, 2024, primarily in connection with the purchase of portfolio investments, offset by sales and repayments of portfolio investments.
Financial Condition, Liquidity and Capital Resources Cash Flows from Operating and Financing Activities Our operating activities used net cash of $24.4 million for the year ended December 31, 2025, primarily in connection with the purchase of portfolio investments, offset by sales and repayments of portfolio investments.
Consequently, we may not have the funds or the ability to fund new investments, to make additional investments in our portfolio companies, to fund our unfunded commitments to portfolio companies or to repay borrowings.
Consequently, we may not have the funds available to allow us to fund new investments, make additional investments in our portfolio companies, fund our unfunded commitments to portfolio companies or repay borrowings.
Credit Facility On October 11, 2017, we entered into a senior secured revolving credit agreement, as amended, dated as of October 10, 2017, that was amended and restated on December 21, 2021, February 28, 2022, May 13, 2022, November 21, 2023, and October 30, 2024, with Zions Bancorporation, N.A., dba Amegy Bank and various other lenders.
Credit Facility We have entered into a senior secured revolving credit agreement, dated as of October 10, 2017, with Zions Bancorporation, N.A., dba Amegy Bank and various other lenders thereto (as amended and restated on September 18, 2020 and amended on December 21, 2021, February 28, 2022, May 13, 2022, November 21, 2023, October 30, 2024 and September 11, 2025.
As of December 31, 2023, we had loans to four portfolio companies that were on non-accrual status, which represented approximately 4.2% of our loan portfolio at cost and 1.3% at fair value. As of December 31, 2024 and December 31, 2023, $6.5 million and $7.5 million of income from investments on non-accrual had not been accrued, respectively.
As of December 31, 2024, we had loans to seven portfolio companies that were on non-accrual status, which represented approximately 8.3% of our loan portfolio at cost and 5.4% at fair value. As of December 31, 2025 and December 31, 2024, $11.2 million and $6.5 million of income from investments on non-accrual had not been accrued, respectively.
Any amounts borrowed under the Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable, 86 Table of Contents on November 21, 2028. Our obligations to the lenders are secured by a first priority security interest in our portfolio of securities and cash not held at the SBIC subsidiaries, but excluding short term investments.
Any amounts borrowed under the Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on September 11, 2030. Our obligations to the lenders are secured by a first priority security interest in our portfolio of securities and cash not held at the SBIC subsidiaries, but excluding short-term investments.
As of December 31, 2024, we were in compliance with these covenants. As of December 31, 2024 and December 31, 2023, the outstanding balance under the Credit Facility was $175.4 million and $160.1 million, respectively. The carrying amount of the amount outstanding under the Credit Facility approximates its fair value.
As of December 31, 2025, we were in compliance with these covenants. As of December 31, 2025 and December 31, 2024, the outstanding balance under the Credit Facility was $236.6 million and $175.4 million, respectively. The carrying amount of the amount outstanding under the Credit Facility approximates its fair value.
As of December 31, 2023, our portfolio included approximately 89% of first lien debt (including unitranche investments), 2% of second lien debt, 1% of unsecured debt and 8% of equity investments at fair value.
As of December 31, 2024, our portfolio included approximately 90% of first lien debt (including unitranche investments), 1% of second lien debt, 1% of unsecured debt and 8% of equity investments at fair value.
On a stand-alone basis, the SBIC subsidiaries held $510.1 million and $485.2 million in assets at December 31, 2024 and 2023, respectively, which accounted for approximately 52.0% and 53.4% of our total consolidated assets at December 31, 2024 and 2023, respectively. SBA-guaranteed debentures have fixed interest rates that equal the prevailing rate for 10-year U.S.
On a stand-alone basis, the SBIC subsidiaries held $492.7 million and $510.1 million in assets at December 31, 2025 and 2024, respectively, which accounted for approximately 47.3% and 52.0% of our total consolidated assets at December 31, 2025 and 2024, respectively. SBA-guaranteed debentures have fixed interest rates that equal the prevailing rate for 10-year U.S.
Our operating activities used net cash of $17.3 million for the year ended December 31, 2023, primarily in connection with the purchase of portfolio investments, offset by sales and repayments of portfolio investments.
