What changed in this filing

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Item 1A. Risk Factors

2021-05-11 compared with 2020-05-12 · 672 added, 563 removed, 381 unchanged (76% of the section changed)

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The actual and perceived state of the economy and public capital markets generally;

Amendments or repeals of legislation, or changes in regulations or regulatory interpretations thereof, and

transitions of government, including uncertainty regarding any of the foregoing;

The national and global political environment, including foreign relations and trading policies;

The impact of potential changes to the tax code;

The impact of potential changes to the Code;

The attractiveness of other types of investments relative to investments in Lower Middle Market companies

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We could in the future have difficulty accessing debt and equity

capital, and a severe disruption in the global financial markets or deterioration in credit and financing conditions could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

significant changes in the capital markets have had, and may in the future have, a negative effect on the valuations of our investments and on the potential for liquidity events involving our investments.

An inability to raise capital, and any

required sale of our investments for liquidity purposes, could have a material adverse impact on our business, financial condition, results of operations, or cash flows.

capital, and a severe disruption in the global

financial markets or deterioration in credit and financing conditions could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

addition, significant changes in the capital markets have had, and may in the future have, a negative effect on the valuations of our investments and on the potential for liquidity events involving our investments.

An inability to raise capital, and

any required sale of our investments for liquidity purposes, could have a material adverse impact on our business, financial condition, results of operations, or cash flows.

Our business has been, and in the future could be further, adversely affected by the current coronavirus pandemic and related government actions.

As of the date of this Annual Report, there is a continuing outbreak of a novel and highly contagious form of coronavirus.

The World Health Organization

has declared the disease (COVID-19) it causes to constitute a pandemic.

The outbreak of COVID-19 has resulted in numerous deaths,

adversely impacted global commercial activity and contributed to significant volatility in certain equity and debt markets.

In response to the COVID-19 pandemic, many countries, including the U.S., reacted by

instituting quarantines, prohibiting travel and ordering the closure of offices, businesses, schools, retail stores and other public venues.

Businesses also implemented similar precautionary measures.

Such measures created significant disruptions in

and continue to adversely impact economic activity, particularly in the transportation, hospitality, tourism, entertainment and certain other industries.

As COVID-19 cases fluctuate, certain

governments have (and others in the future may) reinstituted these or other measures, which could further exacerbate the adverse impacts on economic activity.

As a result of these and other factors, the COVID-19 pandemic, and any future public health emergency or the threat

thereof, could have a significant adverse impact on us and our portfolio companies and could adversely affect our ability to fulfill our investment objectives.

The extent of the impact of COVID-19, or any public health emergency, on our operational and financial performance

will depend on many factors, including the duration and scope of such public health emergency, the extent of any related travel advisories and restrictions implemented, the impact of such public health emergencies on overall supply and demand, goods

and services, investor liquidity, consumer confidence and levels of economic activity and the extend of its disruption to important global, regional and local supply chains and economic markets, all of which are highly uncertain and cannot be

The effects of a public health emergency may materially and adversely impact the value and performance of our investments, our ability to

source, manage and divest investments and our ability to achieve our investment objectives, all of which could result in significant losses to us.

In addition, our operations and our Advisers operations may be significantly impacted, or even

temporarily or permanently halted, as a result of government quarantine measures, voluntary and precautionary restrictions on travel or meetings and other factors related to a public health emergency, including its potential adverse impact on the

health of our Advisers personnel.

Public health threats, including the COVID-19 pandemic, may

adversely impact the businesses in which we invest and affect our business, operating results, and financial condition.

Public health threats, such as COVID-19 or any other illness, may disrupt the operations of the businesses in which we invest.

Such threats can create economic and political uncertainties and can contribute to global economic

A public health threat poses the risk that our portfolio companies may have significantly reduced or be prevented from conducting business activities for an unknown period of time, including shutdowns that may be requested or

mandated by governmental authorities, or that they may experience disruptions in their supply chains or decreased consumer demand.

As governments ease restrictions, certain of our portfolio companies may experience increases in health and safety

expenses, payroll costs and other operating expenses.

These adverse economic impacts may decrease the value of our investments.

These negative impacts on our portfolio companies and their performance may increase realized and unrealized losses

related to our investments, which may, in turn, adversely impact our business, financial condition or results of operations.

Risks Related to Interest Rates

Market interest rates may have an effect on the value of our securities.

One of the factors that will influence the price of our securities will be the distribution yield on our securities (as a percentage of the price of our

securities) relative to market interest rates.

One of the factors that influences the price of our securities is the distribution yield on our securities (as a percentage of the price of our securities)

relative to market interest rates.

An increase in market interest rates, which are currently at low levels relative to historical rates, may lead prospective purchasers of our securities to expect a higher distribution yield.

addition, higher interest rates would likely increase our borrowing costs and potentially decrease funds available for distribution.

In addition, higher

interest rates would likely increase our borrowing costs and potentially decrease funds available for distribution.

As a result, higher market interest rates could cause the market price of our securities to decrease.

Our business has been, and in the future could be further, adversely affected by the recent coronavirus outbreak.

As of the date of this Form 10-K, there is an outbreak of a novel and highly contagious form of coronavirus (COVID-19), which the World Health Organization has declared to constitute a Public Health Emergency of International Concern.

The outbreak of COVID-19 has resulted in

numerous deaths adversely impacted global commercial activity and contributed to significant volatility in certain equity and debt markets.

The global impact of the outbreak is rapidly evolving, and many countries, including the U.S., have reacted

by instituting quarantines, prohibitions on travel and the closure of offices, businesses, schools, retail stores and other public venues.

Businesses are also implementing similar precautionary measures.

Such measures, as well as the general

uncertainty surrounding the dangers and impact of COVID-19, are creating significant disruption in supply chains and economic activity and are having a particularly adverse impact on transportation,

hospitality, tourism, entertainment and other industries.

As COVID-19 continues to spread, the potential impacts, including a global, regional or other economic recession, are increasingly uncertain and

difficult to assess.

Any public health emergency, including any outbreak of COVID-19, SARS, H1N1/09 flu, avian

flu, other coronavirus, Ebola or other existing or new epidemic diseases, or the threat thereof, could have a significant adverse impact on us and could adversely affect our ability to fulfill our investment objectives.

The extent of the impact of any public health emergency, including the COVID-19 pandemic, on our operational and

financial performance will depend on many factors, including the duration and scope of such public health emergency, the extent of any related travel advisories and restrictions implemented, the impact of such public health emergencies on overall

supply and demand, goods and services, investor liquidity, consumer confidence and levels of economic activity and the extent of its disruption to important global, regional and local supply chains and economic markets, all of which are highly

uncertain and cannot be predicted.

The COVID-19 pandemic has disrupted, and future public health emergencies may disrupt, the operations of the businesses in which we invest.

Certain of our portfolio companies

have experienced a significant reduction of their business activities, including as a result of shutdowns requested or mandated by governmental authorities, in connection with the COVID-19 pandemic (and may

experience similar outcomes in connection with future public health emergencies).

We cannot estimate the impact that a public health threat could have on our portfolio companies, but it could disrupt their businesses and their ability to make

interest or dividend payments and decrease the overall value of our investments which could adversely impact our business, financial condition or results of operations.

Further, our operations may be significantly impacted, or even temporarily or permanently halted, as a result of government quarantine measures, voluntary and

precautionary restrictions on travel or meetings and other factors related to a public health emergency, including its potential adverse impact on the health of the Advisers and Administrators personnel.

As a result, there is a risk that

this crisis could adversely impact our ability to source, manage and divest investments and our ability to achieve its investment objectives, all of which could result in significant losses to us and could impact our ability to make interest,

dividend and distribution payments to stockholders, including their respective size.

A change in interest rates may adversely affect our profitability and hedging arrangements may expose us to additional risks.

We anticipate using a combination of equity and long-term and short-term borrowings to finance our investment activities.

As a result, a portion of our income

will depend upon the spread between the rate at which we borrow funds and the rate at which we loan these funds.

An increase or decrease in interest rates could reduce the spread between the rate at which we invest and the rate at which we borrow,

and thus, adversely affect our profitability if we have not appropriately hedged against such event.

Alternatively, interest rate hedging arrangements may limit our ability to participate in the benefits of lower interest rates with respect to the

hedged portfolio.

Ultimately, we expect approximately 90.0% of the loans in our portfolio to be at variable rates determined on the basis of the LIBOR

and approximately up to 10.0% to be at fixed rates.

As of March 31, 2021, based on the total principal balance of debt investments outstanding, our portfolio consisted of 97.7% of loans at variable rates with floors and 2.3% at fixed rates.

As of March 31, 2021, we did not have any hedging arrangement, such as interest rate hedges.

While hedging arrangements may insulate us against

adverse fluctuations in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to the hedged portfolio.

Adverse developments resulting from changes in interest rates or any future hedging

transactions could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Our ability to receive payments pursuant to a hedging arrangement is linked to the ability of the counter-party to that

hedging arrangement to make the required payments.

To the extent that the counter-party to the hedging arrangement is unable to pay pursuant to the terms of the agreement, we may lose the hedging protection of the arrangement.

Also, the fair value of certain of our debt investments is based, in part, on the current market yields or interest rates of similar securities.

interest rates could have a significant impact on our determination of the fair value of these debt investments.

In addition, a change in interest rates could also have an impact on the fair value of any hedging arrangements then in effect that

could result in the recording of unrealized appreciation or depreciation in future periods.

Therefore, adverse developments resulting from changes in interest rates could have a material adverse effect on our business, financial condition, results

of operations, and cash flows.

Refer to Quantitative and Qualitative Disclosures About Market Risk for additional information on interest rate fluctuations.

The interest rates of some of our term loans to our portfolio companies are priced using a spread over LIBOR, which may be phased out in the future.

LIBOR is the basic rate of interest used in lending between banks on the London interbank market and is widely used as a reference for setting the

interest rate on loans globally.

In general, our investments in debt securities have a term of five years, accrue interest at variable rates based on LIBOR and, to a lesser extent, at fixed rates.

As of March 31, 2021, our loan portfolio

consisted of 97.7% variable rate loans with floors and 2.3% fixed rate loans based on the total principal balance of all outstanding debt investments.

As a result of concerns about the accuracy of the calculation of LIBOR, a number of British Bankers

Association (the BBA) member banks entered into settlements with certain regulators and law enforcement agencies with respect to the alleged manipulation of LIBOR.

Actions by the BBA, regulators or law enforcement agencies as a result of

these or future events, may result in changes to the manner in which LIBOR is determined.

Potential changes, or uncertainty related to such potential changes may adversely affect the market for LIBOR-based securities, including our portfolio of

LIBOR-indexed, floating-rate debt securities and our borrowings.

In addition, changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse

impact on the market for LIBOR-based securities or the value of our portfolio of LIBOR-indexed, floating-rate debt securities and our borrowings.

July 27, 2017, the United Kingdoms Financial Conduct Authority (FCA, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021.

However, the FCA has indicated it will not compel panel banks to

continue to contribute to LIBOR after the end of 2021.

Following consultations in December 2020 and January 2021, the ICE Benchmark Administration Limited (the IBA) announced that (i) it intends to cease publication of 1-week and 2-month U.S.

dollar LIBOR at the end of 2021 and (ii) subject to compliance with applicable regulations, it intends to continue publication of the remaining

dollar LIBOR tenors until June 30, 2023, effectively extending the LIBOR transition period to June 30, 2023.

