Saratoga Investment Corp. (SAR): Business Model Canvas [Dec-2025 Updated]

You're looking to crack the code on how Saratoga Investment Corp. (SAR) actually generates its returns, and honestly, it's a classic middle-market lending story built on disciplined capital deployment. As an analyst who's seen a few cycles, I can tell you their core engine is managing risk while deploying capital, evidenced by their $978.1 million in Assets Under Management as of February 28, 2025, and that significant $428.2 million in undrawn borrowing capacity at fiscal year-end 2025. This structure lets them capture solid income, like the $148.9 million in Total Investment Income for the year ended February 28, 2025, primarily from floating-rate debt. Keep reading below to see the full nine blocks that make this BDC's model tick.

Saratoga Investment Corp. (SAR) - Canvas Business Model: Key Partnerships

You're looking at how Saratoga Investment Corp. builds its investment pipeline and manages its capital structure through key external relationships. These partnerships are critical because, as an externally managed BDC, Saratoga Investment Corp. has no direct employees; it relies entirely on its advisor and other capital partners to source, manage, and fund its portfolio.

Saratoga Investment Advisors, LLC (External Manager) for credit-driven strategies.

Saratoga Investment Corp. is externally managed by Saratoga Investment Advisors, LLC, which is an SEC-registered investment advisor focusing on credit-driven strategies. This relationship is formalized through an investment advisory and management agreement. The fee structure directly ties the manager's compensation to the assets under management, so their incentive is to grow the asset base.

• Base management fee calculated at an annual rate of 1.75% of gross assets.
• Gross assets for fee calculation include assets purchased with borrowed funds but exclude cash or cash equivalents.

U.S. Small Business Administration (SBA) via two active SBIC licenses.

The SBA partnership is vital for providing lower-cost, long-term debt capital through Small Business Investment Company (SBIC) licenses. Saratoga Investment Corp. currently utilizes two active SBIC-licensed subsidiaries for this purpose. This leverage is capped by regulation.

The total undrawn borrowing capacity, including credit facilities and cash, was reported as $428.2 million as of February 28, 2025. That's significant dry powder ready to deploy.

Financial sponsors and private equity firms for deal origination.

Saratoga Investment Corp. structures its investments to finance transactions initiated by financial sponsors and private equity firms, such as change of ownership transactions and strategic acquisitions. This relationship is a primary source of deal flow for the BDC's core portfolio. To be fair, when things go sideways, Saratoga Investment Corp. works directly with these prior sponsors to resolve issues, as seen in recent restructurings.

• Consensual restructurings were implemented with prior sponsors for the Pepper Palace and Zollege investments.
• The combined remaining fair value of these restructured investments was $3.6 million as of August 31, 2024.

Co-managers for the Joint Venture (JV) CLO fund.

Saratoga Investment Corp. co-manages a Joint Venture (JV) fund that owns a significant Collateralized Loan Obligation (CLO) vehicle. This structure allows Saratoga Investment Corp. to participate in larger, broadly syndicated loan opportunities. The JV CLO fund has a total size of $400 million.

Saratoga Investment Corp. also manages a separate, larger CLO fund that is currently in wind-down, valued at $650 million.

Investment banks for the At-The-Market (ATM) equity offering.

The ATM program is a key partnership for accessing public equity capital to fund portfolio growth without the timing risk of a traditional follow-on offering. The agreement names several investment banks to facilitate these sales.

• The maximum offering size under the distribution agreement is up to $300.0 million of common stock.
• The selling syndicate includes Ladenburg Thalmann & Co. Inc., Raymond James and Associates, Inc, Lucid Capital Markets, LLC, and Compass Point Research and Trading, LLC.

Here's the quick math on what's been raised through this channel as of early 2025 fiscal year-end:

Finance: draft 13-week cash view by Friday.

Saratoga Investment Corp. (SAR) - Canvas Business Model: Key Activities

You're looking at the core engine of Saratoga Investment Corp., the daily work that turns capital into returns. This is where the deals get found, structured, and managed.

Originate, underwrite, and structure customized debt and equity investments.