Our operating activities used net cash of $28.6 million for the year ended December 31, 2024, primarily in connection with the purchase of portfolio investments, offset by sales and repayments of portfolio investments.
As of December 31, 2024 and 2023, the carrying amount of the SBA-guaranteed debentures was $321.3 million and $320.3 million, respectively. At the measurement date, the estimated fair value of the SBA-guaranteed debentures as prepared for disclosure purposes was $312.0 million. As of December 31, 2023, the carrying amount of the SBA-guaranteed debentures approximated their fair value.
As of December 31, 2025 and 2024, the carrying amount of the SBA-guaranteed debentures was $296.0 million and $321.3 million, respectively. At the measurement date, the estimated fair value of the SBA-guaranteed debentures as prepared for disclosure purposes was $290.4 million. As of December 31, 2024, the carrying amount of the SBA-guaranteed debentures approximated their fair value.
As of December 31, 2024 and 2023, the carrying amount of the Notes Payable was $99.4 million and $99.0 million, respectively. At the measurement date, the estimated fair value of the Notes Payable as prepared for disclosure purposes was $96.6 million.
As of December 31, 2025 and 2024, the carrying amount of the Notes Payable was $122.7 million and $99.4 million, respectively. At the measurement date, the estimated fair value of the Notes Payable as prepared for disclosure purposes was $126.0 million.
Interest on the Notes Payable is payable semi-annually beginning September 30, 2021. We used the net proceeds from the Notes Payable offering to fully redeem the 5.75% fixed-rate notes due September 15, 2022 and repay a portion of the amount outstanding under the Credit Facility. The Notes Payable are institutional, non-traded notes.
Interest on the 2026 Notes Payable was payable semi-annually beginning September 30, 90 Table of Contents 2021. We used the net proceeds from the 2026 Notes Payable offering to fully redeem the 5.75% fixed-rate notes due September 15, 2022 and repay a portion of the amount outstanding under the Credit Facility.
Net increase in net assets resulting from operations totaled $17.5 million, or $0.80 per common share based on weighted-average common shares of 22,004,648 outstanding for the year ended December 31, 2023.
Net increase in net assets resulting from operations totaled $45.8 million, or $1.79 per common share based on 25,596,593 weighted-average common shares outstanding for the year ended December 31, 2024. Net increase in net assets resulting from operations totaled $17.5 million, or $0.80 per common share based on 22,004,648 weighted-average common shares outstanding for the year ended December 31, 2023.
The Notes Payable will mature on March 30, 2026 and may be redeemed in whole or in part at any time or from time to time at our option on or after December 31, 2025 at a redemption price equal to 100% of the outstanding principal, plus accrued and unpaid interest.
The 2026 Notes Payable were redeemable in whole or in part at any time or from time to time at our option on or after December 31, 2025, at a redemption price equal to 100% of the outstanding principal, plus accrued and unpaid interest.
The following shows the breakdown of operating expenses for the years ended December 31, 2024, 2023, and 2022 (in millions). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ ​ December 31, 2024 December 31, 2023 December 31, 2022 Operating Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Management fees $ 15.7 ​ $ 15.5 ​ $ 14.8 ​ Valuation fees ​ 0.4 ​ ​ 0.4 ​ ​ 0.3 ​ Administrative services expenses ​ 1.9 ​ ​ 1.9 ​ ​ 1.8 ​ Income incentive fees ​ 10.0 ​ ​ 10.2 ​ ​ 3.8 ​ Capital gains incentive fee reversal ​ — ​ ​ (0.6) ​ ​ (2.8) ​ Professional fees ​ 1.2 ​ ​ 1.4 ​ ​ 1.1 ​ Directors’ fees ​ 0.4 ​ ​ 0.4 ​ ​ 0.3 ​ Insurance expense ​ 0.5 ​ ​ 0.5 ​ ​ 0.5 ​ Interest expense and other fees ​ 31.5 ​ ​ 32.0 ​ ​ 24.5 ​ Income tax expense ​ 1.8 ​ ​ 1.3 ​ ​ 1.2 ​ Other general and administrative expenses ​ 1.2 ​ ​ 0.9 ​ ​ 1.0 ​ Total Operating Expenses ​ $ 64.6 ​ $ 63.9 ​ $ 46.5 ​ Income incentive fee waiver ​ ​ (1.8) ​ ​ (0.3) ​ ​ — ​ Total Operating Expenses, net of fee waivers ​ $ 62.8 ​ $ 63.6 ​ $ 46.5 ​ ​ The decrease in operating expenses for the year ended December 31, 2024 , as compared to the year ended December 31, 2023 , was due to higher income incentive fee waivers due to the total return limitation, offset in part by higher income tax expense due to increase taxable spillover income.