There is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement rate.

The committee established by the Federal Reserve, the Alternative Reference Rates Committee, announced the replacement of LIBOR with a new index, based on overnight repurchase agreements collateralized by U.S.

Treasury securities, called the Secured

Overnight Financing Rate (SOFR).

The Federal Reserve Bank of New York began publishing SOFR in April 2018.

Other jurisdictions have also proposed their own alternative to LIBOR, including the Sterling Overnight Index Average for Sterling

markets, the Euro Short Term Rate for Euros and Tokyo Overnight Average Rate for Japanese Yens.

Although SOFR appears to be the preferred replacement rate for U.S.

dollar LIBOR, at this time, it is not possible to predict whether SOFR will attain

market traction as a LIBOR replacement tool, and the future of LIBOR is still uncertain.

The effect of any such changes, any establishment of alternative reference rates or any other reforms to LIBOR or other reference rates that may be enacted in

the United Kingdom or elsewhere cannot be predicted at this time, and it is not possible to predict whether LIBOR will continue to be viewed as an acceptable market benchmark, what rate or rates may become accepted alternatives to LIBOR, or what the

effect of any such changes in views or alternatives may have on the financial markets for financial instruments based on LIBOR.

To date, certain of the loan agreements with our portfolio companies have already been amended to include fallback

language providing a mechanism for the parties to negotiate a new reference interest rate in the event that LIBOR ceases to exist.

Factors such as the pace of the transition to replacement or reformed rates, the specific terms and parameters for and

market acceptance of any alternative reference rate, prices of and the liquidity of trading markets for products based on alternative reference rates, and our ability to transition and develop appropriate systems and analytics for one or more

alternative reference rates could also have a material adverse effect on our business, financial condition and results of operations.

In addition, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or

prolonged increase or decrease in reported LIBOR, which could have a material adverse effect on our business, financial condition, tax position and results of operations.

Risks Related to Our Investments

We operate in a highly competitive market for investment opportunities.

A large number of entities compete with us to make the types of investments we seek to make in Lower Middle Market companies.

We generally compete with public

and private buyout funds, commercial and investment banks, commercial financing companies, and, to the extent that they provide an alternative form of financing, hedge funds, mutual funds, and private equity.

Many of our competitors are

substantially larger and have considerably greater financial, technical and marketing resources than we do.

For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us.

In addition, some of

our competitors may have higher risk tolerances or different risk assessments, which would allow them to consider a wider variety of investments and establish more relationships than us.

Furthermore, many of our competitors are not subject to the

regulatory restrictions that the 1940 Act imposes on us as a BDC.

The competitive pressures we face could have a material adverse effect on our business, financial condition and results of operations.

Also, as a result of this competition, we may

not be able to take advantage of attractive investment opportunities from time to time and we can offer no assurance that we will be able to identify and make investments that are consistent with

our investment objectives.

We do not seek to compete based on the interest rates we offer, and we believe that some of our competitors may make loans with interest rates that will be comparable

to or lower than the rates we offer.

We operate in

a highly competitive market for investment opportunities.

A large number of entities compete with us to make the types of investments we seek to make

in Lower Middle Market companies.

We generally compete with public and private buyout funds, commercial and investment banks, commercial financing companies, and, to the extent that they provide an alternative form of financing, hedge funds, mutual

funds, and private equity.

Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do.

For example, some competitors may have a lower cost of funds and access to funding

sources that are not available to us.

In addition, some of our competitors may have higher risk tolerances or different risk assessments, which would allow them to consider a wider variety of investments and establish more relationships than us.

Furthermore, many of our

competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC.

The competitive pressures we face could have a material adverse effect on our business,

financial condition and results of operations.

Also, as a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time and we can offer no assurance that we will be able to identify and

make investments that are consistent with our investment objectives.

We do not seek to compete based on the interest rates we offer, and we believe that some of our competitors may make loans with interest rates that will be comparable to or lower

than the rates we offer.

We may lose investment opportunities if we do not match our competitors pricing, terms, and structure.

However, if we match our competitors pricing, terms, and structure, we may experience decreased

net interest income and increased risk of credit loss.

Our investments in Lower Middle Market portfolio companies are extremely risky and could cause

you to lose all or a part of your investment.

Investments in Lower Middle Market portfolio companies are subject to a number of significant risks

including the following:

However, if we match our competitors pricing, terms, and structure, we may experience decreased net interest

income and increased risk of credit loss.

Our investments in Lower Middle Market portfolio companies are extremely risky and could cause you to lose

all or a part of your investment.

Investments in Lower Middle Market portfolio companies are subject to a number of significant risks including the

Lower Middle Market businesses are likely to be more significantly impacted in economic downturns than larger

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guaranties we may have obtained from the borrowers management.

As of March 31, 2020, certain loans to four portfolio companies were on non-accrual status with an aggregate debt cost basis of

As of March 31, 2021, loans to three portfolio companies were on non-accrual status with an aggregate debt cost basis of

$61.1 million, or 12.4% of the cost basis of all debt investments in our portfolio.

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As a result, we rely on our officers, the Adviser and its employees,

Gladstone Securities and consultants to perform due diligence investigations of these portfolio companies, their operations, and their prospects.

Gladstone Securities and consultants to perform due diligence

investigations of these portfolio companies, their operations, and their prospects.

We may not learn all of the material information we need to know regarding these businesses through our

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While we intend to continue to

target stable companies with proven track records, we may make loans to new companies that meet our other investment criteria.

Portfolio companies with limited operating histories will be exposed to all of the operating risks that new businesses

face and may be particularly susceptible to, among other risks, market downturns, competitive pressures and the departure of key executive officers.

target stable companies with proven track records, we may invest in new companies that meet our other investment criteria.

Portfolio companies with limited operating histories will be exposed to all of the operating risks that new businesses face

and may be particularly susceptible to, among other risks, market downturns, competitive pressures and the departure of key executive officers.

Debt securities of Lower Middle Market companies typically are not rated by a credit rating agency .

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investment portfolio, several techniques are used, including, a total enterprise value approach, a yield analysis, and market quotes.

Currently, ICE Data Pricing and Reference Data, LLC provides estimates of fair value on generally all of our debt

investments that are not valued using total enterprise value (TEV) and we use another independent valuation firm to provide valuation inputs for our significant equity investments, which are generally valued using TEV, including earnings

multiple ranges, as well as other information.

In addition to these techniques, inputs and information, other factors are considered when determining fair value of our investments, including:

the nature and realizable value of the collateral,

including external parties guaranties;

Currently, ICE Data Pricing and Reference Data, LLC provides estimates of fair

value on generally all of our debt investments that are not valued using total enterprise value (TEV) and we use another independent valuation firm to provide valuation inputs for our

significant equity investments, which are generally valued using TEV, including earnings multiple ranges, as well as other information.

In addition to these techniques, inputs and information, other factors are considered when determining fair value

of our investments, including:

the nature and realizable value of the collateral, including external parties guaranties;

any relevant offers or letters of intent to acquire the portfolio company;

timing of expected loan repayments;

and the markets in which the portfolio company operates.

Refer to Managements

Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policy Investment Valuation for additional information on our valuation policies, procedures, and processes.

Fair value measurements of our investments may involve subjective judgments and estimates and, due to the uncertainty inherent in valuing these securities,

the determination of fair value may fluctuate from period to period and may differ materially from the values that could be obtained if a ready market for these securities existed.

Additionally, changes in the market environment and other events

that may occur over the life of the investment may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned.

Our NAV would be adversely affected if the fair value of our investments that are approved by our Board of Directors are higher than the values that we

ultimately realize upon the disposal of such securities.

The valuation process for certain of our portfolio holdings creates a conflict of interest.

markets in which the portfolio company operates.

Refer to Managements Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policy Investment Valuation for

additional information on our valuation policies, procedures, and processes.

Fair value measurements of our investments may involve subjective judgments

and estimates and, due to the uncertainty inherent in valuing these securities, the determination of fair value may fluctuate from period to period and may differ materially from the values that could be obtained if a ready market for these

securities existed.

Additionally, changes in the market environment and other events that may occur over the life of the investment may cause the gains or losses ultimately realized on these investments to be different than the valuations currently

Our NAV would be adversely affected if the fair value of our investments that are approved by our Board of Directors are higher than the values

that we ultimately realize upon the disposal of such securities.

The valuation process for certain of our portfolio holdings creates a conflict of

A substantial portion of our portfolio investments are securities for which market quotations are not readily available.

As a result, our Board of

Directors determines the fair value of these securities in good faith pursuant to the Policy.

In connection with that determination, our Valuation Team prepares portfolio company valuations based upon the most recent portfolio company financial

statements available and projected financial results of each portfolio company.

As a result, our

Board of Directors determines the fair value of these securities in good faith pursuant to the Policy.

In connection with that determination, our Valuation Team prepares portfolio company valuations based upon the most recent portfolio company

financial statements available and projected financial results of each portfolio company.

The participation of our Advisers investment professionals in our valuation process and Mr.

Gladstones pecuniary interest in our

Adviser may result in a conflict of interest, as the management fees that we pay our Adviser are based on our average gross assets, less uninvested cash or cash equivalents from borrowings, and

adjusted appropriately for any share issuances or repurchases during the period.

The lack of liquidity of our privately-held investments may adversely

affect our business.

Gladstones pecuniary interest in our Adviser may

result in a conflict of interest, as the management fees that we pay our Adviser are based on our average gross assets, less uninvested cash or cash equivalents from borrowings, and adjusted appropriately for any share issuances or repurchases

during the period.

The lack of liquidity of our privately-held investments may adversely affect our business.

We will generally make investments in private companies whose securities are not traded in any public market.

Substantially all

of the investments we presently hold and the investments we expect to acquire in the future are, and will be, subject to legal and other restrictions on resale and will otherwise be less liquid than publicly-traded securities.

The illiquidity of our

investments may make it difficult for us to quickly obtain cash equal to the value at which we record our investments if the need arises.

Substantially all of the investments we

presently hold and the investments we expect to acquire in the future are, and will be, subject to legal and other restrictions on resale and will otherwise be less liquid than publicly-traded securities.

The illiquidity of our investments may make

it difficult for us to quickly obtain cash equal to the value at which we record our investments if the need arises.

This could cause us to miss important investment opportunities.

In addition, if we are required to liquidate

all or a portion of our portfolio quickly, we may record substantial realized losses upon liquidation.

We may also face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we, the Adviser, the

Administrator, or our respective officers, or affiliates have material non-public information regarding such portfolio company.

Due to the uncertainty inherent in valuing these securities, the Advisers determinations of fair value may differ materially from the values that could

be obtained if a ready market for these securities existed.

Our NAV could be materially affected if the Advisers determinations regarding the fair value of our investments are materially different from the values that we ultimately realize

upon our disposal of such securities.

Additional discussion regarding risks associated with determinations made by the Adviser is found in the risk factor The valuation process for certain of our portfolio holdings creates a conflict of

Our financial results could be negatively affected if a significant portfolio investment fails to perform as expected.

