Stellus Capital Investment Corporation (SCM): Business Model Canvas [Dec-2025 Updated]

You're looking for the nuts and bolts of how Stellus Capital Investment Corporation (SCM) actually generates that attractive yield for investors while navigating the tricky private credit waters. Honestly, mapping out their Business Model Canvas cuts right through the jargon. What you see is a focused operation: they originate senior secured debt for middle-market companies, often backed by top-tier Private Equity sponsors, aiming to deliver high current income-think an annualized yield near 12.2% for you, the stockholder. Their core defense is keeping 98% of their loans secured and floating-rate, which helps manage near-term interest rate shifts, all while their experienced team actively manages a portfolio valued over $1.01 billion as of Q3 2025. Let's break down exactly how these pieces fit together below.

Stellus Capital Investment Corporation (SCM) - Canvas Business Model: Key Partnerships

You're looking at the core relationships that keep Stellus Capital Investment Corporation's deal flow moving and its capital structure humming. These aren't just names on a page; they are the engines providing access and funding.

Stellus Capital Management, LLC (External Investment Adviser)

Stellus Capital Management, LLC is the external adviser that manages the day-to-day operations and all investment activities for Stellus Capital Investment Corporation. The advisory team is led by professionals who spun out of the D. E. Shaw group's direct capital business in January 2012. This relationship means Stellus Capital Investment Corporation benefits from an established, experienced team overseeing its strategy.

High-quality Private Equity (PE) sponsors

Deal sourcing heavily relies on relationships with financial sponsors. As of September 30, 2025, a massive 99% of Stellus Capital Investment Corporation's portfolio companies are backed by a private equity firm. The Stellus Capital team has partnered with over 190 unique sponsors since 2004, showing a deep network in the lower middle market.

Here are some key metrics related to this partnership focus:

• Partnered with over 190 unique sponsors since 2004.
• Investment focus on private middle-market companies.
• Targeted investment size between $10 million and $60 million per transaction.

Bank Lenders and Other Debt Capital Providers

Stellus Capital Investment Corporation uses a mix of committed credit facilities and longer-term, fixed-rate leverage. The syndicated credit facility is led by Zions Bancorporation, N.A. dba Amegy Bank. While you mentioned $335 million, the latest committed size found for the Senior Secured Revolving Credit Agreement was $315.0 million as of March 31, 2025. As of June 30, 2025, the outstanding balance under this facility was $150 million.

This table summarizes the key debt facilities as of mid-2025, using the most recent reported outstanding balances:

Small Business Administration (SBA) for SBIC Debentures

Stellus Capital Investment Corporation accesses low-cost, fixed-rate, longer-term leverage through its two wholly-owned SBIC subsidiaries, Stellus Capital SBIC LP and Stellus Capital SBIC II LP. Current SBA regulations permit a 'family' of SBIC funds to obtain leverage up to $350.0 million in aggregate debentures. Specifically, Stellus Capital SBIC II, L.P. can borrow up to a maximum of $175 million in SBA-guaranteed debentures. As of June 30, 2025, the outstanding balance for the SBIC II Debentures was $133.8 million.

Co-lenders in 'club' deals for larger transactions

While Stellus Capital Investment Corporation is typically the sole lender in the tranches where it invests, the structure allows for flexibility. The firm is open to partnering with a small number of lenders when executing larger transactions, often referred to as 'club' deals. No specific financial amounts for these co-lending partners were detailed in the latest public filings.

Stellus Capital Investment Corporation (SCM) - Canvas Business Model: Key Activities

You're looking at the core actions Stellus Capital Investment Corporation (SCM) takes to run its business as of late 2025. These aren't just vague goals; they are the actual mechanics driving the firm's financial results.

Originate and structure senior secured debt investments is the engine of Stellus Capital Investment Corporation. This involves actively deploying capital into the middle market, typically targeting companies with $5.0 million to $50.0 million of EBITDA through various debt instruments, often with equity co-investments.