The following shows the breakdown of operating expenses for the years ended December 31, 2025, 2024, and 2023 (in millions). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ ​ December 31, 2025 December 31, 2024 December 31, 2023 Operating Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Management fees ​ $ 17.2 ​ $ 15.7 ​ $ 15.5 ​ Valuation fees ​ ​ 0.4 ​ ​ 0.4 ​ ​ 0.4 ​ Administrative services expenses ​ 2.1 ​ ​ 1.9 ​ ​ 1.9 ​ Income incentive fees ​ 8.4 ​ ​ 10.0 ​ ​ 10.2 ​ Capital gains incentive fee (reversal) ​ — ​ ​ — ​ ​ (0.6) ​ Professional fees ​ 1.9 ​ ​ 1.2 ​ ​ 1.4 ​ Directors’ fees ​ 0.4 ​ ​ 0.4 ​ ​ 0.4 ​ Insurance expense ​ 0.4 ​ ​ 0.5 ​ ​ 0.5 ​ Interest expense and other fees ​ 34.9 ​ ​ 31.5 ​ ​ 32.0 ​ Income tax expense ​ 1.6 ​ ​ 1.8 ​ ​ 1.3 ​ Other general and administrative expenses ​ 1.3 ​ ​ 1.2 ​ ​ 0.9 ​ Total Operating Expenses ​ $ 68.6 ​ $ 64.6 ​ $ 63.9 ​ Income incentive fee waiver ​ ​ (3.3) ​ ​ (1.8) ​ ​ (0.3) ​ Total Operating Expenses, net of fee waivers ​ $ 65.3 ​ $ 62.8 ​ $ 63.6 ​ ​ The increase in operating expenses for the year ended December 31, 2025 as compared to the year ended December 31, 2024 was due to higher management fee and interest expense due to overall portfolio growth, offset by lower income incentive fees.
At December 31, 2024, 94.5% of our debt investments bore interest based on floating rates (subject to interest rate floors), such as the Secured Overnight Financing Rate (“ SOFR”) , and 5.5% bore interest at fixed rates.
At December 31, 2024, 94.5% of our debt investments bore interest based on floating rates (subject to interest rate floors), such as SOFR, and 5.5% bore interest at fixed rates.
The amount of leverage that we employ at any time depends on our assessment of the market and other factors at the time of any proposed borrowing. Economic Developments Economic activity has continued to accelerate across sectors and regions.
As of December 31, 2025, our asset coverage ratio was 203%. The amount of leverage that we employ at any time depends on our assessment of the market and other factors at the time of any proposed borrowing. Economic Developments Economic activity has continued to accelerate across sectors and regions.
The change in unrealized appreciation in 2023 was primarily due to realizations on investments previously written down. The change in unrealized depreciation in 2022 was primarily due to write downs on specific investments.
The change in unrealized appreciation in 2024 as primarily due to realizations on investments previously written down. The change in unrealized depreciation in 2023 was primarily due to realizations on investments previously written down and net company-specific write-downs.
As of December 31, 2024 and December 31, 2023, our asset coverage ratio was 234% and 223%, respectively.
As of December 31, 2025 and December 31, 2024, our asset coverage ratio was 203% and 234%, respectively.
As of December 31, 2024 and 2023, a tax receivable related to the tax benefit on realized losses of $1.3 million and $1.6 million, respectively, was included on the Consolidated Statements of Assets and Liabilities. As of December 31, 2023, a deferred tax liability of $0.2 million was included in Consolidated Statements of Assets and Liabilities.
