Transactions with Related Parties

12 Months Ended

Dec. 31, 2025

Transactions with Related Parties [Abstract]

Transactions with Related Parties

Note 6. Transactions with Related Parties

Star Mountain Lower Middle-Market (Offshore) Ltd. (the “Feeder Fund”) was formed as a Cayman Islands exempted company and commenced operations on August 17, 2021. The Feeder Fund has been formed to invest all or substantially all of its investable assets in the common stock of the Company. As of December 31, 2025 and December 31, 2024, the Feeder Fund had $46,888,800 and $46,488,800 in capital committed to the Company, respectively, and an ownership percentage in the Company of 16.08% and 17.02%, respectively. As of December 31, 2025 and December 31, 2024, the Feeder Fund had no contributions payable to the Company, respectively.

Management Fees

The Company has entered into an investment advisory agreement with the Advisor (as amended and restated, the “Investment Advisory Agreement”), under which the Advisor, subject to the overall supervision of the Board, provides investment advisory services to the Company. The Company pays the Advisor a fee for its services under the Investment Advisory Agreement consisting of two components – a base management fee and an incentive fee. The cost of both the base management fee and the incentive fee are borne by the Company’s Stockholders, unless such fees are waived by the Advisor.

On June 14, 2023, the Company entered into an amended and restated investment advisory agreement with the Advisor (the “Amended and Restated Investment Advisory Agreement”), replacing the Investment Advisory Agreement pursuant to which effective June 14, 2023 (the “Effective Date”), the base management fee was reduced from 1.75% to 1.25% per annum of the average of the Company’s total gross assets (excluding cash or cash equivalents but including assets purchased with borrowed amounts) as of the end of each of the two most recently completed calendar quarters. The Advisor waived a portion of its Management Fee in excess of the base management fee calculated at the reduced rate of 1.25% for the period June 14, 2023 through September 30, 2023. Such fee waivers took effect on the Effective Date.

Management fees for the years ended December 31, 2025, 2024 and 2023 were $4,707,419, $4,464,449 and $5,183,339, respectively. For the years ended December 31, 2025, 2024 and 2023, Star Mountain Fund Management, LLC elected to voluntarily waive $0, $0 and $633,649, respectively, of such management fees. The management fees waived are not recoupable by Star Mountain Fund Management, LLC. There is no guarantee that Star Mountain Fund Management, LLC will waive management fees in the future, and Star Mountain Fund Management, LLC may discontinue or modify any such waivers in the future at its discretion. As of December 31, 2025 and December 31, 2024, $1,184,837 and $1,157,509 of management fees remained payable, respectively.

Incentive Fees

The incentive fee (“Incentive Compensation”) consists of two parts. The first component of the income incentive fee is payable quarterly in arrears. The Income Incentive Fee will be determined by comparing the Company’s pre-incentive fee net investment income for the preceding quarter. Pre-incentive fee net investment income means interest income, dividend income, PIK interest and any other income (including any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies but excluding fees for providing managerial assistance) accrued during the calendar quarter, minus operating expenses for the quarter (including the base management fee), any expenses payable under the administration agreement (the “Administration Agreement”) between the Company and the Administrator and any interest expense and dividends paid on any outstanding preferred stock, but excluding the incentive fee. Pre-incentive fee net investment income will include, in the case of investments with a deferred interest feature such as market discount, debt instruments with PIK interest, preferred stock with PIK dividends and zero-coupon securities, accrued income that the Company has not yet received in cash. The Advisor is not under any obligation to reimburse the Company for any part of the incentive fee it receives that was based on accrued interest that the Company never actually receives.

Pre-incentive fee net investment income does not include any realized capital gains or losses or unrealized capital gains or losses. If any distributions from portfolio companies are characterized as a return of capital, such returns of capital would affect the capital gains incentive fee to the extent a gain or loss is realized. Because of the structure of the incentive fee, it is possible that the Company may pay an incentive fee in a quarter where it incurs a loss. For example, if the Company receives pre-incentive fee net investment income in excess of the hurdle rate (as defined below) for a quarter, the Company will pay the applicable incentive fee even if it has incurred a loss in that quarter due to realized and unrealized capital losses.

Pre-incentive fee net investment income, expressed as a rate of return on the value of the Company’s net assets (defined as total assets less indebtedness and before taking into account any incentive fees payable during the period) at the end of the immediately preceding calendar quarter, is compared to a fixed “hurdle rate” of 1.75% per quarter (7% annually).

As of the Effective Date, the Income Incentive Fee rate was reduced from 20% to 17.5% of the Company’s pre-incentive fee net investment income.

Under the Amended and Restated Investment Advisory Agreement, the Company pays the Advisor an incentive fee with respect to its pre-incentive fee net investment income in each calendar quarter as follows:

• no incentive fee in any calendar quarter in which the pre-incentive fee net investment income does not exceed the hurdle rate of 1.75% (7% annually);

• 100% of the Company’s 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 or equal to the product of (i) 2.1212% per quarter (8.4848% annualized) and (ii) the Company’s net assets at the end of the immediately preceding quarter. The Company refers to this portion of the Company’s pre-incentive fee net investment income as the “catch-up” provision. The catch-up is meant to provide the Advisor with approximately 17.5% of the pre-incentive fee net investment income if a hurdle rate did not apply; and

• 17.5% of the Company’s pre-incentive fee net investment income that exceeds the “catch-up” provision. This provides that once the hurdle amount and the catch-up provision are achieved, 17.5% of all pre-incentive fee net investment income thereafter is allocated to the Advisor.

