Star Mountain BDC Boosts Capital, Cuts Fees for SMB Focus

TL;DR

**Star Mountain's fee cut and consistent capital raises make it a compelling, albeit illiquid, play on the resilient lower middle-market.**

AI Summary

Star Mountain Lower Middle-Market Capital Corp. (SMLMC) is an externally managed BDC focused on generating current income and capital appreciation by investing in privately negotiated loans and equity of small and medium-sized businesses (SMBs) with annual revenues greater than $15 million and EBITDA less than $50 million. The company converted from Star Mountain Credit Opportunities Fund, LP on May 14, 2021, and became the accounting survivor. On July 29, 2025, SMLMC received an SEC exemptive order to offer multiple classes of shares. The company held four Subsequent Closings in 2025, admitting 85 additional stockholders and upsizing existing commitments, totaling $19,813,018 in new Capital Commitments. This follows $54,735,000 in Capital Commitments from 114 additional stockholders in 2024. The base management fee payable to Star Mountain Fund Management, LLC was reduced from 1.75% to 1.25% of total gross assets, effective June 14, 2023.

Why It Matters

Star Mountain Lower Middle-Market Capital Corp.'s strategy of targeting SMBs with revenues over $15 million and EBITDA under $50 million offers investors exposure to a segment often underserved by larger financial institutions, potentially yielding attractive risk-adjusted returns. The reduction in the base management fee from 1.75% to 1.25% is a positive development for investors, directly impacting net returns and signaling a more competitive fee structure. The consistent capital raising, with $19,813,018 in 2025 and $54,735,000 in 2024, demonstrates strong investor confidence and provides the company with significant dry powder to execute its investment strategy, potentially increasing its market footprint in the lower middle-market lending space.

Risk Assessment

Risk Level: medium — The company operates as a non-diversified closed-end management investment company, concentrating its investments in SMBs, which inherently carries higher risk than diversified portfolios. Furthermore, the lack of an established public market for its common stock as of June 30, 2025, means investors face significant liquidity risk, making it difficult to exit positions.

Analyst Insight

Investors should consider Star Mountain Lower Middle-Market Capital Corp. for long-term capital appreciation and income, given its reduced management fees and consistent capital inflows. However, be aware of the illiquidity due to the absence of a public market and the inherent risks of investing in privately negotiated loans to SMBs.

Key Numbers

• $19,813,018 — Total Capital Commitment in 2025 (From 85 additional stockholders and existing stockholder upsizes)
• $54,735,000 — Total Capital Commitment in 2024 (From 114 additional stockholders and existing stockholder upsizes)
• 1.25% — Reduced Base Management Fee (Effective June 14, 2023, down from 1.75%)
• $15 million — Minimum Annual Revenues for SMBs (Investment target for portfolio companies)
• $50 million — Maximum EBITDA for SMBs (Investment target for portfolio companies)
• 10,262,712 — Shares of Common Stock Outstanding (As of March 31, 2026)

Key Players & Entities

• Star Mountain Lower Middle-Market Capital Corp. (company) — Registrant and BDC
• Star Mountain Fund Management, LLC (company) — Investment Advisor and Administrator
• Star Mountain Credit Opportunities Fund, LP (company) — Predecessor entity
• Securities and Exchange Commission (regulator) — Granted exemptive order
• SS&C Technologies, Inc. (company) — Sub-Administrator
• Delaware (regulator) — State of incorporation

FAQ

Risk Factors

• BDC and RIC Compliance [high — regulatory]: As a Business Development Company (BDC) and a Regulated Investment Company (RIC), the Company must comply with specific regulatory requirements. Failure to meet these requirements, such as distributing at least 90% of taxable income as dividends for RIC status, could result in adverse tax consequences and impact the Company's ability to operate as intended.
• Reliance on External Advisor [high — operational]: The Company is externally managed by Star Mountain Fund Management, LLC. Its success is heavily dependent on the Advisor's ability to source, diligence, and manage investments effectively. Any disruption in the relationship or performance of the Advisor could materially impact the Company's investment strategy and financial results.
• Investment Concentration Risk [medium — financial]: The Company invests in privately negotiated loans and equity of SMBs. This can lead to concentration risk if a significant portion of the portfolio is invested in a limited number of companies or industries. The default or underperformance of a few key investments could have a disproportionate negative impact on the Company's overall financial performance.
• Lower Middle-Market Volatility [medium — market]: The target market of lower middle-market companies with revenues between $15 million and $50 million can be more susceptible to economic downturns and market volatility compared to larger, more established companies. This increased risk profile can affect the value and performance of the Company's investments.
• SEC Exemptive Order Limitations [medium — regulatory]: While the Company received an SEC exemptive order to offer multiple classes of shares, the terms and conditions of this order must be strictly adhered to. Any violation or change in regulatory interpretation could affect the Company's ability to raise capital through these offerings.