As of December 31, 2025 and 2024, a tax receivable related to the tax benefit on realized losses of $1.4 million and $1.3 million, respectively, was included on the Consolidated Statements of Assets and Liabilities. As of December 31, 2025 and 2024, there was no such deferred tax liability included in Consolidated Statements of Assets and Liabilities.
In connection with the issuance and maintenance of the Notes Payable, we have incurred $2.3 million of fees, which are being amortized over the term of the Notes Payable. As of December 31, 2024 and December 31, 2023, $0.6 million and $1.0 million remained to be amortized, respectively.
In connection with the issuance and maintenance of the 2030 Notes Payable, we have incurred $2.7 million of fees, which are being amortized over the term of the 2030 Notes Payable. As of December 31, 2025, $2.3 million remained to be amortized.
As a RIC, we generally will not be subject to U.S. federal income taxes on any income we distribute to our stockholders.
As a RIC, we generally will not have to pay corporate level U.S. federal income taxes on any income we distribute to our stockholders.
During the year ended December 31, 2023, we received an aggregate of $141.3 million in proceeds from repayments of our investments.
During the year ended December 31, 2024, we received an aggregate of $151.8 million in proceeds from repayments of our investments.
At December 31, 2023, our average portfolio company investment at amortized cost and fair value was approximately $9.7 million and $9.4 million, respectively, and our largest portfolio company investment at amortized cost and fair value was approximately $21.7 million and $18.9 million, respectively.
At December 31, 2024, our average portfolio company investment at amortized cost and fair value was approximately $9.2 million and $9.2 million, respectively, and our largest portfolio company investment at amortized cost and fair value was approximately $23.2 million and $21.2 million, respectively.
As of December 31, 2024 and December 31, 2023, we had cash and cash equivalents of $20.1 million and $26.1 million, respectively, the majority of which was held in our SBIC subsidiaries. 79 Table of Contents Investment Activity During the year ended December 31, 2024, we made $221.2 million of investments in 21 new portfolio companies and 29 existing portfolio companies.
As of December 31, 2025 and December 31, 2024, we had cash and cash equivalents of $25.1 million and $20.1 million, respectively, the majority of which was held in our SBIC subsidiaries. 81 Table of Contents Investment Activity During the year ended December 31, 2025, we made $194.1 million of investments in 18 new portfolio companies and 28 existing portfolio companies.
Investments with a rating of 5 are those for which some loss of return and principal is expected. 80 Table of Contents The following is a summary of asset quality ratings of our investment portfolio as of December 31, 2024 and December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2024 ​ As of December 31, 2023 ​ ​ (dollars in millions) ​ (dollars in millions) ​ ​ ​ ​ ​ Number of ​ ​ ​ Number of ​ ​ ​ ​ ​ % of Total ​ Portfolio ​ ​ ​ ​ % of Total ​ Portfolio Investment Category ​ Fair Value ​ Portfolio ​ Companies (1) ​ Fair Value ​ Portfolio ​ Companies (1) 1 ​ $ 227.2 24 % 24 ​ $ 214.1 24 % 22 2 ​ 564.5 59 % 61 ​ 535.3 62 % 54 3 ​ 112.0 12 % 11 ​ 107.2 12 % 11 4 ​ 41.3 4 % 5 ​ 11.1 1 % 1 5 ​ 8.5 1 % 5 ​ 6.8 1 % 6 Total ​ $ 953.5 100 % 106 ​ $ 874.5 100 % 94 (1) One portfolio company appears in two categories as of December 31, 2024 and as of December 31, 2023.