Saratoga Investment Corp. focuses on providing customized financing solutions to U.S. middle-market businesses. They target US-based cash flow positive companies with annual revenues between $8 million and $250 million and EBITDA in excess of $2 million. Since taking over management of the BDC, Saratoga Investment has originated total investments of $2.24 billion across 119 portfolio companies.

Investment activity shows a consistent flow of new capital deployment:

• Originations for the quarter ended May 31, 2025, totaled $50.1 million.
• Originations for the fiscal fourth quarter ended February 28, 2025, were $41.8 million.
• Originations for the fiscal year ended February 28, 2025, totaled $168.1 million.

Manage the investment portfolio, including a $650 million CLO fund.

The management of the investment portfolio involves overseeing a diverse mix of assets. As of May 31, 2025, the fair value of Saratoga Investment Corp.'s portfolio was $968.3 million, excluding $224.3 million in cash and cash equivalents. This portfolio was principally invested in 46 portfolio companies, one collateralized loan obligation fund (the "CLO"), one joint venture fund (the "JV"), and nine BB CLO debt investments.

The structure of the core portfolio as of November 30, 2024, shows a heavy concentration in senior secured assets:

Saratoga Investment Corp. manages a $650 million collateralized loan obligation ("CLO") fund and co-manages a joint venture ("JV") fund that owns a $400 million collateralized loan obligation ("JV CLO") fund. The weighted average current yield on the overall portfolio based on current fair values was 10.8% as of November 30, 2024.

Raise capital through public and private debt/equity issuances.

Saratoga Investment Corp. maintains significant dry powder and access to capital markets to fund its investment strategy. Total undrawn borrowing capacity was $430.3 million as of May 31, 2025. This capacity is supported by several sources:

• Undrawn SBA debentures available from the SBIC III license: $136.0 million.
• Undrawn credit facility borrowing capacity (as of May 31, 2025): $70.0 million.
• Total undrawn borrowing capacity (as of February 28, 2025): $428.2 million.

The company utilizes an active equity distribution agreement (ATM) to issue common stock, with an authorization limit up to $300.0 million. As of May 31, 2025, Saratoga Investment Corp. had sold 8,089,547 shares under this agreement for gross proceeds of $214.3 million.

Provide strategic oversight and support to portfolio company management.

Deployment activity reflects active support for both new and existing partners. In the third quarter of fiscal 2025 (ended November 30, 2024), Saratoga Investment Corp. reported strong deployments of $84.5 million. This capital supported two new platforms and eight existing portfolio companies. For the full fiscal year ended February 28, 2025, net deployments totaled $25.9 million, which supported one new platform and six follow-on investments.

Monitor portfolio performance and manage risk exposure.

Risk management is demonstrated through portfolio quality metrics and return performance. As of February 28, 2025, non-accruals stood at 0.3% of fair value and 0.5% of cost. The overall credit quality remained steady, with 99.7% of credits rated in the highest category as of November 30, 2024. Performance indicators for the period ending November 30, 2024, included:

• Last Twelve Months (LTM) Return on Equity: 9.2%.
• Annualized Return on Equity for the quarter: 9.5%.

The company also manages capital flow actively, with principal repayments during the quarter ended November 30, 2024, totaling $160.4 million.

Saratoga Investment Corp. (SAR) - Canvas Business Model: Key Resources

You're looking at the core assets that power Saratoga Investment Corp.'s ability to originate and manage its portfolio. These aren't just line items; they are the engines of the business.

The foundation is its permanent capital base, established by electing to be regulated as a business development company (BDC) and publicly traded on the NYSE under SAR. This structure is key because it allows Saratoga Investment Corp. to access capital markets for long-term funding, which is a significant advantage over funds with finite lives.

The scale of its operations is reflected in its Assets Under Management (AUM). As of February 28, 2025, Saratoga Investment Corp.'s AUM stood at $978.1 million. This figure represents a slight increase of 1.9% from the prior quarter, showing relative stability near year-end.

The team itself is a critical resource. Saratoga Investment Corp.'s senior investment professionals bring over 200 years of combined experience, having invested more than $4 billion in middle market businesses throughout their careers.