Industry Context

The lower middle-market BDC sector focuses on providing debt and equity capital to smaller, privately held companies that often lack access to traditional financing. This segment is characterized by higher growth potential but also increased risk due to the smaller size and less established nature of the borrowers. Industry trends include a continued demand for flexible financing solutions and a focus on specialized lending strategies to navigate market complexities.

Regulatory Implications

As a BDC and a RIC, SMLMC faces stringent regulatory oversight from the SEC. Compliance with the 1940 Act and Subchapter M of the Internal Revenue Code is critical. The recent SEC exemptive order for multiple share classes offers flexibility but requires careful adherence to its provisions to avoid compliance issues.

What Investors Should Do

1. Monitor management fee structure
2. Assess portfolio diversification and credit quality
3. Evaluate capital raising success
4. Review compliance with BDC/RIC regulations

Key Dates

• 2021-05-14: BDC Conversion — Star Mountain Credit Opportunities Fund, LP converted to Star Mountain Lower Middle-Market Capital Corp., becoming the accounting survivor and establishing its current corporate structure.
• 2023-06-14: Management Fee Reduction — The base management fee payable to the Advisor was reduced from 1.75% to 1.25% of total gross assets, potentially improving net investment income for shareholders.
• 2025-07-29: SEC Exemptive Order Received — The Company obtained an SEC exemptive order allowing it to offer multiple classes of shares, which can facilitate capital raising and cater to different investor needs.

Glossary

BDC

Business Development Company, a type of closed-end investment company that invests in small and medium-sized businesses. (SMLMC is regulated as a BDC, which dictates its investment strategies and regulatory compliance requirements.)

RIC

Regulated Investment Company, a tax designation that allows a company to avoid corporate income tax if it distributes at least 90% of its taxable income to shareholders. (SMLMC has elected to be treated as a RIC, impacting its tax obligations and dividend distribution policies.)

EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization, a measure of a company's operating performance. (EBITDA is a key metric used by SMLMC to define its target investment companies, with a maximum of $50 million.)

1940 Act

The Investment Company Act of 1940, a U.S. federal law that regulates investment companies, including BDCs. (SMLMC is regulated under the 1940 Act, which imposes specific rules on its operations and investments.)

Capital Commitments

A promise by an investor to contribute a certain amount of capital to a fund or company, which can be drawn down over time. (The filing highlights significant increases in Capital Commitments in 2024 and 2025, indicating successful fundraising efforts.)

Year-Over-Year Comparison

The provided text does not contain comparative data from a previous filing, making it impossible to provide a year-over-year comparison of key metrics such as revenue growth, margin changes, or new risks. However, the context indicates a significant increase in capital commitments in 2024 and 2025, suggesting active fundraising and potential for portfolio growth compared to prior periods.

Key Financial Figures

• $0.001 — had 10,262,712 shares of common stock, $0.001 par value, outstanding. DOCUMENTS INCO
• $15 million — rally with annual revenues greater than $15 million and earnings before interest, taxes, de
• $50 million — nd amortization ("EBITDA") of less than $50 million. The Company is advised by Star Mountai
• $19,813,018 — ders with a total Capital Commitment of $19,813,018. For the year ended December 31, 2024,
• $54,735,000 — ders with a total Capital Commitment of $54,735,000. 5 Table of Contents The Company w

Filing Documents

• ef20060634_10k.htm (10-K) — 11306KB
• ef20060634_ex4-1.htm (EX-4.1) — 37KB
• ef20060634_ex4-2.htm (EX-4.2) — 515KB
• ef20060634_ex10-12.htm (EX-10.12) — 12KB
• ef20060634_ex10-13.htm (EX-10.13) — 23KB
• ef20060634_ex10-14.htm (EX-10.14) — 12KB
• ef20060634_ex21-1.htm (EX-21.1) — 1KB
• ef20060634_ex31-1.htm (EX-31.1) — 11KB
• ef20060634_ex31-2.htm (EX-31.2) — 11KB
• ef20060634_ex32-1.htm (EX-32.1) — 5KB
• ef20060634_ex32-2.htm (EX-32.2) — 5KB
• image00001.jpg (GRAPHIC) — 3KB
• image00002.jpg (GRAPHIC) — 7KB
• 0001140361-26-012276.txt ( ) — 30340KB
• star-20251231.xsd (EX-101.SCH) — 176KB
• star-20251231_cal.xml (EX-101.CAL) — 58KB
• star-20251231_def.xml (EX-101.DEF) — 540KB
• star-20251231_lab.xml (EX-101.LAB) — 1022KB
• star-20251231_pre.xml (EX-101.PRE) — 557KB
• ef20060634_10k_htm.xml (XML) — 7297KB

Business

Business 4 Item 1A.