Investments with a rating of 5 are those for which some loss of return and principal is expected. 82 Table of Contents The following is a summary of asset quality ratings of our investment portfolio as of December 31, 2025 and December 31, 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2025 ​ As of December 31, 2024 ​ ​ (dollars in millions) ​ (dollars in millions) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ ​ ​ ​ ​ % of Total ​ Portfolio ​ ​ ​ ​ % of Total ​ Portfolio Investment Category ​ Fair Value ​ Portfolio ​ Companies (1) ​ Fair Value ​ Portfolio ​ Companies (1) 1 ​ $ 227.3 23 % 27 ​ $ 227.2 24 % 24 2 ​ 590.2 59 % 63 ​ 564.5 59 % 61 3 ​ 148.4 14 % 17 ​ 112.0 12 % 11 4 ​ 35.1 3 % 3 ​ 41.3 4 % 5 5 ​ 6.6 1 % 7 ​ 8.5 1 % 5 Total ​ $ 1,007.6 100 % 117 ​ $ 953.5 100 % 106 (1) Two portfolio companies appear in two categories as of December 31, 2025 and one portfolio company appears in two categories as of December 31, 2024.
As of December 31, 2024 and December 31, 2023, we had unfunded commitments of $41.3 million and $37.0 million, respectively, to provide financing to 71 and 57 portfolio companies, respectively.
As of December 31, 2025 and December 31, 2024, we had unfunded commitments of $53.4 million and $41.3 million, respectively, to provide financing to 77 and 71 portfolio companies, respectively.
As of December 31, 2024, we had loans to seven portfolio companies that were on non-accrual status, which represented approximately 8.3% of our loan portfolio at cost and 5.4% at fair value.
As of December 31, 2025, we had loans to five portfolio companies that were on non-accrual status, which represented approximately 7.5% of our total investments at cost and 4.1% at fair value.
Proceeds from repayments of investments and amortization of certain other investments for the year ended December 31, 2024 totaled $151.8 million, net realized losses on investments totaled ($15.7) million and net realized losses on foreign currency translations of ($0.1) million.
Proceeds from repayments of investments and amortization of certain other investments for the year ended December 31, 2024 totaled $151.8 million resulting in net realized losses on investments totaling ($15.7) million and net realized losses on foreign currency translations of ($0.1) million, primarily from losses from the realization of our debt investments in certain portfolio companies, partially offset from gains from the realization of our equity investments.
The following table summarizes the interest expense and amortized fees on the SBA-guaranteed debentures for the years ended December 31, 2024, 2023, and 2022 (dollars in millions): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ ​ December 31, 2024 ​ December 31, 2023 ​ December 31, 2022 ​ Interest expense ​ $ 10.5 ​ $ 10.0 ​ $ 8.2 ​ Debenture fee amortization ​ ​ 1.0 ​ 1.3 ​ 1.2 Total interest and financing expenses ​ $ 11.5 ​ $ 11.3 ​ $ 9.4 ​ Weighted average interest rate ​ 3.2 % 3.2 % 2.8 % Effective interest rate (including fee amortization) ​ 3.5 % 3.5 % 3.3 % Average debt outstanding ​ $ 325.0 ​ $ 318.8 ​ $ 288.2 ​ Cash paid for interest ​ $ 10.5 ​ $ 9.6 ​ $ 7.4 ​ ​ Notes Payable On January 14, 2021, we issued $100.0 million in aggregate principal amount of the Notes Payable .
The following table summarizes the interest expense and amortized fees on the SBA-guaranteed debentures for the years ended December 31, 2025, 2024, and 2023 (dollars in millions): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ ​ December 31, 2025 ​ December 31, 2024 ​ December 31, 2023 ​ Interest expense ​ $ 10.0 ​ $ 10.5 ​ $ 10.0 ​ Debenture fee amortization ​ 0.7 ​ 1.0 ​ 1.3 Total interest and financing expenses ​ $ 10.7 ​ $ 11.5 ​ $ 11.3 ​ Weighted average interest rate ​ 3.2 % 3.2 % 3.2 % Effective interest rate (including fee amortization) ​ 3.5 % 3.5 % 3.5 % Average debt outstanding ​ $ 308.2 ​ $ 325.0 ​ $ 318.8 ​ Cash paid for interest ​ $ 10.2 ​ $ 10.5 ​ $ 9.6 ​ ​ Notes Payable The Notes Payable (as defined below) are institutional, non-traded notes.
As of both December 31, 2024 and 2023, the SBIC I subsidiary had $75.0 million in “regulatory capital”, as such term is defined by the SBA, and $150 million of SBA-guaranteed debentures outstanding. As of both December 31, 2024 and 2023, the SBIC II subsidiary had $87.5 million in regulatory capital and $175 million of SBA-guaranteed debentures outstanding.