In addition, if we are required to liquidate all or a portion of our

portfolio quickly, we may record substantial realized losses upon liquidation.

We may also face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we, the Adviser, the Administrator, or our

respective officers, or affiliates have material non-public information regarding such portfolio company.

the uncertainty inherent in valuing these securities, the Advisers determinations of fair value may differ materially from the values that could be obtained if a ready market for these securities existed.

Our NAV could be materially affected

if the Advisers determinations regarding the fair value of our investments are materially different from the values that we ultimately realize upon our disposal of such securities.

Additional discussion regarding risks associated with

determinations made by the Adviser is found in the risk factor The valuation process for certain of our portfolio holdings creates a conflict of interest.

Our financial results could be negatively affected if a significant portfolio investment fails to perform

Our total investment in one or more companies may be significant individually or in the aggregate.

As a result, if a significant investment in one or more

companies fails to perform as expected, our financial results could be more negatively affected and the magnitude of the loss could be more significant than if we had made smaller investments in more companies.

Our five largest investments

represented more than 35% of the fair value of our total portfolio as of March 31, 2020 and 2019.

Any disposition of a significant investment in one or more portfolio companies may negatively impact our net investment income and limit our

ability to pay distributions.

The interest rates of some of our term loans to our portfolio companies are priced using a spread over LIBOR, which may

be phased out in the future.

LIBOR is the basic rate of interest used in lending between banks on the London interbank market and is widely used as a

reference for setting the interest rate on loans globally.

In general, our investments in debt securities have a term of five years, accrue interest at variable rates based on LIBOR and, to a lesser extent, at fixed rates.

As of March 31, 2020,

our loan portfolio consisted of 97.5% variable rate loans with floors and 2.5% fixed rate loans based on the total principal balance of all outstanding debt investments.

As a result of concerns about the accuracy of the calculation of LIBOR, a number of British Bankers Association (the BBA) member banks

entered into settlements with certain regulators and law enforcement agencies with respect to the alleged manipulation of LIBOR.

Actions by the BBA, regulators or law enforcement agencies as a result of these or future events, may result in changes

to the manner in which LIBOR is determined.

Potential changes, or uncertainty related to such potential changes may adversely affect the market for LIBOR-based securities, including our portfolio of LIBOR-indexed, floating-rate debt securities and

our borrowings.

In addition, changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market for LIBOR-based securities or

the value of our portfolio of LIBOR-indexed, floating-rate debt securities and our borrowings.

On July 27, 2017, the United Kingdoms Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the

It is unclear if at that time whether or not LIBOR will cease to exist or new methods of calculating LIBOR will be established such that it continues to exist after 2021.

The Fed, in conjunction with the Alternative Reference Rates

Committee, a steering committee comprised of large U.S.

financial institutions, announced replacement of U.S.

dollar LIBOR with a new index calculated by short-term repurchase agreements, backed by U.S.

Treasury securities, called the Secured

Overnight Financing Rate (SOFR).

The first publication of SOFR was released in April 2018.

Whether or not SOFR, or another alternative reference rate, attains market traction as a LIBOR replacement tool remains in question, and the

future of LIBOR at this time remains uncertain.

However, we expect we will need to renegotiate certain loan documents with our portfolio companies that utilize LIBOR as a factor in determining the interest rate to replace LIBOR with the new standard

that is established and may also need to renegotiate certain provisions of the Credit Facility.

The effect of the establishment of alternative reference rates or any other reforms to LIBOR or other

reference rates (including whether LIBOR will continue to be an acceptable market benchmark) cannot be predicted at this time, and the transition away from LIBOR and other current reference rates to alternative reference rates is complex and could

have a material adverse effect on our business, financial condition and results of operations.

Factors such as the pace of the transition to replacement or reformed rates, the specific terms and parameters for and market acceptance of any

alternative reference rate, prices of and the liquidity of trading markets for products based on alternative reference rates, and our ability to transition and develop appropriate systems and analytics for one or more alternative reference rates

could also have a material adverse effect on our business, financial condition and results of operations.

We typically invest in transactions

involving acquisitions, buyouts and recapitalizations of companies, which will subject us to the risks associated with change in control transactions.

Our strategy, in part, includes making debt and equity investments in companies in connection with acquisitions, buyouts and recapitalizations, which subjects

us to the risks associated with change in control transactions.

As a result, if a significant

investment in one or more companies fails to perform as expected, our financial results could be more negatively affected and the magnitude of the loss could be more significant than if we had made smaller investments in more companies.

largest investments represented more than 35% of the fair value of our total portfolio as of March 31, 2021 and 2020.

Any disposition of a significant investment in one or more portfolio companies may negatively impact our net investment income

and limit our ability to pay distributions.

We typically invest in transactions involving acquisitions, buyouts and recapitalizations of companies,

which will subject us to the risks associated with change in control transactions.

Our strategy, in part, includes making debt and equity investments

in companies in connection with acquisitions, buyouts and recapitalizations, which subjects us to the risks associated with change in control transactions.

Change in control transactions often present a number of uncertainties.

Companies undergoing change in control transactions often face challenges retaining key employees and maintaining

relationships with customers and suppliers.

While we hope to avoid many of these difficulties by participating in transactions where the management team is retained and by conducting thorough due diligence in advance of our decision to invest, if

our portfolio companies experience one or more of these problems, we may not realize the value that we expect in connection with our investments, which would likely harm our operating results, financial condition, and cash flows.

Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies and/or we could be subject to lender

liability claims.

We primarily invest in secured first and second lien debt securities issued by our portfolio companies.

In some cases, portfolio

companies will be permitted to have other debt that ranks equally with, or senior to, the debt securities in which we invest.

By their terms, such debt securities may provide that the holders thereof are entitled to receive payment of interest and

principal on or before the dates on which we are entitled to receive payments in respect of the debt securities in which we invest.

Also, in the event of insolvency, liquidation, dissolution, reorganization, or bankruptcy of a portfolio company,

holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution in respect of our investment.

Additionally, depending on the facts and

circumstances, including the extent to which we provide managerial assistance to any portfolio company subject to bankruptcy, a bankruptcy court might re-characterize our debt investments and subordinate all

or a portion of our claims to that of other creditors.

After repaying such senior creditors, such portfolio company may not have any remaining assets to use for repaying its obligation to us.

We may also be subject to lender liability claims for

actions taken by us with respect to a borrowers business or in instances in which we exercised control over the borrower as a result of actions taken in rendering any managerial assistance.

Furthermore, in the case of debt ranking equally with

debt securities in which we invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization, or bankruptcy of a portfolio company.

Our portfolio is concentrated in a limited number of companies and industries, which subjects us to an increased risk of significant loss if any one of

these companies does not repay us or if the industries experience downturns.

As of March 31, 2020, we had investments in 28 portfolio companies,

the five largest of which included J.R.

Hobbs, Brunswick, Counsel Press, Bassett Creek, and The Maids, and comprised $206.9 million, or 36.5%, of our total investment portfolio, at fair value.

A consequence of a limited number of investments is

that the aggregate returns we realize may be substantially adversely affected by the unfavorable performance of a small number of such investments or a substantial write-down of any one investment, including the potential impact of the COVID-19 pandemic (or similar future public health emergencies).

Beyond our regulatory and income tax diversification requirements, as well as Credit Facility requirements, we do not have fixed guidelines for

industry concentration and our investments could potentially be concentrated in relatively few industries.

In addition, while we do not intend to invest 25% or more of our total assets in a particular industry or group of industries at the time of

investment, it is possible that as the values of our portfolio companies change, one industry or a group of industries may comprise in excess of 25% of the value of our total assets.

A downturn in a particular industry in which we have invested a

significant portion of our total assets could have a materially adverse effect on us.

Companies undergoing

change in control transactions often face challenges retaining key employees and maintaining relationships with customers and suppliers.

While we hope to avoid many of these difficulties by participating in transactions where the management team is

retained and by conducting thorough due diligence in advance of our decision to invest, if our portfolio companies experience one or more of these problems, we may not realize the value that we expect in connection with our investments, which would

likely harm our operating results, financial condition, and cash flows.

Our portfolio companies may incur debt that ranks equally with, or senior to,

our investments in such companies and/or we could be subject to lender liability claims.

We primarily invest in secured first and second lien debt

securities issued by our portfolio companies.

In some cases, portfolio companies will be permitted to have other debt that ranks equally with, or senior to, the debt securities in which we invest.

By their terms, such debt securities may provide

that the holders thereof are entitled to receive payment of interest and principal on or before the dates on which we are entitled to receive payments in respect of the debt securities in which we invest.

Also, in the event of insolvency,

liquidation, dissolution, reorganization, or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any

distribution in respect of our investment.

Additionally, depending on the facts and circumstances, including the extent to which we provide managerial assistance to any portfolio company subject to bankruptcy, a bankruptcy court might re-characterize our debt investments and subordinate all or a portion of our claims to that of other creditors.

After repaying such senior creditors, such portfolio company may not have any remaining assets to use

for repaying its obligation to us.

We may also be subject to lender liability claims for actions taken by us with respect to a borrowers business or in instances in which we exercised control over the borrower as a result of actions taken in

rendering any managerial assistance.

Furthermore, in the case of debt ranking equally with debt securities in which we invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an

insolvency, liquidation, dissolution, reorganization, or bankruptcy of a portfolio company.

Our portfolio is concentrated in a limited number of

companies and industries, which subjects us to an increased risk of significant loss if any one of these companies does not repay us or if the industries experience downturns.

As of March 31, 2021, we had investments in 28 portfolio companies, the five largest of which included Pioneer Square, Counsel Press, Old World, J.R.

Hobbs, and Bassett Creek, and comprised $233.9 million, or 36.9%, of our total investment portfolio, at fair value.

A consequence of a limited number of investments is that the aggregate returns we realize may be substantially adversely

affected by the unfavorable performance of a small

number of such investments or a substantial write-down of any one investment, including the potential impact of the COVID-19 pandemic (or similar future

public health emergencies).

Beyond our regulatory and income tax diversification requirements, as well as Credit Facility requirements, we do not have fixed guidelines for industry concentration and our investments could potentially be concentrated

in relatively few industries.

In addition, while we do not intend to invest 25% or more of our total assets in a particular industry or group of industries at the time of investment, it is possible that as the values of our portfolio companies

change, one industry or a group of industries may comprise in excess of 25% of the value of our total assets.

A downturn in a particular industry in which we have invested a significant portion of our total assets could have a materially adverse

effect on us.

As of March 31, 2021, our largest industry concentration was in Diversified/Conglomerate Services, representing 41.3% of our total investments, at fair value.

Our investments are typically long-term and will require several years to realize liquidation events.

Since we generally make five year term loans and hold our loans and equity positions until the loans mature and/or we exit the investment, investors

should not expect realization events, if any, to occur over the near term.

In addition, we expect that any equity investments may require several years to appreciate in value and we cannot give any assurance that such appreciation will occur or

ultimately be realized.

Since we generally make five year term loans and hold our loans and equity positions until the loans mature and/or we exit the investment, investors should not

expect realization events, if any, to occur over the near term.

In addition, we expect that any equity investments may require several years to appreciate in value and we cannot give any assurance that such appreciation will occur or ultimately be

The disposition of our investments may result in contingent liabilities.