Liquidity and funding flexibility are paramount for a specialty finance company. Saratoga Investment Corp. maintains substantial capacity to deploy capital. The total undrawn borrowing capacity as of fiscal year-end 2025 (February 28, 2025) was $428.2 million.

A specific, lower-cost funding stream is the access to long-term SBA debentures. As of February 28, 2025, Saratoga Investment Corp. had $136.0 million in undrawn SBA debentures available from its existing SBIC III license.

Here's a quick breakdown of some of these core resource metrics as of the fiscal year-end 2025 reporting date:

The structure of their available credit facilities also contributes to their resource strength. As of February 28, 2025, the total undrawn capacity of $428.2 million was comprised of:

• $292.2 million from undrawn credit facility borrowing capacity and cash and cash equivalents (with $87.5 million available under the two credit facilities and $204.7 million in cash and cash equivalents).
• $136.0 million in undrawn SBA debentures.

To be fair, the undrawn capacity can shift based on portfolio performance and valuations affecting the credit facilities. Still, the access to the SBA debentures provides a stable, long-term funding component. Finance: draft 13-week cash view by Friday.

Saratoga Investment Corp. (SAR) - Canvas Business Model: Value Propositions

You're looking at how Saratoga Investment Corp. delivers value to its clients and investors; it's all about specialized credit access and strong income generation. The core value proposition centers on providing customized financing solutions for complex middle-market needs, often involving change of ownership transactions, strategic acquisitions, recapitalizations, and growth initiatives, done in partnership with business owners, management teams, and financial sponsors.

This customization is supported by a flexible capital structure that allows Saratoga Investment Corp. to meet varied client requirements across the debt and equity spectrum. They invest primarily in senior and unitranche leveraged loans and mezzanine debt, and to a lesser extent, equity. Here's a look at how the portfolio was structured as of late 2024 and early 2025, showing that flexibility in action:

As a strategic partner, Saratoga Investment Corp. emphasizes credit quality, which translates directly into stability for shareholders. The credit profile remains strong; as of the fiscal second quarter of 2026 (period ending August 31, 2025), non-accrual loans fell to just one investment, representing only 0.2% of fair value. Furthermore, 99.7% of credits were rated in the highest category as of that same period. This focus on quality underwriting helps manage near-term risks associated with rate volatility and repayments.

The prompt specifically highlights the focus on senior secured debt, noting that as of May 31, 2024, a high percentage of first lien term loans stood at 86.3% of the portfolio. This senior position in the capital structure is a key element of the risk mitigation strategy.

For you, the investor, the value proposition is crystallized in the attractive risk-adjusted returns delivered through current income and capital appreciation. The total return over the last 12 months, as of early October 2025, generated 22%, significantly beating the BDC index return of 4% for the same period. Current income remains robust:

• The trailing dividend yield as of November 30, 2024, was 13.04%.
• The fiscal Q3 2026 declared base dividend of $0.75 per share (monthly $0.25) represented a 12.3% annual yield based on the October 6, 2025 stock price.
• The five-year dividend growth rate stands at 17.55%.

The overall portfolio yield as of November 30, 2024, was 10.8%, with first lien loans yielding 11.6%. Honestly, that level of current income, paired with strong total returns, is what Saratoga Investment Corp. offers.

Saratoga Investment Corp. (SAR) - Canvas Business Model: Customer Relationships

You're looking at how Saratoga Investment Corp. maintains its connections with the middle-market companies it finances. For Saratoga Investment Corp., the relationship is defintely not transactional; it's built on being a dedicated, high-touch partner to management teams.

High-touch, partnership-based approach with management teams.

Saratoga Investment Corp. specializes in providing customized financing solutions to U.S. middle-market businesses, often for change of ownership transactions, strategic acquisitions, recapitalizations, and growth initiatives. This requires deep engagement with the business owners and their management teams. The firm's structure supports this direct interaction, which is key when dealing with companies that typically have revenues between $5 million and $250 million. The relationship is founded on providing tailored debt and equity structures, not just off-the-shelf loans.

Long-term investor focus, supporting growth and recapitalization initiatives.