• Investment portfolio fair value as of September 30, 2025: $1.01 billion across 115 portfolio companies.
• Investment portfolio fair value as of June 30, 2025: $985.9 million across 112 companies.
• New investments funded in Q3 2025: $51.3 million in 5 new portfolio companies.
• Other investment activity at par in Q3 2025: $12.5 million.
• Percentage of loans secured as of September 30, 2025: 98%.
• Percentage of loans priced at floating rates as of September 30, 2025: 90%.

Active portfolio management and credit monitoring is crucial for protecting that deployed capital. This involves constant assessment of asset quality. The firm did not add any new loans to its non-accrual list during Q3 2025.

Manage non-accrual loans, which were 3.7% of fair value in Q3 2025. This metric shows the immediate credit risk exposure at that point in time.

Capital raising via equity (e.g., ATM program) and debt issuance ensures Stellus Capital Investment Corporation has the dry powder to continue originating new deals and managing its balance sheet. Equity issuances under the ATM program were done above net asset value. On the debt side, they actively managed maturities and costs.

• Proceeds from ATM program in Q3 2025: $7.4 million from approximately 531,000 shares.
• Year-to-date proceeds from ATM program (through Q3 2025): $20.6 million from approximately 1.5 million shares.
• Average per share offering price under ATM Program in Q3 2025: $14.00.
• New debt issuance in September 2025: $50.0 million of 7.25% notes due 2030.
• Total outstanding 7.25% notes due 2030 after September 2025 issuance: $125.0 million.
• Debt planned for repayment with new proceeds: a portion of the $100.0 million 4.875% notes due 2026.

Distribute quarterly dividends of $0.40 per share to stockholders is a primary activity for a Business Development Company (BDC) like SCM, which is structured to pass through income. The board declared the Q4 2025 dividend to be $0.40 per share, paid monthly.

Here's the quick math on the declared Q4 2025 distribution schedule:

The aggregate Q4 2025 dividend is $0.40 per share, and the stated annual dividend is $1.60 per share.

Stellus Capital Investment Corporation (SCM) - Canvas Business Model: Key Resources

You're looking at the core assets Stellus Capital Investment Corporation (SCM) uses to execute its middle-market lending strategy. These aren't just line items; they are the engines that drive their financing power and deal flow.

The foundation of SCM's Key Resources rests on a substantial, high-quality investment base and robust, flexible debt capacity. Here's a breakdown of the hard numbers supporting their operations as of late 2025, primarily reflecting Q3 2025 data.

The firm's primary asset is its deployed capital, which is actively managed to generate current income. As of the third quarter ending September 30, 2025, the investment portfolio was valued at fair value of $1.01 billion across 115 portfolio companies.

A significant structural advantage is the nature of the assets themselves. SCM structures its investments to benefit from rising rates, which is a key resource in an uncertain rate environment. At September 30, 2025, 90% of their loans were priced at floating rates.

The team executing this strategy is deep and tenured. You can count on the experience backing the underwriting decisions. The Stellus Capital Management team collectively has over 315 combined years of principal investing experience. This experience is critical for navigating the lower middle market. Furthermore, the Partner group has worked together for 19+ years.

Liquidity and funding capacity are essential resources for any Business Development Company (BDC). SCM maintains significant committed credit lines and access to specialized, low-cost leverage.

You can see the key financial and structural resources laid out here:

The access to Small Business Investment Company (SBIC) debentures is a non-recourse, low-cost funding source. While the total consolidated balance of SBA-guaranteed debentures outstanding was $299.0 million as of September 19, 2025, the regulatory framework allows for up to $350.0 million in aggregate outstanding debentures for affiliated SBIC funds. This non-recourse debt is a distinct advantage for SCM's capital structure.

Also, consider the utilization of that credit facility. As of September 30, 2025, SCM had $167.6 million in outstanding borrowings under the Credit Facility, meaning there was still significant undrawn capacity within the $335.0 million commitment.