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No range of potential expenses, costs or damages in connection with these matters can be estimated at this time.

Any unrealized depreciation we experience on our investment portfolio may be an indication of future realized losses, which could reduce any gains

available for distribution.

As a BDC, we are required to carry our investments at market value or, if no market value is ascertainable, at fair value

as determined in good faith by or under the direction of our Board of Directors.

Any unrealized depreciation we experience on our investment portfolio may be an indication of future

realized losses, which could reduce any gains available for distribution.

As a BDC, we are required to carry our investments at market value or, if no

market value is ascertainable, at fair value as determined in good faith by or under the direction of our Board of Directors.

We will record decreases in the market values or fair values of our investments as unrealized depreciation.

Since our inception, we have, at times, incurred a

cumulative net unrealized depreciation of our portfolio.

Any unrealized depreciation in our investment portfolio could result in realized losses in the future and ultimately in reductions of any gains available for distribution to stockholders in

future periods.

inception, we have, at times, incurred a cumulative net unrealized depreciation of our portfolio.

Any unrealized depreciation in our investment portfolio could result in realized losses in the future and ultimately in reductions of any gains

available for distribution to stockholders in future periods.

Risks Related to Our External Financing

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As of March 31, 2021, we, through our wholly-owned subsidiary, Business Investment,

had $49.2 million in borrowings, at cost, outstanding under the Credit Facility, which provides for maximum borrowings of $200.0 million, with a revolving period end date of August 22, 2021 (the Revolving Period End Date).

had $22.4 million in borrowings, at cost, outstanding under the Credit Facility, which provides for maximum borrowings of $180.0 million, with a revolving period end date of February 29, 2024 (the Revolving Period End

The Credit Facility permits us to fund additional loans and investments as long as we are within the conditions and covenants set forth in the credit agreement.

Among other things, the Credit Facility contains covenants that require Business

Investment to maintain its status as a separate legal entity, prohibit certain significant corporate transactions (such as mergers, consolidations, liquidations or dissolutions) and restrict certain material changes to our credit and collection

policy without the lenders consent.

The Credit Facility also generally seeks to restrict distributions to stockholders to the sum of (i) our net investment income, (ii) net capital

gains, and (iii) amounts deemed by the Company to be considered as having been paid during the prior fiscal year in accordance with Section 855(a) of the Code.

Loans eligible to be

pledged as collateral are subject to certain limitations, including, among other things, restrictions on geographic concentrations, industry concentrations, loan size, payment frequency and status, average life, portfolio company leverage, and lien

The Credit Facility also requires Business Investment to comply with other financial and operational covenants, which obligate Business Investment to, among other things, maintain certain financial ratios, including asset and interest

coverage and a minimum number of obligors in the borrowing base.

Additionally, the Credit Facility contains a performance guaranty that requires the Company to maintain (i) a minimum net worth (defined in the Credit Facility to include our

mandatorily redeemable term preferred stock) of the greater of $210.0 million or $210.0 million plus 50% of all equity and subordinated debt raised minus 50% of any equity or subordinated debt redeemed or retired after November 16,

2016, which equated to $220.3 million as of March 31, 2020, (ii) asset coverage with respect to senior securities representing indebtedness of at least 150% (or such percentage as may be set forth in Section 18 of the 1940 Act, as

modified by Section 61 of the 1940 Act);

and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code.

As of March 31, 2020, and as defined in the performance guaranty of the Credit Facility, we had a net worth of

$497.2 million, asset coverage on our senior securities representing indebtedness of 993.5%, calculated in accordance with the requirements of Sections 18 and 61 of the 1940 Act, and an active status as a BDC and RIC.

As of March 31, 2020,

we were in compliance with all covenants under the Credit Facility;

Among other things, the Credit Facility contains covenants that require

Business Investment to maintain its status as a separate legal entity, prohibit certain significant corporate transactions (such as mergers, consolidations, liquidations or dissolutions) and restrict certain material changes to our credit and

collection policy without the lenders consent.

The Credit Facility also generally seeks to restrict distributions to stockholders to the sum of (i) our net investment income, (ii) net capital gains, and (iii) amounts deemed by

the Company to be considered as having been paid during the prior fiscal year in accordance with Section 855(a) of the Code.

Loans eligible to be pledged as collateral are subject to certain limitations, including, among other things,

restrictions on geographic concentrations, industry concentrations, loan size, payment frequency and status, average life, portfolio company leverage, and lien property.

The Credit Facility also requires Business Investment to comply with other

financial and operational covenants, which obligate Business Investment to, among other things, maintain certain financial ratios, including asset and interest coverage and a minimum number of obligors in the borrowing base.

Additionally, the Credit

Facility contains a performance guarantee that requires the Company to maintain (i) a minimum net worth (defined in the Credit Facility to include our mandatorily redeemable term preferred stock) of the greater of $210.0 million or

$210.0 million plus 50% of all equity and subordinated debt raised minus 50% of any equity or subordinated debt redeemed or retired after November 16, 2016, which equated to $266.2 million as of March 31, 2021, (ii) asset

coverage with respect to senior securities representing indebtedness of at least 150% (or such percentage as may be set forth in Section 18 of the 1940 Act, as modified by Section 61 of the 1940 Act);

and (iii) our status as a BDC

under the 1940 Act and as a RIC under the Code.

As of March 31, 2021, and as defined in the performance guaranty of the Credit Facility, we had a net worth of $597.1 million, asset coverage on our senior securities representing

indebtedness of 398.0%, calculated in accordance with the requirements of Sections 18 and 61 of the 1940 Act, and an active status as a BDC and RIC.

As of March 31, 2021, we were in compliance with all covenants under the Credit Facility;

however, our continued compliance depends on many factors, some of which are beyond our control.

Given the continued uncertainty in the capital markets, any unrealized depreciation in our portfolio may increase in future periods and threaten our ability

to comply with the minimum net worth covenant and other covenants under the Credit Facility.

Our failure to satisfy these covenants could result in foreclosure by our lenders, which would accelerate our repayment obligations under the facility and

thereby have a material adverse effect on our business, liquidity, financial condition, results of operations, cash flows, and ability to pay distributions to our stockholders.

Any inability to renew, extend or replace the Credit Facility on terms favorable to us, or at all, could adversely impact our liquidity and ability to fund

new investments or maintain distributions to our stockholders.

If the Credit Facility is not renewed or extended by the Revolving Period End Date, all

principal and interest will be due and payable on August 22, 2023 (two years after the Revolving Period End Date).

Subject to certain terms and conditions, the Credit Facility may be expanded to a total of $300.0 million through additional

commitments of existing or new lenders.

However, if such lenders are unwilling to provide additional commitments under the terms of the Credit Facility, we will be unable to expand the Credit Facility and thus will continue to have limited

availability to finance new investments under the Credit Facility.

There can be no guaranty that we will be able to renew, extend or replace the Credit Facility upon its Revolving Period End Date on terms that are favorable to us, if at

Our ability to expand the Credit Facility, and to obtain replacement financing at or before the time of its Revolving Period End Date, will be constrained by then current economic conditions affecting the credit markets.

that we are not able to expand the Credit Facility, or to renew, extend or refinance the Credit Facility by the Revolving Period End Date, this could have a material adverse effect on our liquidity and ability to fund new investments, our ability to

make distributions to our stockholders and our ability to qualify as a RIC under the Code.

If we are unable to secure replacement financing, we may be

forced to sell certain assets on disadvantageous terms, which may result in realized losses, and such realized losses could materially exceed the amount of any unrealized depreciation on these assets as of our most recent balance sheet date, which

would have a material adverse effect on our results of operations.

Such circumstances would also increase the likelihood that we would be required to redeem some or all of our outstanding mandatorily redeemable preferred stock, which could

potentially require us to sell more assets.

In addition to selling assets, or as an alternative, we may issue common equity in order to repay amounts outstanding under the Credit Facility.

Depending upon the trading prices of our common stock (and

with the approval of our independent directors and stockholders), such an equity offering may have a dilutive impact on our existing stockholders interest in our earnings, assets and voting interest in us.

If we are able to renew, extend or

refinance the Credit Facility prior to maturity, renewal, extension or refinancing, it could potentially result in significantly higher interest rates and related charges and may impose significant restrictions on the use of borrowed funds to fund

investments or maintain distributions to stockholders.

Because we expect to distribute substantially all of our Investment Company Taxable Income, at least 90%,

on an annual basis, our business plan is dependent upon external financing, which is constrained by the limitations of the 1940 Act.

There can be no

assurance that we will be able to raise capital through issuing equity in the near future.

Our business requires a substantial amount of cash to operate and grow.

Any unrealized depreciation in our portfolio may

increase in future periods and threaten our ability to comply with the minimum net worth covenant and other covenants under the Credit Facility.

Our failure to satisfy these covenants could result in foreclosure by our lenders, which would

accelerate our repayment obligations under the facility and thereby have a material adverse effect on our business, liquidity, financial condition, results of operations, cash flows, and ability to pay distributions to our stockholders.

Any inability to renew, extend or replace the Credit Facility on terms favorable to us, or at all, could

adversely impact our liquidity and ability to fund new investments or maintain distributions to our stockholders.

If the Credit Facility is not

renewed or extended by the Revolving Period End Date, all principal and interest will be due and payable on February 28, 2026 (two years after the Revolving Period End Date).

Subject to certain terms and conditions, the Credit Facility may be

expanded to a total of $300.0 million through additional commitments of existing or new lenders.

However, if such lenders are unwilling to provide additional commitments under the terms of the Credit Facility, we will be unable to expand the

Credit Facility and thus will continue to have limited availability to finance new investments under the Credit Facility.

There can be no guaranty that we will be able to renew, extend or replace the Credit Facility upon its Revolving Period End

Date on terms that are favorable to us, if at all.

Our ability to expand the Credit Facility, and to obtain replacement financing at or before the time of its Revolving Period End Date, will be constrained by then current economic conditions

affecting the credit markets.

In the event that we are not able to expand the Credit Facility, or to renew, extend or refinance the Credit Facility by the Revolving Period End Date, this could have a material adverse effect on our liquidity and

ability to fund new investments, our ability to make distributions to our stockholders and our ability to qualify as a RIC under the Code.

unable to secure replacement financing, we may be forced to sell certain assets on disadvantageous terms, which may result in realized losses, and such realized losses could materially exceed the amount of any unrealized depreciation on these assets

as of our most recent balance sheet date, which would have a material adverse effect on our results of operations.

Such circumstances would also increase the likelihood that we would be required to redeem some or all of our outstanding mandatorily

redeemable preferred stock, which could potentially require us to sell more assets.

In addition to selling assets, or as an alternative, we may issue common equity to repay amounts outstanding under the Credit Facility.

Depending upon the trading

prices of our common stock (and with the approval of our independent directors and stockholders), such an equity offering may have a dilutive impact on our existing stockholders interest in our earnings, assets and voting interest in us.

are able to renew, extend or refinance the Credit Facility prior to maturity, renewal, extension or refinancing, it could potentially result in significantly higher interest rates and related charges and may impose significant restrictions on the

use of borrowed funds to fund investments or maintain distributions to stockholders.

Because we expect to distribute substantially all of our

Investment Company Taxable Income, at least 90%, on an annual basis, our business plan is dependent upon external financing, which is constrained by the limitations of the 1940 Act.