The focus is squarely on the long haul, supporting the borrower's entire growth trajectory. Since the current management took over in 2010, Saratoga Investment Corp. has generated $1.2 billion of repayments and sales from investments it originated, showing a history of seeing deals through to successful exits or recapitalizations. The firm's investment activity reflects this ongoing support; for the fiscal first quarter 2026 ended May 31, 2025, originations totaled $50.086 million, which included follow-on investments in existing portfolio companies alongside new platforms. The firm's overall Assets Under Management (AUM) stood at $968.318 million as of May 31, 2025.

The nature of these long-term relationships is reflected in the portfolio's composition, which heavily favors senior secured debt, indicating a primary focus on capital preservation while enabling growth. Here's a look at the portfolio mix as of November 30, 2024:

Direct relationship management across the entire investment lifecycle.

Management ensures continuity by having key personnel involved from the start. The total investments originated by Saratoga Investment Corp. amount to $2.34 billion across 122 companies as of August 31, 2025. This scale, managed by a team including CEO Christian L. Oberbeck and CIO Michael J. Grisius, allows for direct, dedicated management. The firm's investment quality remains a priority, with 99.7% of loan investments holding the highest internal rating as of August 31, 2025, showing that the partnership approach is tied to strong performance monitoring.

Continuity of contact from origination through oversight.

The structure ensures that the same team members who originate the deal are involved in ongoing oversight, which is crucial for a partnership model. This continuity is supported by the firm's operational structure, which includes a dedicated Chief Financial Officer, Henri J. Steenkamp. The firm's ability to support companies through various stages is evident in its liquidity position; as of May 31, 2025, Saratoga Investment Corp. had $294.3 million of undrawn credit facility borrowing capacity and cash available to support existing portfolio companies.

The direct management style is designed to facilitate smooth transitions, such as:

• Supporting growth initiatives through follow-on investments.
• Managing recapitalization needs proactively.
• Handling debt refinancing discussions.
• Facilitating successful exits or repayments.

The weighted average current yield on the total portfolio was 10.7% as of May 31, 2025, a direct result of managing these assets actively across their lifecycle.

Saratoga Investment Corp. (SAR) - Canvas Business Model: Channels

You're looking at how Saratoga Investment Corp. gets its deals done and connects with its capital sources. It's a mix of direct hustle, established partnerships, and tapping the public markets. Here's the breakdown of the channels they use to deploy capital and raise funds, grounded in the latest figures we have through late 2025.

Direct origination efforts by the investment team

Saratoga Investment Corp.'s investment team drives a significant portion of its deal flow. They focus on direct lending to middle-market companies, often for change of ownership, acquisitions, recapitalizations, and growth initiatives. This direct approach ensures continuity across the entire investment life cycle, as the same senior professionals handle origination, execution, and oversight. This is a key differentiator for Saratoga Partners, the private equity arm, which limits investments to focus closely on each company.

Looking at recent activity, the deployment pace shows the team's ongoing efforts:

• Total investments originated by Saratoga Investment since taking over management stand at $2.24 billion across 119 portfolio companies.
• The gross unlevered Internal Rate of Return (IRR) generated from repayments and sales of these originated investments is 15.0%.
• For the fiscal third quarter of 2025 (ended November 30, 2024), originations totaled $84.5 million, which included two new portfolio company investments and eight follow-on investments.
• For the year ended February 28, 2025, the cost of investments made was $168.1 million, comprising 35 follow-ons and three investments in new portfolio companies.
• In the fiscal second quarter of 2026 (for the quarter ending August 31, 2025), total originations were $52.2 million, which included three follow-on investments totaling $25.9 million, and BB and BBB CLO debt investments of $26.3 million.
• Subsequent to that August 31, 2025, quarter-end, Saratoga Investment was closing approximately $42.7 million of new originations across three new portfolio companies and two follow-ons; two of the three new companies were with new relationships.

Network of financial sponsors and private equity relationships

A crucial channel for Saratoga Investment Corp. is its established network, working in partnership with management teams and financial sponsors to provide customized financing solutions. This network helps source deals that fit their credit-driven strategies.

The related private equity firm, Saratoga Partners, often acts as the sole or lead investor, typically taking a control position in deals. Their target enterprise value range is generally between $50 million and $400 million, with EBITDA between $5 million and $40 million. This structure naturally feeds deal flow into the Business Development Company (BDC) side for debt financing.