The portfolio composition also highlights key resources:

• Secured Loans: 98% of loans were secured as of September 30, 2025.
• First Lien Position: 98% of debt investments were First Lien / Senior Secured as of March 31, 2025.
• Portfolio Size: The portfolio was spread across 115 companies.

Finance: draft 13-week cash view by Friday.

Stellus Capital Investment Corporation (SCM) - Canvas Business Model: Value Propositions

You're looking at what Stellus Capital Investment Corporation (SCM) offers to its clients and, just as importantly, to you as a stockholder. The value propositions are built around providing tailored financing and delivering consistent shareholder returns.

Flexible capital solutions for middle-market companies

SCM specializes in providing financing to private middle-market companies, typically those backed by private equity sponsors. The capital is designed to be flexible, often supporting acquisitions, growth capital needs, leveraged buyouts, or recapitalizations. The target companies generally generate between $5 million and $50 million of EBITDA.

The investment size per transaction is focused, often falling between $10 million and $60 million per deal, though the overall platform can handle larger allocations. This focus allows SCM to structure solutions that fit the specific needs of the borrower, rather than relying on standardized, broadly syndicated approaches.

High current income for public stockholders (approximate 12.2% annualized yield)

For you, the public stockholder, a primary value proposition is the high current income stream. SCM targets a substantial yield from its debt portfolio, which is structured to generate consistent cash flow. As of mid-2025 presentations, the firm highlighted an approximate 12.2% annualized yield on its investments.

This focus on income is supported by the portfolio's structure, with 95% of investments being floating rate as of a recent report, helping to maintain yield when base rates are elevated. The company declared aggregate distributions of $0.40 per share for both the three months ended September 30, 2025, and 2024.

Focus on senior secured debt (98% of loans secured) for credit protection

Credit protection is central to SCM's strategy, which directly benefits the stability of the income stream you receive. The firm heavily prioritizes senior positions in the capital structure. As of September 30, 2025, 98% of SCM's loans were secured, offering strong downside protection.

This emphasis on security means the vast majority of the portfolio is in first lien or unitranche debt financings. Here's a quick look at the portfolio scale supporting this focus as of the end of the third quarter of 2025:

Certainty and speed of execution as a sole or lead lender

When a middle-market company needs capital quickly, SCM offers a value proposition of decisive execution. The firm focuses on originated loans, meaning they are often the sole lender or a lead lender in the tranches they invest in. This direct involvement allows for streamlined underwriting and faster closing times compared to processes involving many participants.

This capability is underpinned by an experienced private credit team with extensive underwriting and restructuring expertise. The focus on originated deals, as opposed to broadly syndicated financings, is a key differentiator for speed.

Nominal equity co-investments to provide capital appreciation upside

While the core business is debt, SCM includes nominal equity co-investments in certain transactions. This provides a direct path to capital appreciation upside that is not available through debt instruments alone. The strategy is to capture potential upside when portfolio companies are successfully exited by their private equity sponsors.

Management has signaled expectations for this component, anticipating:

• Estimated proceeds from equity realizations of roughly $5 million in the fourth quarter of 2025.
• Estimated proceeds from equity realizations of roughly $5 million in the first quarter of 2026.
• Estimated realized gains associated with these expected Q4 2025 and Q1 2026 exits of $3.8 million and $3.3 million, respectively.

Still, you should note that the Net Asset Value per share declined by $0.16 in Q3 2025, partly due to $0.08 per share of unrealized losses tied to two debt investments, showing that equity upside is not guaranteed.

Stellus Capital Investment Corporation (SCM) - Canvas Business Model: Customer Relationships

You're looking at how Stellus Capital Investment Corporation (SCM) manages its most critical external connections-the sources of its deals and the stakeholders it reports to. This is all about relationships, not just transactions.