There can be no assurance that we will be able to raise capital through issuing equity in the near future.

Our business requires a substantial amount of cash

to operate and grow.

We may acquire such additional capital from the following sources:

Senior Securities:

We may issue senior securities representing indebtedness (including borrowings under

the Credit Facility) and senior securities that are stock (including our Series D Term Preferred Stock and Series E Term Preferred Stock), up to the maximum amount permitted by the 1940 Act.

The 1940 Act currently permits us, as a BDC, to issue

senior securities representing indebtedness and senior securities which are stock, in amounts such that our asset coverage, as defined in Section 18(h) of the 1940 Act, is at least 150% on each such senior security immediately after each

issuance of each such senior security.

We may issue senior securities representing indebtedness (including borrowings under the

Credit Facility and our 2026 Notes) and senior securities that are stock (including our Series E Term Preferred Stock), up to the maximum amount permitted by the 1940 Act.

The 1940 Act currently permits us, as a BDC, to issue senior securities

representing indebtedness and senior securities which are stock, in amounts such that our asset coverage, as defined in Section 18(h) of the 1940 Act, is at least 150% on each such senior security immediately after each issuance of each such

senior security.

As a result of issuing senior securities (in whatever form), we will be exposed to the risks associated with leverage.

Although borrowing money for investments increases the potential for gain, it also

increases the risk of a loss.

Although borrowing money for investments increases the potential for gain, it also increases the risk of a loss.

A decrease in the value of our investments will have a greater impact on the value of our common stock to the extent that we have borrowed money to make investments.

There is a possibility that the costs of borrowing

could exceed the income we receive on the investments we make with such borrowed funds.

In addition, our ability to pay distributions, issue senior securities or repurchase shares of our common stock would be restricted if the asset coverage on each

of our senior securities is not at least 150%.

There is a possibility that the costs of borrowing could exceed the income we

receive on the investments we make with such borrowed funds.

In addition, our ability to pay distributions, issue senior securities or repurchase shares of our common stock would be restricted if the asset coverage on each of our senior securities

is not at least 150%.

If the aggregate fair value of our assets declines, we might be unable to satisfy that 150% requirement.

To satisfy the 150% asset coverage requirement in the event that we are seeking to pay a

distribution, we might either have to (i) liquidate a portion of our loan portfolio to repay a portion of our indebtedness or (ii) issue common stock.

This may occur at a time when a sale of a portfolio asset may be disadvantageous, or

when we have limited access to capital markets on agreeable terms.

In addition, any amounts that we use to service our indebtedness, pay dividends on our preferred stock or for offering costs will not be available for distributions to common

stockholders.

Pursuant to Section 61(a)(3) of the 1940 Act, we are permitted, under specified conditions, to issue multiple classes of senior securities representing indebtedness.

However, pursuant to Section 18(c) of the 1940 Act, we are

permitted to issue only one class of senior securities that are stock.

To satisfy the 150% asset coverage requirement in

the event that we are seeking to pay a distribution, we might either have to (i) liquidate a portion of our loan portfolio to repay a portion of our indebtedness or (ii) issue common

This may occur at a time when a sale of a portfolio asset may be disadvantageous, or when we have limited access to capital markets on agreeable terms.

In addition, any amounts that we use to service our indebtedness, pay dividends on our

preferred stock or for offering costs will not be available for distributions to common stockholders.

Pursuant to Section 61(a)(3) of the 1940 Act, we are permitted, under specified conditions, to issue multiple classes of senior securities

representing indebtedness.

However, pursuant to Section 18(c) of the 1940 Act, we are permitted to issue only one class of senior securities that are stock.

Common and Convertible Preferred Stock :

Because we are constrained in our ability to issue debt or senior

securities for the reasons given above, we are dependent on the issuance of equity as a financing source.

If we raise additional funds by issuing more common stock, the percentage ownership of our common stockholders at the time of the issuance

would decrease and our existing common stockholders may experience dilution.

In addition, under the 1940 Act, we will generally not be able to issue additional shares of our common stock at a price below NAV per common share to purchasers, other

than to our existing common stockholders through a rights offering, without first obtaining the approval of our stockholders and our independent directors.

If we were to sell shares of our common stock below our then current NAV per common share, as

we did at times during March 2018 under the at-the-market program, and in other offerings in May 2017, March 2015, and October 2012, such sales would result in an

immediate dilution to the NAV per common share.

securities for the reasons given above, we may at times be dependent on the issuance of equity as a financing source.

If we raise additional funds by issuing more common stock, the percentage ownership of our common stockholders at the time of the

issuance would decrease and our existing common stockholders may experience dilution.

In addition, under the 1940 Act, we will generally not be able to issue additional shares of our common stock at a price below NAV per common share to purchasers,

other than to our existing common stockholders through a rights offering, without first obtaining the approval of our stockholders and our independent directors.

If we were to sell shares of our common stock below our then current NAV per common

share, as we did at times during March 2018 under the at-the-market program, and in other offerings in May 2017, March 2015, and October 2012, such sales would result in

an immediate dilution to the NAV per common share.

This dilution would occur as a result of the sale of common shares at a price below the then current NAV per share of our common stock and a proportionately greater decrease in a common

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The use of leverage, including through the issuance of senior securities that

are debt or stock, magnifies the potential for gain or loss on amounts invested, and, if we incur additional leverage as permitted by the Small Business Credit Availability Act (the SBCAA), this potential will be further magnified.

have incurred leverage in the past and currently incur leverage through the Credit Facility and shares of our mandatorily redeemable preferred stock and, from time to time, may incur additional leverage to the extent permitted under the 1940 Act.

are debt or stock, magnifies the potential for gain or loss on amounts invested.

We have incurred leverage in the past and currently incur leverage through the Credit Facility, the 2026 Notes and shares of our mandatorily redeemable preferred stock

and, from time to time, may incur additional leverage to the extent permitted under the 1940 Act.

The use of leverage is generally considered a speculative investment technique and increases the risks associated with investing in our securities.

In the future, we may borrow from, and issue senior securities to, banks and other lenders.

of these senior securities will have fixed dollar claims on our assets that are superior to the claims of our common stockholders, and we would expect such holders to seek recovery against our assets in the event of a default.

the future, we may borrow from, and issue senior securities to, banks and other lenders.

Holders of these senior securities will have fixed dollar claims on our assets that are superior to the claims of our common stockholders, and we would expect

such holders to seek recovery against our assets in the event of a default.

The following table illustrates the effect of leverage on returns from an investment in our common stock

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Based on $643.7 million in total assets, $22.4 million in borrowings outstanding on the Credit Facility, at cost,

$5.1 million in a secured borrowing, $57.5 million in aggregate liquidation preference of Series D Term Preferred Stock, $74.8 million in aggregate liquidation preference of Series E Term Preferred Stock, and $369.0 million in

net assets as of March 31, 2020.

Based on an aggregate outstanding indebtedness of $54.3 million at cost as of March 31,

2020, the effective annual cash interest rate of 4.2% as of that date, and aggregate liquidation preference of our mandatorily redeemable preferred stock of $132.3 million with a weighted-average dividend rate of 6.3%, our investment portfolio

at fair value would have to produce an annual return of at least 1.9% to cover annual interest payments on the outstanding debt and dividends on our mandatorily redeemable preferred stock.

A change in interest rates may adversely affect our profitability and hedging arrangements may expose us to additional risks.

We anticipate using a combination of equity and long-term and short-term borrowings to finance our investment activities.

As a result, a portion of our income

will depend upon the spread between the rate at which we borrow funds and the rate at which we loan these funds.

An increase or decrease in interest rates could reduce the spread between the rate at which we invest and the rate at which we borrow,

and thus, adversely affect our profitability if we have not appropriately hedged against such event.

Alternatively, interest rate hedging arrangements may limit our ability to participate in the benefits of lower interest rates with respect to the

hedged portfolio.

Ultimately, we expect approximately 90.0% of the loans in our portfolio to be at variable rates determined on the basis of the LIBOR

and approximately 10.0% to be at fixed rates.

As of March 31, 2020, based on the total principal balance of debt investments outstanding, our portfolio consisted of 97.5% of loans at variable rates with floors and 2.5% at fixed rates.

As of March 31, 2020, we did not have any hedging arrangement, such as interest rate hedges.

While hedging arrangements may insulate us against adverse

fluctuations in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to the hedged portfolio.

Adverse developments resulting from changes in interest rates or any future hedging

transactions could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Our ability to receive payments pursuant to a hedging arrangement is linked to the ability of the counter-party to that

hedging arrangement to make the required payments.

To the extent that the counter-party to the hedging arrangement is unable to pay pursuant to the terms of the agreement, we may lose the hedging protection of the arrangement.

Also, the fair value of certain of our debt investments is based, in part, on the current market yields or interest rates of similar securities.

interest rates could have a significant impact on our determination of the fair value of these debt investments.

In addition, a change in interest rates could also have an impact on the fair value of any hedging arrangements then in effect that

could result in the recording of unrealized appreciation or depreciation in future periods.

Therefore, adverse developments resulting from changes in interest rates could have a material adverse effect on our business, financial condition, results

of operations, and cash flows.

Refer to Quantitative and Qualitative Disclosures About Market Risk for additional information on interest rate fluctuations.

127.9 million of 2026 Notes, at cost, $5.1 million in a secured borrowing, $ $94.4 million in aggregate liquidation preference of Series E Term Preferred Stock, and $382.4 million in net assets as of March 31, 2021.

Based on an aggregate outstanding indebtedness of $155.4 million, at cost, as of March 31, 2021, the effective annual cash

interest rate of 4.8% as of that date, and aggregate liquidation preference of our mandatorily redeemable preferred stock of $94.4 million with a weighted-average dividend rate of 6.4%, our investment portfolio at fair value would have to

produce an annual return of at least 2.1% to cover annual interest payments on the outstanding debt and dividends on our mandatorily redeemable preferred stock.

Risks Related to Our Regulation and Structure

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Similarly, PIK interest which is accrued generally over the term of the debt investment but not paid in cash, is recognized as ordinary income.

Both OID and PIK interest will increase the amounts

we are required to distribute to maintain our RIC status.

Because such OIDs and PIK interest will not produce distributable cash for us at the same time as we are required to make distributions, we will need to use cash from other sources to satisfy

such distribution requirements.

OID and PIK interest will increase the amounts we are required to distribute to maintain our RIC status.

Because such OIDs and PIK interest will not produce distributable cash for us at the same time as we are required to make distributions, we will

need to use cash from other sources to satisfy such distribution requirements.

As of March 31, 2021, we did not have investments with OID or a PIK feature.

Additionally, we must meet asset diversification and income source requirements at the end of each calendar quarter.

If we fail to meet

these tests, we may need to quickly dispose of certain investments to prevent the loss of RIC status.

Since most of our investments will be illiquid, such dispositions, if even possible, may not be made at prices advantageous to us and may result in

substantial losses.

Additionally, we must meet asset diversification and income source requirements at the

end of each calendar quarter.

If we fail to meet these tests, we may need to quickly dispose of certain investments to prevent the loss of RIC status.

Since most of our investments will be illiquid, such dispositions, if even possible, may not be

made at prices advantageous to us and may result in substantial losses.