Co-investment opportunities with other capital providers

The relationships with capital providers extend to facilitating co-investment, which helps deploy larger amounts of capital alongside their primary investments. This is particularly relevant when working with existing financial partners on complex situations or restructurings.

Here's a look at the scale of capital deployment and co-investment potential:

The firm actively explores deploying capital in seasoned issuers with new sponsorship through these co-investment avenues, which can include structured, preferred equity investments.

Public market access for common stock and debt investors (e.g., baby bonds)

Saratoga Investment Corp. uses public capital markets to fund its activities, providing liquidity and access for a broader set of investors. This is a vital channel for raising long-term, lower-cost capital.

The debt side shows substantial issuance:

• As of February 28, 2025, the amount of listed baby bonds issued was $269.4 million.
• The company also had $250.0 million of unsecured unlisted institutional bond issuances outstanding as of that date.

For equity, they maintain an active At-The-Market (ATM) program:

• The maximum offering size under the equity distribution agreement is up to $300.0 million of common stock.
• Through February 28, 2025, the company had sold 7,844,716 shares via this channel, generating gross proceeds of $207.9 million.

The current dividend yield on the common stock reflects the market's view of this income stream. The annualized third quarter dividend of $0.75 per share (declared for the quarter ending November 30, 2025) implied a 12.3% yield based on the stock price of $24.41 as of October 6, 2025. That's a strong income proposition for public equity investors. Finance: draft the next quarter's capital deployment forecast by end of next week.

Saratoga Investment Corp. (SAR) - Canvas Business Model: Customer Segments

Saratoga Investment Corp. focuses on providing customized financing solutions to U.S. middle-market businesses.

The investment criteria for these businesses are quantified as follows:

Saratoga Investment Corp. structures investments to finance transactions such as leveraged and management buyouts, acquisition financings, growth financings, recapitalizations, debt refinancings, and transitional financing.

A significant portion of the deal flow involves external capital partners:

• Approximately 85% of term sheets issued were for transactions involving a private equity sponsor as of February 28, 2025.

The company also serves retail and institutional investors seeking exposure to its structure. As of February 28, 2025, Saratoga Investment Corp. had an active equity distribution agreement for an ATM offering, through which it had realized aggregate net proceeds of $206.1 million. For investors as of October 6, 2025, the annualized third-quarter dividend represented a 12.3% yield based on the stock price of $24.41. The weighted average current yield on the overall portfolio, based on fair values as of February 28, 2025, was 10.8%.

Saratoga Investment Corp. (SAR) - Canvas Business Model: Cost Structure

You're looking at the cost side of Saratoga Investment Corp.'s (SAR) business, which is heavily influenced by its external management structure and its use of leverage. Honestly, for a Business Development Company (BDC) like SAR, the cost structure is dominated by financing costs and fees paid to the external manager, Saratoga Investment Advisors, LLC.

Base Management Fees and Incentive Fees paid to the external manager

Specific dollar amounts for the base management fees and incentive fees paid to the external manager are not explicitly broken out in the provided expense summaries, as these are typically excluded from the reported operating expense line item you mentioned. However, the financial results for the fiscal first quarter of 2025 indicated that increases in investment income were offset by increased base and incentive management fees due to higher Assets Under Management (AUM) and earnings. The LTM Operating Expense Ratio, defined as total operating expenses net of interest and debt financing expenses and income and excise taxes, divided by net assets, was reported at 24.9% as of a recent filing date.

Interest and debt financing expenses on $269.4 million of listed baby bonds and other debt

Interest expense is a major cost driver, directly tied to the capital structure. Saratoga Investment Corp. maintains significant debt to finance its investments. As of the fiscal fourth quarter 2025-end (February 28, 2025), the outstanding debt components included:

The total outstanding SBIC debentures across all active licenses are limited to $350.0 million. The interest expense itself is a variable cost, but the principal amount of debt dictates the base level of this expense. The weighted average interest rate on the core BDC portfolio was 11.5% as of February 28, 2025.