Risk Factors

Risk Factors 23 Item 1B. Unresolved Staff Comments 42 Item 1C. Cybersecurity 42 Item 2.

Properties

Properties 43 Item 3.

Legal proceedings

Legal proceedings 43 Item 4. Mine Safety Disclosures 43 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 44 Item 6. [Reserved] 45 Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 45 Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 55 Item 8. Consolidated Financial Statements and Supplementary Data 56 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 56 Item 9A.

Controls and Procedures

Controls and Procedures 56 Item 9B. Other Information 57 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 57 PART III Item 10. Directors, Executive Officers and Corporate Governance 57 Item 11.

Executive Compensation

Executive Compensation 58 Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 58 Item 13. Certain Relationships and Related Transactions, and Director Independence 58 Item 14. Principal Accountant Fees and Services 58 PART IV Item 15. Exhibits and Financial Statement Schedules 58

Signatures

Signatures 60 2 Table of Contents

FORWARD-LOOKING STATEMENTS

FORWARD-LOOKING STATEMENTS expectations, estimates, projections, opinions and/or beliefs of Star Mountain Lower Middle-Market Capital Corp. (the "Company"), Star Mountain Fund Management, LLC (the "Advisor") and Star Mountain Capital, LLC ("Star Mountain"). Such statements involve known and unknown risks, uncertainties and other factors and undue reliance should not be placed thereon. Certain information contained in this Annual Report on Form 10-K constitutes "forward-looking statements," which can be identified by the use of forward-looking terminology such as "may," "will," "should," "seek," "expect," "anticipate," "project," "estimate," "intend," "continue," "target," or "believe" or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of the Company may differ materially from those reflected or contemplated in such forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond the Company's control and are difficult to predict, that could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements including, without limitation, the risks, uncertainties and other factors the Company identifies in the section entitled "Item 1A. Risk Factors" and elsewhere in this Annual Report on Form 10-K and in the Company's filings with the Securities and Exchange Commission ("SEC"). Although the Company believes that the assumptions on which these forward-looking statements are based are reasonable, some of those assumptions are based on the work of third parties and any of those assumptions could prove t

Business

Business (a) General Development of Business Star Mountain Lower Middle-Market Capital Corp. (the "Company") is an externally managed, closed-end management investment company and has elected to be regulated as a business development company (" BDC") under the Investment Company Act of 1940, as amended (the "1940 Act"). The Company's investment objectives are to generate current income and capital appreciation. Star Mountain Credit Opportunities Fund, LP (the "Private Fund") was formed as a Delaware limited partnership on August 7, 2019 to make investments in lower middle-market companies and commenced operations on September 16, 2019. On May 14, 2021, Star Mountain Credit Opportunities Fund, LP converted to Star Mountain Lower Middle-Market Capital Corp., via a filing with the State of Delaware of a Certificate of Conversion to a Corporation (the "BDC Conversion"). Following the BDC Conversion, the existing limited partners of the Private Fund became Stockholders of the Company by operation of law, and the value of an investor's limited partnership interest in the Private Fund was converted into a corresponding number of shares of common stock in the Company (the Common Stock). The historical cost basis of investments was carried forward during the BDC Conversion. Based on analysis of the attributes of the Star Mountain Credit Opportunities Fund, LP predecessor entity versus the Star Mountain Lower Middle-Market Capital Corp. converted entity, it was determined that Star Mountain Lower Middle-Market Capital Corp. was the accounting survivor. Star Mountain Lower Middle-Market Capital Holdings, LLC (the "Holding Company") was formed as a Delaware limited liability company on December 13, 2023 to hold certain of the Company's investments for tax purposes. The Holding Company commenced operations on December 13, 2023. On July 29, 2025, the Company received an exemptive order from the Securities and Exchange Commission ("SEC") that permits the Company to offer m

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View this 10-K filing on SEC EDGAR