If we fail to qualify as a RIC as of a calendar quarter or annually for any reason and become fully subject to U.S.

federal corporate income tax, the resulting corporate taxes could substantially reduce our net assets, the amount

of income available for distribution, and the actual amount distributed.

federal corporate income tax, the resulting corporate taxes

could substantially reduce our net assets, the amount of income available for distribution, and the actual amount distributed.

Such a failure would have a material adverse effect on us and our common stock.

Refer to Business Material U.S.

Federal Income Tax Considerations RIC

Status for additional information regarding asset coverage ratio and RIC requirements and to Managements Discussion and Analysis of Financial Condition and Results of Operations Overview Business

Regulatory Compliance for a discussion of changes to the asset coverage requirements pursuant to the SBCAA.

Some of our debt investments may

include success fees that would generally generate payments to us upon a change of control.

Because the satisfaction of these success fees, and the ultimate payment of these fees, is uncertain and highly contingent, we generally only recognize them

as income when the payment is received.

Success fee amounts are characterized as ordinary income for tax purposes and, as a result, we are required to distribute such amounts to our stockholders in order to maintain our RIC status.

Refer to Business Material

Federal Income Tax Considerations RIC Status for additional information regarding asset coverage ratio and RIC requirements.

of our debt investments may include success fees that would generally generate payments to us upon a change of control.

Because the satisfaction of these success fees, and the ultimate payment of these fees, is uncertain and highly contingent, we

generally only recognize them as income when the payment is received.

Success fee amounts are characterized as ordinary income for tax purposes and, as a result, we are required to distribute such amounts to our stockholders to maintain our RIC status.

If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC under the 1940 Act or be

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As a result of such violation, specific rules under the 1940 Act could prevent us, for example, from making follow-on investments in existing portfolio companies (which could result in the dilution of

our position) or could require us to dispose of investments at inappropriate times in order to come into compliance with the 1940 Act.

If we need to dispose of such investments quickly, it could be difficult to dispose of such investments on

favorable terms.

our position) or could require us to dispose of investments at inappropriate times to come into compliance with the 1940 Act.

If we need to dispose of such investments quickly, it could be difficult to dispose of such investments on favorable terms.

We may not be able to find a buyer for such investments and, even if we do find a buyer, we may have to sell the investments at a substantial loss.

Any such outcomes would have a material adverse effect on our business, financial

condition, results of operations and cash flows.

If we do not maintain our status as a BDC, we would be subject to regulation as a registered closed-end investment company under the 1940 Act.

As a registered closed-end investment company, we would be subject to substantially more regulatory restrictions under the

1940 Act, which would significantly decrease our operating flexibility.

Any such outcomes would have a material adverse effect on our business, financial condition, results

of operations and cash flows.

If we do not maintain our status as a BDC, we would be subject to regulation as a registered

closed-end investment company under the 1940 Act.

As a registered closed-end investment company, we would be subject to substantially more regulatory restrictions under

the 1940 Act, which would significantly decrease our operating flexibility.

Refer to Business Regulation as a BDC Qualifying Assets for additional information regarding qualifying assets.

Changes in laws or regulations governing our operations, or changes in the interpretation thereof, and any failure by us to comply with laws or regulations

governing our operations may adversely affect our business.

We, and our portfolio companies, are subject to regulation by laws at the local, state and

federal levels.

These laws and regulations, as well as their interpretation, may be changed from time to time.

Accordingly, any change in these laws or regulations, or their interpretation, or any failure by us or our portfolio companies to comply

with these laws or regulations may adversely affect our business.

Refer to BusinessMaterial U.S.

Federal Income Tax Considerations RIC Status and Business Regulation as a BDC for additional

information regarding the regulations to which we are subject.

Provisions of the Delaware General Corporation Law and of our certificate of

incorporation and bylaws could restrict a change in control and have an adverse impact on the price of our common stock.

We are subject to provisions

of the Delaware General Corporation Law that, in general, prohibit any business combination with a beneficial owner of 15% or more of our common stock for three years unless the holders acquisition of our stock was either approved in advance

by our Board of Directors or ratified by our Board of Directors and stockholders owning two-thirds of our outstanding stock not owned by the acquiring holder.

believe these provisions collectively provide for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our Board of Directors, they would apply even if the

offer may be considered beneficial by some stockholders.

We have also adopted other measures that may make it difficult for a third party to obtain

control of us, including provisions of our certificate of incorporation classifying our Board of Directors in three classes serving staggered three-year terms, and provisions of our certificate of incorporation authorizing our Board of Directors to

induce the issuance of additional shares of our stock.

These provisions, as well as other provisions of our certificate of incorporation and bylaws, may delay, defer, or prevent a transaction or a change in control that might otherwise be in the

best interests of our stockholders.

We may not be permitted to declare a dividend or make any distribution to stockholders or repurchase shares until

such time as we satisfy the asset coverage tests under the provisions of the 1940 Act that apply to BDCs.

As a BDC, we have the ability to issue senior securities only in amounts such that our asset coverage, as defined in the 1940 Act, equals at

least 150% after each issuance of senior securities.

Provisions of the Delaware General Corporation Law and of our certificate of incorporation and bylaws could restrict a change in control and have an

adverse impact on the price of our common stock.

We are subject to provisions of the Delaware General Corporation Law that, in general, prohibit any

business combination with a beneficial owner of 15% or more of our common stock for three years unless the holders acquisition of our stock was either approved in advance by our Board of Directors or ratified by our Board of Directors and

stockholders owning two-thirds of our outstanding stock not owned by the acquiring holder.

Although we believe these provisions collectively provide for an opportunity to receive higher bids by requiring

potential acquirers to negotiate with our Board of Directors, they would apply even if the offer may be considered beneficial by some stockholders.

have also adopted other measures that may make it difficult for a third party to obtain control of us, including provisions of our certificate of incorporation classifying our Board of Directors in three classes serving staggered three-year terms,

and provisions of our certificate of incorporation authorizing our Board of Directors to induce the issuance of additional shares of our stock.

These provisions, as well as other provisions of our certificate of incorporation and bylaws, may delay,

defer, or prevent a transaction or a change in control that might otherwise be in the best interests of our stockholders.

We may not be permitted to declare a dividend or make any distribution to stockholders or repurchase

shares until such time as we satisfy the asset coverage tests under the provisions of the 1940 Act that apply to BDCs.

As a BDC, we have the ability to issue senior securities only in amounts such that our asset coverage, as defined in the 1940 Act,

equals at least 150% after each issuance of senior securities.

If the value of our assets declines, we may be unable to satisfy this test.

If that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage,

repay a portion of our debt at a time when such sales and/or repayments may be disadvantageous.

Regulations governing our operation as a BDC and RIC

will affect our ability to raise, and the way in which we raise, additional capital or borrow for investment purposes, which may have a negative effect on our growth.

As a result of the annual distribution requirement to qualify as a RIC, we may

need to periodically access the capital markets to raise cash to fund new investments.

If that happens, we may be required to sell a portion of our investments and, depending on the nature of our

leverage, repay a portion of our debt at a time when such sales and/or repayments may be disadvantageous.

Regulations governing our operation as a BDC

and RIC will affect our ability to raise, and the way in which we raise, additional capital or borrow for investment purposes, which may have a negative effect on our growth.

As a result of the annual distribution requirement to qualify as a RIC, we

may need to periodically access the capital markets to raise cash to fund new investments.

We may issue senior securities representing indebtedness, including borrowing money from banks or other financial institutions, or senior securities that are

stock, such as our Series D Term Preferred Stock, and our Series E Term Preferred Stock, only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 150% after each such incurrence or issuance.

Further, we may not be

permitted to declare a dividend or make any distribution to our outstanding stockholders or repurchase shares until such time as we satisfy this test.

stock, such as our Series E Term Preferred Stock, only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 150% after each such incurrence or issuance.

Further, we may not be permitted to declare a dividend or make

any distribution to our outstanding stockholders or repurchase shares until such time as we satisfy this test.

Our ability to issue different types of securities is also limited.

Compliance with these

requirements may unfavorably limit our investment opportunities and reduce our ability in comparison to other companies to profit from favorable spreads between the rates at which we can borrow and the rates at which we can lend.

therefore, we intend to continuously issue equity at a rate more frequent than our privately owned competitors, which may lead to greater stockholder dilution.

Compliance with these requirements may unfavorably limit our

investment opportunities and reduce our ability in comparison to other companies to profit from favorable spreads between the rates at which we can borrow and the rates at which we can lend.

As a BDC, therefore, we intend to continuously issue

equity at a rate more frequent than our privately owned competitors, which may lead to greater stockholder dilution.

We have incurred leverage to generate capital to make additional investments.

value of our assets declines, we may be unable to satisfy the asset coverage test under the 1940 Act, which could prohibit us from paying distributions and could prevent us from qualifying as a RIC.

If we cannot satisfy the asset coverage test, we

may be required to sell a portion of our investments and, depending on the nature of our debt financing, repay a portion of our indebtedness at a time when such sales and repayments may be disadvantageous.

Notwithstanding the modified asset coverage leverage ratio under the 1940 Act described above, we are separately subject to a minimum asset coverage

requirement of 200% with respect to our Series D Term Preferred Stock.

If we drop below the 200% minimum asset coverage requirement, we may under certain circumstances be required to redeem all or a portion of our Series D Term Preferred Stock.

events, if they were to occur, could have a significant adverse effect on our business, financial condition, results of operations, and cash flows.

If the value of our assets declines, we may be unable

to satisfy the asset coverage test under the 1940 Act, which could prohibit us from paying distributions and could prevent us from qualifying as a RIC.

If we cannot satisfy the asset coverage test, we may be required to sell a portion of our

investments and, depending on the nature of our debt financing, repay a portion of our indebtedness at a time when such sales and repayments may be disadvantageous.

Such events, if they were to occur, could have a significant adverse effect on our

business, financial condition, results of operations, and cash flows.

Risks Related to Our External Management

are dependent upon our key management personnel and the key management personnel of the Adviser, particularly David Gladstone, David Dullum and Terry Lee Brubaker, and on the continued operations of the Adviser, for our future success.

We are dependent upon our key management personnel and the key management personnel of the Adviser, particularly David Gladstone, David Dullum and Terry Lee

Brubaker, and on the continued operations of the Adviser, for our future success.

We have no employees.

Our chief executive officer, chief operating officer, chief financial officer and treasurer, chief valuation officer, and the employees

of the Adviser do not spend all of their time managing our activities and our investment portfolio.

We are particularly dependent upon David Gladstone, David Dullum and Terry Lee Brubaker for their experience, skills, and networks.

Our executive

officers and the employees of the Adviser allocate some, and in some cases a material portion, of their time to businesses and activities that are not related to our business.

We have no separate facilities and are completely reliant on the Adviser,

which has significant discretion as to the implementation and execution of our business strategies and risk management practices.

We are subject to the risk of discontinuation of the Advisers operations or termination of the Advisory Agreement

and the risk that, upon such event, no suitable replacement will be found.

We believe that our success depends to a significant extent upon the Adviser and that discontinuation of its operations or the loss of its key management personnel could have

a material adverse effect on our ability to achieve our investment objectives.

Our success depends on the Advisers ability to attract and retain qualified personnel in a

competitive environment.