Direct, relationship-driven origination model

SCM relies heavily on its proprietary sourcing channels, favoring direct deals over broadly syndicated ones. This approach means they are often the sole lender in the debt tranches they invest in, though they will partner in "club" deals. The principals of Stellus Capital Management leverage an extensive network of relationships with financial sponsor firms, financial institutions, and management teams to find these opportunities. As of the third quarter of 2025, the investment portfolio stood at fair value of slightly over $1 billion across 115 portfolio companies. A key indicator of this relationship focus is that 99% of these portfolio companies are backed by a private equity firm. Furthermore, about half of the deal origination activity is structured to be SBIC compliant, showing a tailored approach to capital deployment with their partners.

The scale of this direct engagement is visible in the deal flow. During the third quarter of 2025, Stellus Capital Investment Corporation invested $51.3 million in 5 new portfolio companies. The average loan size per company, at fair value, was $9.2 million in that quarter. This isn't a volume game; it's about deep, specific sourcing.

• Investment size focus: $10 million to $60 million per transaction.
• Target company profile: Typically $5.0 million to $50.0 million of EBITDA.
• Investment focus: Senior secured first lien and unitranche debt financings.

High-touch engagement with PE sponsors for repeat deal flow

The relationship with private equity (PE) sponsors is the engine for repeat business. By substantially backing investments with high-quality PE sponsors, Stellus Capital Investment Corporation builds a foundation for future deal flow. The team at Stellus Capital Management brings significant experience to these partnerships, with the principals having over 315 combined years of principal investing experience. This experience helps navigate complex transactions, which is crucial for maintaining sponsor trust and securing future mandates. The focus on originated loans, rather than syndicated ones, reinforces the need for this high-touch, direct engagement model with sponsors.

Transparent investor relations regarding dividend coverage and NAV

Investor communication centers on the sustainability of distributions relative to earnings and the Net Asset Value (NAV). For the third quarter of 2025, the declared aggregate distribution was $0.40 per share, paid monthly at $0.1333 per share. However, GAAP net investment income for the same period was only $0.32 per share. This dynamic-distributions exceeding earnings-is a central point of investor discussion, as it risks NAV erosion. The reported starting dividend yield was as high as 13.7% late in 2025, reflecting the market's view on this coverage gap. The NAV per share reflected this pressure, decreasing by $0.16 during the third quarter of 2025, with $0.08 per share of that decline attributed to dividend payments exceeding earnings.

Here's a quick look at the Q3 2025 dividend and income metrics:

Long-term partnership approach with portfolio company management

The relationship with the management teams of portfolio companies is built on providing tailored, long-term debt solutions. Stellus Capital Investment Corporation aims to maximize total return through current income and capital appreciation, suggesting a focus on the long-term health of the underlying businesses. The portfolio structure reflects a conservative approach to managing these partnerships, with 98% of loans being secured and 90% priced at floating rates as of the end of Q3 2025. Still, not all partnerships are performing as planned; as of that same period, loans to 5 portfolio companies were on non-accrual, representing 3.7% of the total loan portfolio's fair value. Additionally, 18% of the portfolio was marked in investment category 3 or below, indicating underperformance against expectations.

The management of the credit facility also speaks to long-term stability with their lenders. In Q3 2025, Stellus Capital Investment Corporation amended and extended its revolving credit facility, reducing the spread over the 30-day SOFR rate from 2.6% to 2.25% and extending the maturity date by 2 years to September 2030. Finance: draft 13-week cash view by Friday.

Stellus Capital Investment Corporation (SCM) - Canvas Business Model: Channels

The channels Stellus Capital Investment Corporation (SCM) uses to reach and serve its customers-the middle-market companies seeking capital and the shareholders providing it-are grounded in direct relationships and public market access.

Direct origination team and institutional platform

The origination channel relies on a seasoned private credit team with deep experience.

• Senior members of the investment team have invested together for nearly 25 years.
• The team has made over 365 investments since 2004.
• For the quarter ended September 30, 2025, Stellus Capital Investment Corporation invested $51.3 million in 5 new portfolio companies.
• The investment portfolio at fair value was slightly over $1 billion across 115 portfolio companies as of September 30, 2025.
• 98% of loans were secured around as of the Q3 2025 earnings call.