The second part of the incentive fee is a capital gains incentive fee that is determined and payable in arrears as of the end of each fiscal year (or upon termination of the Investment Advisory Agreement, as of the termination date). Under the Investment Advisory Agreement, the Capital Gains Incentive Fee was reduced from 20.0% to 17.5% of cumulative realized capital gains as of the end of the fiscal year.

In determining the capital gains incentive fee payable to the Advisor, the Company calculates the cumulative aggregate realized capital gains and cumulative aggregate realized capital losses since the Company’s inception, and the aggregate unrealized capital depreciation as of the date of the calculation, as applicable, with respect to each of the investments in the Company’s portfolio. For this purpose, cumulative aggregate realized capital gains, if any, equals the sum of the differences between the net sales price of each investment, when sold, and the amortized cost of such investment. Cumulative aggregate realized capital losses equals the sum of the amounts by which the net sales price of each investment, when sold, is less than the amortized cost of such investment since the Company’s inception. Aggregate unrealized capital depreciation equals the sum of the difference, if negative, between the valuation of each investment as of the applicable calculation date and the amortized cost of such investment. At the end of the applicable year, the amount of capital gains that will serve as the basis for the calculation of the capital gains incentive fee equals the cumulative aggregate realized capital gains less cumulative aggregate realized capital losses, less aggregate unrealized capital depreciation, with respect to the Company’s portfolio of investments. If this number is positive at the end of such year, then the capital gains incentive fee for such year equals 17.5% (reduced from 20.0%) of such amount, less the aggregate amount of any capital gains incentive fees paid in respect of the Company’s portfolio in all prior years.

While the Investment Advisory Agreement with the Advisor neither includes nor contemplates the inclusion of unrealized gains in the calculation of the capital gains incentive fee, pursuant to an interpretation of an American Institute for Certified Public Accountants Technical Practice Aid for investment companies, the Company includes unrealized gains in the calculation of the capital gains incentive fee expense and related accrued capital gains incentive fee. This accrual reflects the incentive fees that would be payable to the Advisor if the Company’s entire portfolio was liquidated at its fair value as of the balance sheet date even though the Advisor is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.

Income incentive fees for the years ended December 31, 2025, 2024 and 2023 were $3,410,081, $4,097,254 and $4,996,040, respectively. For the years ended December 31, 2025, 2024 and 2023 no capital gains incentive fees were accrued. For the years ended December 31, 2025, 2024 and 2023, Star Mountain Fund Management, LLC elected to voluntarily waive $0, $1,283,530 and $1,034,565 of such incentive fees, respectively. The incentive fees waived are not recoupable by Star Mountain Fund Management, LLC and there is no guarantee that Star Mountain Fund Management, LLC will waive incentive fees in the future, and Star Mountain Fund Management, LLC may discontinue or modify any such waivers in the future at its discretion. As of December 31, 2025 and December 31, 2024, $6,223,804 and $2,813,724 of such incentive fees remained payable, respectively.

Administration Fees

The Company has entered into the Administration Agreement with the Administrator, under which the Company reimburses the Administrator for its allocable portion of overhead and other expenses, including the costs of furnishing the Company with office facilities and equipment and providing clerical, bookkeeping, record-keeping and other administrative services at such facilities, and the Company’s allocable portion of the cost of the chief financial officer and chief compliance officer and their respective staffs. To the extent that the Administrator outsources any of its functions, the Company will pay the fees associated with such functions on a direct basis, without incremental profit, to the Administrator. For the years ended December 31, 2025, 2024 and 2023 the Company incurred reimbursement expenses of $624,205, $243,547 and $237,082, respectively, included under General and Administrative fees on the Consolidated Statements of Operations. As of December 31, 2025 and December 31, 2024, $146,408 and $77,275 of reimbursement expense was payable as shown in the Consolidated Statements of Assets and Liabilities as reimbursement expense payable, respectively.

The Administrator has entered into a sub-administration agreement with SS&C Technologies, Inc. (the “Sub-Administrator”), under which the Sub-Administrator provides various accounting and administrative services to the Company. Administrative services may include maintenance of the Company’s books and records, processing of investor transactions, and calculation of the NAV. For the years ended December 31, 2025, 2024 and 2023, the Company incurred expenses for services provided by the Sub-Administrator of $996,208, $743,140 and $636,927, respectively, which is included in professional fees on the Consolidated Statements of Operations. As of December 31, 2025 and December 31, 2024, there were no amounts payable for expenses incurred for services provided by the Sub-Administrator.

Directors’ Fees

The Company incurs certain fees and expenses paid to the Company’s independent directors (including expenses and costs related to meetings of the independent directors); for the years ended December 31, 2025, 2024 and 2023 directors’ expenses are $140,000, $143,750 and $91,250, respectively, as shown on the Consolidated Statements of Operations. As of December 31, 2025 and December 31, 2024, $35,000 and $35,000 of directors’ expenses remained payable, respectively, which is included in professional fees payable as shown on the Consolidated Statements of Assets and Liabilities.