The Adviser experiences competition in attracting and retaining qualified personnel, particularly investment professionals

and senior executives, and we may be unable to maintain or grow our business if we cannot attract and retain such personnel.

The Advisers ability to attract and retain personnel with the requisite credentials, experience and skills depends on

several factors including, its ability to offer competitive wages, benefits and professional growth opportunities.

The Adviser competes with investment funds (such as private equity funds and mezzanine funds) and traditional financial services

companies for qualified personnel, many of which have greater resources than us.

Our chief executive officer, chief operating

officer, chief financial officer and treasurer, chief valuation officer, and the employees of the Adviser do not spend all of their time managing our activities and our investment portfolio.

We are particularly dependent upon David Gladstone, David

Dullum and Terry Lee Brubaker for their experience, skills, and networks.

Our executive officers and the employees of the Adviser allocate some, and in some cases a material portion, of their time to businesses and activities that are not related to

our business.

We have no separate facilities and are completely reliant on the Adviser, which has significant discretion as to the implementation and execution of our business strategies and risk management practices.

We are subject to the risk of

discontinuation of the Advisers operations or termination of the Advisory Agreement and the risk that, upon such event, no suitable replacement will be found.

We believe that our success depends to a significant extent upon the Adviser and

that discontinuation of its operations or the loss of its key management personnel could have a material adverse effect on our ability to achieve our investment objectives.

Our success depends on the Advisers ability to attract and retain qualified personnel in a competitive environment.

The Adviser experiences competition in attracting and retaining qualified personnel, particularly investment professionals and senior executives, and we may be

unable to maintain or grow our business if we cannot attract and retain such personnel.

The Advisers ability to attract and retain personnel with the requisite credentials, experience and skills depends on several factors including, its

ability to offer competitive wages, benefits and

professional growth opportunities.

The Adviser competes with investment funds (such as private equity funds and mezzanine funds) and traditional financial services companies for qualified

personnel, many of which have greater resources than us.

Searches for qualified personnel may divert managements time from the operation of our business.

Strain on the existing personnel resources of the Adviser,

in the event that it is unable to attract experienced investment professionals and senior executives, could have a material adverse effect on our business.

The Adviser can resign on 60 days notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our

operations that could adversely affect our financial condition, business and results of operations.

The Adviser has the right to resign under the

Advisory Agreement at any time upon not less than 60 days written notice, whether we have found a replacement or not.

If the Adviser resigns, we may not be able to find a new investment adviser or hire internal management with similar

expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all.

If we are unable to do so quickly, our operations are likely to experience a disruption, our financial condition, business and results of

operations as well as our ability to pay distributions are likely to be adversely affected and the market price of our common stock may decline.

In addition, the coordination of our internal management and investment activities is likely to suffer

if we are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by the Adviser and its affiliates.

Even if we are able to retain comparable management, whether internal or external,

the integration of such management and their lack of familiarity with our investment objectives may result in additional costs and time delays that may adversely affect our business, financial condition, results of operations and cash flows.

The Advisers liability is limited under the Advisory Agreement, and we are required to indemnify our investment adviser against certain liabilities,

which may lead the Adviser to act in a riskier manner on our behalf than it would when acting for its own account.

The Adviser has not assumed any

responsibility to us other than to render the services described in the Advisory Agreement, and it will not be responsible for any action of our Board of Directors in declining to follow the Advisers advice or recommendations.

Pursuant to the

Advisory Agreement, the Adviser and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with the Adviser will not be liable to us for their acts under the Advisory Agreement,

absent willful misfeasance, bad faith or gross negligence in the performance of their duties or by reason of the reckless disregard of their duties and obligations under the Advisory Agreement.

We have agreed to indemnify, defend and protect the

Adviser and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with the Adviser with respect to all damages, liabilities, costs and expenses arising out of or otherwise based

upon the performance of any of the Advisers duties or obligations under the Advisory Agreement or otherwise as an investment adviser for us, and not arising out of willful misfeasance, bad faith or gross negligence in the performance of their

duties or by reason of the reckless disregard of their duties and obligations under the Advisory Agreement.

Strain on the existing personnel resources of the Adviser, in the event that it is

unable to attract experienced investment professionals and senior executives, could have a material adverse effect on our business.

The Adviser can

resign on 60 days notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations.

The Adviser has the right to resign under the Advisory Agreement at any time upon not less than 60 days written notice, whether we have found a

replacement or not.

If the Adviser resigns, we may not be able to find a new investment adviser or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all.

If we are unable to do so quickly, our operations are likely to experience a disruption, our financial condition, business and results of operations as well as our ability to pay distributions are likely to be adversely affected and the market price

of our common stock may decline.

In addition, the coordination of our internal management and investment activities is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the

expertise possessed by the Adviser and its affiliates.

Even if we are able to retain comparable management, whether internal or external, the integration of such management and their lack of familiarity with our investment objectives may result in

additional costs and time delays that may adversely affect our business, financial condition, results of operations and cash flows.

The Advisers

liability is limited under the Advisory Agreement, and we are required to indemnify our investment adviser against certain liabilities, which may lead the Adviser to act in a riskier manner on our behalf than it would when acting for its own

The Adviser has not assumed any responsibility to us other than to render the services described in the Advisory Agreement, and it will not

be responsible for any action of our Board of Directors in declining to follow the Advisers advice or recommendations.

Pursuant to the Advisory Agreement, the Adviser and its officers, managers, partners, agents, employees, controlling

persons, members and any other person or entity affiliated with the Adviser will not be liable to us for their acts under the Advisory Agreement, absent willful misfeasance, bad faith or gross negligence in the performance of their duties or by

reason of the reckless disregard of their duties and obligations under the Advisory Agreement.

We have agreed to indemnify, defend and protect the Adviser and its officers, managers, partners, agents, employees, controlling persons, members and any

other person or entity affiliated with the Adviser with respect to all damages, liabilities, costs and expenses arising out of or otherwise based upon the performance of any of the Advisers duties or obligations under the Advisory Agreement or

otherwise as an investment adviser for us, and not arising out of willful misfeasance, bad faith or gross negligence in the performance of their duties or by reason of the reckless disregard of their duties and obligations under the Advisory

These protections may lead the Adviser to act in a riskier manner when acting on our behalf than it would when acting for its own account.

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management strategies, the opportunity to earn incentive compensation based on net investment income may lead the Adviser to place undue emphasis on the maximization of net investment income at the expense of other criteria, such as preservation of

capital, maintaining sufficient liquidity, or management of credit risk or market risk, in order to achieve higher incentive compensation.

capital, maintaining sufficient liquidity, or management of credit risk or market risk, to achieve higher incentive compensation.

Investments with higher yield potential are generally riskier or more speculative.

This could result in

increased risk to the value of our investment portfolio.

This could result in increased risk

to the value of our investment portfolio.

We may be obligated to pay the Adviser incentive compensation even if we incur a net decrease in net

The Advisory Agreement entitles the Adviser to incentive compensation for each fiscal quarter in an amount equal to a percentage of the excess

of our net investment income for that quarter (before deducting the incentive fee) above a threshold return of 1.75% of our net assets, as adjusted, for that quarter.

The Advisory Agreement entitles the Adviser to incentive compensation for each fiscal quarter in an amount equal to a percentage of the

excess of our net investment income for that quarter (before deducting the incentive fee) above a threshold return of 1.75% of our net assets, as adjusted, for that quarter.

When calculating our incentive fee, our

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The Advisers senior management team has substantial responsibilities under the Advisory Agreement.

to grow, the Adviser will need to hire, train, supervise, and manage new employees successfully.

Any failure to manage our future growth effectively would likely have a material adverse effect on our business, financial condition, results of

operations, and cash flows.

There are significant potential conflicts of interest, including with the Adviser, which could impact our investment

Our executive officers and directors, and the officers and directors of the Adviser, serve or may serve as officers, directors, or principals

of entities that operate in the same or a related line of business as we do or of investment funds managed by our affiliates.

the Adviser will need to hire, train, supervise, and manage new employees successfully.

Any failure to manage our future growth effectively would likely have a material adverse effect on our business, financial condition, results of operations, and

There are significant potential conflicts of interest, including with the Adviser, which could impact our investment returns.

Our executive officers and directors, and the officers and directors of the Adviser, serve or may serve as officers, directors, or principals of entities that

operate in the same or a related line of business as we do or of investment funds managed by our affiliates.

Accordingly, they may have obligations to investors in those entities, the fulfillment of which might not be in our or our

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management of these other investment vehicles.

Moreover, the Adviser may establish or sponsor other investment vehicles which from time to time may have potentially overlapping investment objectives with ours and accordingly may invest in, whether

principally or secondarily, asset classes we target.

While the Adviser generally has broad authority to make investments on behalf of the investment vehicles that it advises, the Adviser has adopted investment allocation procedures to address these

potential conflicts and intends to direct investment opportunities to the Company or the Affiliated Public Fund with the investment strategy that most closely fits the investment opportunity.

Nevertheless, the management of the Adviser may face

conflicts in the allocation of investment opportunities to other entities it manages.

As a result, it is possible that we may not be given the opportunity to participate in certain investments made by other funds managed by the Adviser.

In certain circumstances, we may make investments in a portfolio company in which one of our affiliates has or will have an investment, subject to

satisfaction of any regulatory restrictions and, where required, the prior approval of our Board of Directors.

As of March 31, 2020, our Board of Directors has approved the following types of transactions:

Moreover, the Adviser may establish or sponsor other investment vehicles which from time to time may have potentially overlapping

investment objectives with ours and accordingly may invest in, whether principally or secondarily, asset classes we target.

While the Adviser generally has broad authority to make investments on

behalf of the investment vehicles that it advises, the Adviser has adopted investment allocation procedures to address these potential conflicts and intends to direct investment opportunities to the Company or the Affiliated Public Fund with the

investment strategy that most closely fits the investment opportunity.

Nevertheless, the management of the Adviser may face conflicts in the allocation of investment opportunities to other entities it manages.

As a result, it is possible that we may

not be given the opportunity to participate in certain investments made by other funds managed by the Adviser.

In certain circumstances, we may make

investments in a portfolio company in which one of our affiliates has or will have an investment, subject to satisfaction of any regulatory restrictions and, where required, the prior approval of our Board of Directors.

As of March 31, 2021,

our Board of Directors has approved the following types of transactions:

Our affiliate, Gladstone Commercial, may, under certain circumstances, lease property to portfolio companies that

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(iii) the transaction is approved by a majority of our independent directors and a majority of the independent directors of Gladstone Commercial.

We expect that any such negotiations between Gladstone Commercial and our portfolio companies would result in lease terms consistent with the terms that the portfolio companies would be likely to

receive were they not portfolio companies of ours.

We expect that any such negotiations between Gladstone Commercial and our portfolio companies

would result in lease terms consistent with the terms that the portfolio companies would be likely to receive were they not portfolio companies of ours.

We may invest simultaneously with our affiliate Gladstone Capital in senior loans in the broadly syndicated

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The Advisory Agreement provides for a base management fee, based on our gross assets, and an incentive fee, that is based on our income and capital gains.

Board of Directors has accepted in the past and may accept in the future non-contractual, unconditional, and irrevocable credits to reduce the annual 2.0% base management fee or the incentive fee, on a

quarterly or annual basis.