As of December 31, 2025 and 2024, the SBIC I subsidiary had $75.0 million in “regulatory capital” for both periods, as such term is defined by the SBA, and $124.0 million and $150.0 million of SBA-guaranteed debentures outstanding, respectively.
For the fiscal year ended December 31, 2024, the Advisor was not required to reimburse underwriting fees as all shares were issued at a premium to net asset value. For the fiscal year ended December 31, 2023, the Advisor reimbursed $0.5 million in such fees and expenses.
For both the fiscal years ended December 31, 2025 and 2024, the Advisor was not required to reimburse underwriting fees as all shares were issued at a premium to net asset value.
Net Investment Income For the year ended December 31, 2024, net investment income was $41.9 million, or $1.64 per common share based on 25,596,593 weighted-average common shares outstanding. For the year ended December 31, 2023, net investment income was $42.2 million, or $1.92 per common share based on 22,004,648 weighted-average common shares outstanding.
Net Investment Income For the year ended December 31, 2025, net investment income was $36.9 million, or $1.30 per common share based on 28,364,809 weighted-average common shares outstanding. For the year ended December 31, 2024, net investment income was $41.9 million, or $1.64 per common share based on 25,596,593 weighted-average common shares outstanding.
The weighted average yield on all of our investments, including non-income producing equity positions and debt investments on non-accrual status, as of December 31, 2024 and December 31, 2023 was approximately 9.7% and 11.1%, respectively. The weighted average yield was computed using the effective interest rates for all of our debt investments, including accretion of OID.
The weighted average yield on all of our investments, including non-income producing equity positions and debt investments on non-accrual status, as of December 31, 2025 and December 31, 2024 was approximately 8.7% and 9.7%, respectively.
Our Board determines the fair value of each individual investment for which market quotations are not readily available and we record changes in fair value as unrealized appreciation or depreciation.
Our Board determines the fair value of each individual investment for which market quotations are not readily available in accordance with our valuation policy as adopted pursuant to Rule 2a-5 under the 1940 Act, and we record changes in fair value as unrealized appreciation or depreciation.
Net change in unrealized appreciation (depreciation) on investments and cash equivalents, including foreign currency translations, for the year ended December 31, 2024, 2023, and 2022 totaled $19.6 million, $2.8 million, and ($17.5) million, respectively. The change in unrealized appreciation in 2024 was primarily due to realizations on investments previously written down.
Net change in unrealized (depreciation) appreciation on investments and cash equivalents, including foreign currency translations, for the years ended December 31, 2025, 2024, and 2023 totaled ($11.1) million, $19.6 million, and $2.8 million, respectively. The change in unrealized appreciation in 2025 was primarily due to company-specific write-downs, partially offset by realizations on investments previously written up.
As of December 31, 2024, we had $953.5 million (at fair value) invested in 105 companies. As of December 31, 2024, our portfolio included approximately 90% of first lien debt (including unitranche investments), 1% of second lien debt, 1% of unsecured debt and 8% of equity investments at fair value.
As of December 31, 2025, we had $1,007.6 million (at fair value) invested in 115 companies. As of December 31, 2025, our portfolio included approximately 90% of first lien debt (including unitranche investments), 1% of second lien 76 Table of Contents debt, 0% of unsecured debt and 9% of equity investments at fair value.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThese floating rate loans typically bear interest in reference to SOFR, which is indexed to 30-day or 90-day SOFR rates, subject to an interest rate floor. As of December 31, 2024 and December 31, 2023, the weighted average interest rate floor on our floating rate loans was 1.46% and 1.26%, respectively.
Biggest changeAs of December 31, 2025 and December 31, 2024, 91.6% and 94.5% of the loans in our portfolio bore interest at floating rates, respectively. These floating rate loans typically bear interest in reference to SOFR, which is indexed to 30-day or 90-day SOFR rates, subject to an interest rate floor.