Extensive network of financial sponsors and intermediaries

A key component of sourcing is the relationship-driven team that partners with private equity sponsors.

• The management team has invested with over 190 sponsors.
• 99% of portfolio companies are backed by a private equity firm.
• The investment focus targets private companies generating between $5 million and $50 million of EBITDA.
• Stellus Capital Investment Corporation expects to redeem $50 million in notes on December 31, 2025.

Publicly traded common stock on the New York Stock Exchange (NYSE)

The public listing on the NYSE provides a primary channel for equity capital formation and liquidity for investors.

Here are some key stock and capital metrics as of late 2025 data points:

The company declared a dividend of $0.40 per share for Q4 2025.

Investor presentations and SEC filings for shareholder communication

Communication channels include mandatory regulatory filings and direct engagement with the investment community.

• The Q3 2025 Earnings Call took place on November 12, 2025.
• The number of shares of Common Stock outstanding as of August 6, 2025, was 28,416,148.
• Reported revenue for the three months ended September 30, 2025, totaled $26.3 million.
• Reported non-GAAP Earnings Per Share for Q3 2025 was $0.34.

Stellus Capital Investment Corporation (SCM) - Canvas Business Model: Customer Segments

You're looking at the core clientele Stellus Capital Investment Corporation (SCM) targets for its financing activities, which directly informs where they deploy their capital.

Private middle-market companies (EBITDA of $5 million to $50 million)

SCM's investment objective centers on providing capital solutions to private middle-market companies. The typical target profile is quite specific regarding operational scale.

• SCM provides capital solutions to companies generating between $5 million and $50 million of EBITDA (earnings before interest, taxes, depreciation and amortization).
• The investment size per transaction generally falls between $10 million and $60 million.

Companies backed by high-quality Private Equity sponsors

A significant qualifier for SCM's customer segment is the involvement of private equity backing. This provides a layer of due diligence and partnership structure that SCM relies upon.

As of the third quarter of 2025, 99% of SCM's portfolio companies are backed by a private equity firm. Stellus Capital Management states that substantially all investments are in portfolio companies backed by high quality PE sponsors.

Income-focused public investors (stockholders)

This segment represents the direct owners of Stellus Capital Investment Corporation (SCM) shares, who are primarily interested in the total return generated by the company's lending activities.

For these stockholders, SCM declared an aggregate distribution of $0.40 per share for the three months ended September 30, 2025. Since commencing operations, total distributions received by investors equate to $318 million, or $17.75 per share. As of June 2, 2025, the approximate annualized dividend yield was reported at 12.2%, while a September 5, 2025 report noted a dividend yield of 10.9%.

Businesses headquartered in the United States and Canada

The geographic focus for SCM's lending activities is clearly defined, concentrating on North American businesses.

SCM prefers to invest in companies headquartered or with the majority of their operations located in the United States and Canada.

The overall portfolio composition as of September 30, 2025, included an investment portfolio valued at fair value of $1.01 billion across 115 portfolio companies.

SCM's investment structure for these customers heavily favors secured debt instruments.

• As of September 30, 2025, 98% of loans were secured.
• 90% of loans were priced at floating rates.
• 82% of the portfolio is rated a one or two, meaning on or ahead of plan at fair value.

Stellus Capital Investment Corporation (SCM) - Canvas Business Model: Cost Structure

You're looking at the hard numbers that drive Stellus Capital Investment Corporation's expenses for the third quarter ended September 30, 2025. Honestly, for a Business Development Company (BDC) like SCM, the cost of capital and management fees are the big levers, so let's break down what the books showed for that period.

The primary cost of running the business centers around financing its investment portfolio and paying the external manager, Stellus Capital Management, LLC. Here's a look at the key expense categories for the three months ended September 30, 2025.

Financing Costs and Management Fees

• Interest expense on borrowings, which includes amortization of deferred financing costs, totaled $8,949,075 for Q3 2025.
• Base management fees, paid to the Advisor, were $4,401,305 for the quarter.
• Income incentive fees accrued to the Advisor totaled $2,166,047, but due to the total return limitation in the Investment Advisory Agreement, $471,251 was waived.