Operating expenses, which were $2.9 million in Q1 2025

Total operating expenses, specifically excluding interest and debt financing expenses, base management fees, and income and excise taxes, were $2.9 million for the fiscal first quarter 2025 (the quarter ended May 31, 2024). This figure represented 1.0% of average total assets on an annualized basis for that quarter. For the full fiscal year 2025 (ending February 28, 2025), these same excluded expenses totaled $9.3 million.

Costs associated with maintaining BDC and SBIC regulatory compliance

Costs directly attributable only to BDC and SBIC regulatory compliance are not itemized separately from the general operating expenses. However, the structure necessitates adherence to the Investment Company Act of 1940, as SAR elects to be regulated as a BDC. The operation of its two active SBIC-licensed subsidiaries means compliance costs are embedded within the reported operating expenses, which totaled $2.9 million for Q1 2025 (excluding the major fee and interest components).

General and administrative expenses for corporate operations

General and administrative expenses are captured within the broader category of operating expenses that exclude interest, fees, and taxes. The $2.9 million reported for the three months ended May 31, 2024, encompasses these corporate overhead costs. You can see the relative scale of these costs when considering the total availability under the credit facilities and cash was $292.2 million as of February 28, 2025.

• Total operating expenses (excluding interest, fees, taxes) for FY 2025: $9.3 million.
• Operating expenses for Q1 FY2025 (ending May 31, 2024): $2.9 million.
• Operating expense ratio (net of fees/interest/taxes) to net assets: 24.9%.

Finance: draft 13-week cash view by Friday.

Saratoga Investment Corp. (SAR) - Canvas Business Model: Revenue Streams

Saratoga Investment Corp.'s revenue generation is fundamentally tied to the size and yield of its debt and equity investment portfolio, which was valued at a fair value of $978.1 million as of February 28, 2025, excluding $204.7 million in cash and cash equivalents.

The primary driver is interest income from debt investments, which are predominantly floating rate senior loans. The overall portfolio carried a weighted average current yield of 10.8% based on current fair values as of February 28, 2025. You see this reflected in the specific asset classes:

• First lien term loans yielded a weighted average of 11.3%.
• Second lien term loans yielded 16.7%.
• Structured finance securities yielded 19.9%.
• Unsecured term loans yielded 10.7%.

This focus on floating rate assets helps insulate current income against rising costs of long-term balance sheet liabilities, which are largely fixed but callable.

The result of this investment activity is the Total Investment Income of $148.9 million for the fiscal year ended February 28, 2025. To give you a sense of the quarterly run rate near year-end, the Total Investment Income for the three months ended February 28, 2025, was $31.3 million.

Beyond pure interest accrual, Saratoga Investment Corp. generates revenue through dividends and capital appreciation from equity investments. The portfolio composition as of February 28, 2025, showed that 7.4% was allocated to common equity interests, which carried a current yield of 0.0%, meaning appreciation is key to returns here. For the quarter ended February 28, 2025, the company recognized net realized gains of $7.2 million specifically from equity realizations, including the Nauticon, Vector, and Modern Campus investments. Total dividend income for that same quarter was $816,262.

Fee income from structuring, syndication, and prepayment penalties is another component, though it can be variable based on market activity. For the quarter ended February 28, 2025, the company recorded Management fee income of $742,289. In prior periods, the company noted that structuring, advisory, and prepayment fees contributed to 'other income revenue items,' which saw a significant decrease in the fourth quarter of fiscal 2024 due to a less robust M&A environment.

Finally, income from the CLO and JV CLO funds is a distinct revenue stream, though the CLO fund managed by Saratoga Investment Corp. was noted as being in wind-down as of late 2025. Saratoga Investment co-manages a Joint Venture fund that owns a $400 million JV CLO fund, and it also manages a $650 million CLO fund. Saratoga Investment owns 87.5% of the membership interests of the JV and 87.5% of the Class E notes of the JV CLO. The yield on the single CLO fund investment swung to 24.6% in fiscal Q3 2025 (period ending November 30, 2024).

Here's a quick look at the key revenue components for the fiscal year ended February 28, 2025, and the most recent reported quarter:

Finance: draft the Q3 FY2026 revenue breakdown by end of next week.