Assuming that the Consolidated Statements of Assets and Liabilities as of December 31, 2024 were to remain constant and no actions were taken to alter the existing interest rate sensitivity, the following table shows the annual impact on net income of changes in interest rates: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ($ in millions) ​ Interest ​ Interest ​ Net Interest Change in Basis Points (2) ​ Income ​ ​ Expense (3) ​ ​ Income (1) Up 200 basis points ​ $ 16.3 ​ $ (3.5) ​ $ 12.8 Up 150 basis points ​ 12.2 ​ ​ (2.6) ​ 9.6 Up 100 basis points ​ 8.2 ​ ​ (1.8) ​ 6.4 Up 50 basis points ​ ​ 4.1 ​ ​ (0.9) ​ 3.2 Down 50 basis points ​ ​ (4.1) ​ ​ 0.9 ​ ​ (3.2) Down 100 basis points ​ ​ (8.2) ​ ​ 1.8 ​ ​ (6.4) Down 150 basis points ​ ​ (12.2) ​ ​ 2.6 ​ ​ (9.6) Down 200 basis points ​ ​ (16.3) ​ ​ 3.5 ​ ​ (12.8) (1) Excludes the impact of incentive fees based on pre-incentive fee net investment income.
Assuming that the Consolidated Statements of Assets and Liabilities as of December 31, 2025 were to remain constant and no actions were taken to alter the existing interest rate sensitivity, the following table shows the annual impact on net income of changes in interest rates: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ($ in millions) ​ ​ ​ ​ Interest ​ ​ ​ ​ Interest ​ ​ ​ ​ Net Interest Change in Basis Points (2) ​ Income ​ ​ Expense (3) ​ ​ Income (1) Up 200 basis points ​ $ 17.0 ​ $ (4.7) ​ $ 12.3 Up 150 basis points ​ 12.8 ​ ​ (3.5) ​ 9.3 Up 100 basis points ​ 8.5 ​ ​ (2.4) ​ 6.1 Up 50 basis points ​ ​ 4.3 ​ ​ (1.2) ​ 3.1 Down 50 basis points ​ ​ (4.3) ​ ​ 1.2 ​ ​ (3.1) Down 100 basis points ​ ​ (8.5) ​ ​ 2.4 ​ ​ (6.1) Down 150 basis points ​ ​ (12.8) ​ ​ 3.5 ​ ​ (9.3) Down 200 basis points ​ ​ (16.6) ​ ​ 4.7 ​ ​ (11.9) (1) Excludes the impact of incentive fees based on pre-incentive fee net investment income.
See Note 2 to the Consolidated Financial Statements contained herein for more information on the incentive fee. (2) At December 31, 2024, the three-month SOFR rate was 430 basis points. This table assumes floating rates would not fall below zero. (3) Includes the impact of the 25 -basis point SOFR floor in place on the Credit Facility.
See Note 2 to the Consolidated Financial Statements contained herein for more information on the incentive fee. (2) At December 31, 2025, the three-month SOFR rate was 365 basis points. This table assumes floating rates would not fall below zero. (3) Includes the impact of the 25 basis point SOFR floor in place on the Credit Facility.
While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio of investments. For the years ended December 31, 2024 and 2023, we did not engage in interest rate hedging activities. ​ ​ 93 Table of Contents ​
While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio of investments. For the years ended December 31, 2025 and 2024, we did not engage in interest rate hedging activities. ​ ​ 97 Table of Contents ​
In September 2024, the Federal Reserve began easing its policy, most recently lowering the federal funds rate to a target range of 4.25% - 4.50% in December 2024. As of December 31, 2024 and December 31, 2023, 94.5% and 97.7% of the loans in our portfolio bore interest at floating rates, respectively.
In September 2024, the Federal Reserve began easing its policy, most recently lowering the federal funds rate to a target range of 4.25% - 4.50% in December 2024, 4.00% - 4.25% in September 2025, 3.75% - 4.00% in October 2025 and 3.50% - 3.75% in December 2025.
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As of December 31, 2025 and 96 Table of Contents December 31, 2024, the weighted average interest rate floor on our floating rate loans was 1.42% and 1.46%, respectively.

Other SCM 10-K year-over-year comparisons