Here's a quick table summarizing these major components of the operating expenses for the third quarter of 2025:

The total gross operating expenses for Stellus Capital Investment Corporation for the three months ended September 30, 2025, reached $17,611,519, resulting in net operating expenses of $17,140,268 after accounting for the fee waiver. That's a hefty chunk of the revenue generated.

Administrative and Compliance Costs

Costs associated with the day-to-day running of the BDC structure and meeting regulatory requirements are spread across several line items. Since Stellus Capital Investment Corporation is regulated as a BDC and also operates SBIC Funds, compliance is a non-trivial, ongoing expense. You'll see these costs reflected in the administrative and professional fees reported.

• Administrative services expenses for Q3 2025 were $592,409.
• Other general and administrative expenses were $227,037.
• Professional fees, which would capture significant legal and audit work related to BDC and SBIC regulatory compliance, amounted to $395,098 in the quarter.
• Valuation fees, another necessary cost for a regulated investment company, were $172,364.

Finance: draft 13-week cash view by Friday.

Stellus Capital Investment Corporation (SCM) - Canvas Business Model: Revenue Streams

You're looking at how Stellus Capital Investment Corporation (SCM) actually makes money, which is the heart of its business model. For a Business Development Company (BDC) like SCM, the revenue streams are pretty straightforward, revolving almost entirely around the debt and equity investments they make in middle-market companies. Honestly, it all comes down to the interest they collect and the profits they book when they sell an investment.

The primary engine for Stellus Capital Investment Corporation is the interest earned on its debt portfolio. This is the bread and butter. For instance, looking at the second quarter of 2025, the Total investment income was $25.7 million, which is heavily weighted toward this interest component from their debt investments. You see this reflected in the overall revenue figures, too; for the third quarter of 2025, Stellus Capital Investment Corporation posted total revenue of $26.28 million.

Beyond the regular interest payments, Stellus Capital Investment Corporation also captures revenue through various loan-related fees. This includes up-front fees and prepayment penalties on loans. These fees are important because they can provide a nice boost to income, especially when portfolio companies are paying off debt early or when new deals are closing. It's a way to monetize the transaction itself, not just the holding period.

The second major component of revenue comes from equity participation. This is where Stellus Capital Investment Corporation realizes gains when they exit an investment. You need to watch these closely, as they can be lumpy but significantly impact the bottom line. During the third quarter of 2025, management noted a realized gain of $2.8 million on an equity position. Looking ahead, the expectation for the fourth quarter of 2025 is an anticipated $3.8 million gain from realized gains from equity co-investments. This is a key driver for total returns, though it's less predictable than interest income.

The final category involves dividend and other income from equity positions. While the interest income drives the core Net Investment Income (NII), these equity dividends provide supplementary cash flow. The overall profitability metric you should track is the Net Investment Income (NII) per share, which shows how much the core lending activities generated relative to the share count. For the third quarter of 2025, Stellus Capital Investment Corporation reported a U.S. GAAP Net investment income (NII) of $0.32 per share. To be fair, the core NII, which excludes estimated excise taxes, was actually $0.34 per share for that same quarter.

Here's a quick look at how some of these key income metrics stacked up for the third quarter of 2025:

You can see the difference between GAAP NII and Core NII is often due to taxes, which is typical for a BDC structure. Also, remember that the total portfolio size directly impacts the interest income potential. As of the end of the third quarter of 2025, the investment portfolio stood at a fair value of $1.01 billion across 115 companies. The dividend declared for that same quarter was $0.40 per share, which is something to compare against the NII figures to gauge dividend coverage.

The revenue streams for Stellus Capital Investment Corporation can be summarized by their primary sources:

• Interest income from debt investments.
• Up-front fees and prepayment penalties on loans.
• Realized gains from equity co-investments.
• Dividend and other income from equity positions.

Finance: draft 13-week cash view by Friday.