Board of Directors has accepted in the past and may accept in

the future non-contractual, unconditional, and irrevocable credits to reduce the annual 2.0% base management fee or the incentive fee, on a quarterly or

annual basis.

Any fees credited may not be recouped by the Adviser in the future.

However, the Adviser is not required to issue these or other credits of fees under the Advisory Agreement.

If the Adviser does not issue these credits in

the future, it could negatively impact our earnings and may compromise our ability to maintain our current level of distributions to our stockholders, which could have a material adverse impact on our common stock price.

If the Adviser does not issue these credits in the future,

it could negatively impact our earnings and may compromise our ability to maintain our current level of distributions to our stockholders, which could have a material adverse impact on our common stock price.

Our business model is dependent upon developing and sustaining strong referral relationships with investment bankers, business brokers and other

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Risks Related to an Investment in Our Securities

We may experience fluctuations in our quarterly and annual operating results.

We may experience fluctuations in our quarterly and annual operating results due to a number of factors, including, among others, variations in our investment

income, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, rapidly changing valuation of our portfolio companies, placing and removing investments on

non-accrual status, the degree to which we encounter competition in our markets, the ability to sell investments at attractive terms, the ability to fund and close suitable investments, and general economic

conditions, including the impacts of inflation or the current COVID-19 pandemic.

The majority of our portfolio companies are in industries that are directly impacted by inflation, such as manufacturing and

consumer goods and services.

Our portfolio companies may not be able to pass on to customers increases in their costs of production which could greatly affect their operating results, impacting their ability to service and repay our loans.

addition, any potential future decreases in our portfolio companies operating results due to inflation could adversely impact the fair value of those investments.

Any decreases in the fair value of our investments could result in future

realized and unrealized losses and therefore reduce our net assets.

As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.

There is a risk that you may not receive distributions or that distributions may not grow over time.

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common stockholders adjusted tax basis in its shares of our common stock.

A return of capital represents a return of a common stockholders original investment in shares of our common stock and should not be confused with a distribution

from earnings and profits.

Although return of capital distributions may not be taxable, such distributions may increase an investors tax liability for capital gains upon the sale of our common stock by reducing the investors tax basis in

its shares of our common stock.

Such returns of capital reduce our asset base and also adversely impact our ability to raise debt capital as a result of the leverage restrictions under the 1940 Act, which could have a material adverse impact on our

ability to make new investments.

Common shares of closed-end investment companies frequently trade at a

discount to NAV.

Shares of closed-end investment companies frequently trade at a discount to NAV per common

Since our inception, our common stock has at times traded above NAV per share and at times below NAV per share.

A return of capital represents a return of a

common stockholders original investment in shares of our common stock and should not be confused with a distribution from earnings and profits.

Although return of capital distributions may

not be taxable, such distributions may increase an investors tax liability for capital gains upon the sale of our common stock by reducing the investors tax basis in its shares of our common stock.

Such returns of capital reduce our

asset base and also adversely impact our ability to raise debt capital as a result of the leverage restrictions under the 1940 Act, which could have a material adverse impact on our ability to make new investments.

Common shares of closed-end investment companies frequently trade at a discount to NAV.

Shares of closed-end investment companies frequently trade at a discount to NAV per common share.

Since our inception,

our common stock has at times traded above NAV per share and at times below NAV per share.

During the past year, our common stock has at times traded significantly below NAV per share.

This characteristic of shares of closed-end investment companies is separate and distinct from the risk that our NAV per share will decline.

As with any stock, the price of our common shares will fluctuate with market conditions and other factors.

This characteristic of shares of

closed-end investment companies is separate and distinct from the risk that our NAV per share will decline.

As with any stock, the price of our common shares will fluctuate with market conditions and other

If common shares are sold, the price received may be more or less than the original investment.

Whether investors will realize gains or losses upon the sale of our shares will not depend directly upon our NAV, but will depend upon the market price

of the shares at the time of sale.

Since the market price of our common shares will be affected by such factors as the relative demand for and supply of the shares in the market, general market and economic conditions and other factors beyond our

control, we cannot predict whether the common shares will trade at, below or above our NAV per share.

Under the 1940 Act, we are generally not able to

issue additional shares of our common stock at a price below NAV per share to purchasers other than our existing common stockholders through a rights offering without first obtaining the approval of our stockholders and our independent directors.

Additionally, at times when our common stock is trading below its NAV per share, our dividend yield may exceed the weighted-average returns that we would expect to realize on new investments that would be made with the proceeds from the sale of such

stock, making it unlikely that we would

determine to issue additional common shares in such circumstances.

Whether investors will realize gains or losses upon the sale of our shares will not depend directly upon our NAV, but will depend upon the

market price of the shares at the time of sale.

beyond our control, we cannot predict whether the common shares will trade at, below or above our NAV per share.

Under the 1940 Act, we are generally not

able to issue additional shares of our common stock at a price below NAV per share to purchasers other than our existing common stockholders through a rights offering without first obtaining the approval of our stockholders and our independent

sale of such stock, making it unlikely that we would determine to issue additional common shares in such circumstances.

Thus, for as long as our common stock may trade below NAV per share, we generally will be subject to significant constraints on

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pursuant to such authority does not exceed 25% of our then outstanding common stock immediately prior to each such sale).

With this and similar previous

approvals from our stockholders, we exercised this right with Board of Director approval in March and April 2018 for certain sales under the at-the-market program (Refer

to Liquidity and Capital Resources Equity Common Stock for further details of sales under our at-the-market program.), and in May 2017,

when we completed a public offering of 2.1 million shares of our common stock at a public offering price of $9.38 per share, which was below our then current NAV of $9.95 per share.

In June 2017, the underwriters partially exercised their

over-allotment option and purchased an additional 155,265 shares at the public offering price of $9.38 per share and on the same terms and conditions solely to cover over-allotments.

The net dilutive effect of the issuance of common stock from the

May and June 2017 offerings, net of discounts, commissions, and offering costs borne by us, below NAV was $0.07 per share of common stock.

With prior approval from our stockholders and our Board of Directors, we also issued shares of common stock

below our then current NAV per share in public offerings in March and April of 2015 and in October 2012 with a net dilutive effect of such issuances, net of discounts, commissions and offering costs borne by us, of $0.29 and $0.39, respectively, per

share of common stock.

At the upcoming annual stockholders meeting to be held in August 2020, we expect that our stockholders will again be asked to vote

in favor of renewing this proposal for another year.

this and similar previous approvals from our stockholders, we exercised this right with Board of Director approval in March and April 2018 for certain sales under the

at-the-market program (Refer to Liquidity and Capital Resources Equity Common Stock for further details of sales under our at-the-market program.).

With prior approval from our stockholders and our Board of Directors, we also issued shares of common stock below our then current NAV per share in

public offerings in May and June of 2017, March and April of 2015, and in October 2012 with a net dilutive effect of such issuances, net of discounts, commissions and offering costs borne by us, of $0.07, $0.29 and $0.39, respectively, per share of

common stock.

At the upcoming annual stockholders meeting to be held in August 2021, we expect that our stockholders will again be asked to vote in favor

of renewing this proposal for another year.

During the past year, our common stock has frequently traded, and at times significantly, below NAV per share.

Any decision to sell shares of our common stock below the then current NAV per share

of our common stock would be subject to the determination by our Board of Directors that such issuance is in our and our stockholders best interests.

Any decision to sell shares of our

common stock below the then current NAV per share of our common stock would be subject to the determination by our Board of Directors that such issuance is in our and our stockholders best

If we were to sell shares of our common stock below NAV per share, such sales would result in an immediate dilution to the NAV per share.

This dilution would

occur as a result of the sale of shares at a price below the then current NAV per share of our common stock and a proportionately greater decrease in a common stockholders interest in our earnings and assets and voting interest in us than the

increase in our assets resulting from such issuance.

dilution would occur as a result of the sale of shares at a price below the then current NAV per share of our common stock and a proportionately greater decrease in a common stockholders interest in our earnings and assets and voting interest

in us than the increase in our assets resulting from such issuance.

The greater the difference between the sale price and the NAV per share at the time of the offering, the more significant the dilutive impact would be.

Because the number of shares of common stock

that could be so issued and the timing of any issuance is not currently known, the actual dilutive effect, if any, cannot be currently predicted.

However, if, for example, we sold an additional 10% of our common stock at a 5% discount from NAV, an

existing common stockholder who did not participate in that offering for its proportionate interest would suffer NAV dilution of up to 0.5% or $5 per $1,000 of NAV.

Because the number of shares

of common stock that could be so issued and the timing of any issuance is not currently known, the actual dilutive effect, if any, cannot be currently predicted.

However, if, for example, we sold an additional 10% of our common stock at a 5%

discount from NAV, an existing common stockholder who did not participate in that offering for its proportionate interest would suffer NAV dilution of up to 0.5% or $5 per $1,000 of NAV.

If we fail to pay dividends on our mandatorily redeemable preferred stock for two years, the holders of our preferred stock will be entitled to elect a

majority of our directors.

The terms of our two series of mandatorily redeemable preferred stock provide for annual dividends of approximately $1.56

and $1.59 per outstanding share of our Series D Term Preferred Stock and Series E Term Preferred Stock, respectively.

In accordance with the 1940 Act and the terms of each of our two series of mandatorily redeemable term preferred stock, if

dividends thereon are unpaid in an amount equal to at least two years of dividends, the holders of our preferred stock will be entitled to elect a majority of our Board of Directors.

Holders of our debt or mandatorily redeemable preferred stock have liquidation and other rights that are senior to the rights of the holders

The terms of our series of mandatorily redeemable preferred stock provide for annual dividends of approximately $1.59 per

outstanding share of our Series E Term Preferred Stock.

In accordance with the 1940 Act and the terms of our series of mandatorily redeemable term preferred stock, if dividends thereon are unpaid in an amount equal to at least two years of

dividends, the holders of our preferred stock will be entitled to elect a majority of our Board of Directors.

Holders of our debt or mandatorily

redeemable preferred stock have liquidation and other rights that are senior to the rights of the holders of our common stock.

Any future issuance of debt or additional shares of preferred stock could adversely affect the market price

of our common stock.

Any future issuance of debt or additional shares of preferred stock could adversely affect the market price of our common stock.

We may in the future raise additional capital through the issuance of debt or additional shares of preferred stock.

Our Board of Directors is authorized to

issue one or more classes or series of preferred stock (so long as such stock is issued in parity with our outstanding shares of mandatorily redeemable preferred stock in accordance with Section 18(c) of the 1940 Act) from time to time without

any action on the part of the stockholders, as it has done

with respect to our outstanding series of mandatorily redeemable preferred stock.

Our Board of Directors also has the power, without stockholder approval, to set the terms of any such classes or

series of preferred stock that may be issued, including voting rights, dividend rights and preferences over our common stock with respect to dividends or upon our

dissolution, winding-up or liquidation, and other terms.

Directors is authorized to issue one or more classes or series of preferred stock (so long as such stock is issued in parity with our outstanding shares of mandatorily redeemable preferred stock in accordance with Section 18(c) of the 1940 Act)

from time to time without any action on the part of the stockholders, as it has done with respect to our outstanding series of mandatorily redeemable preferred stock.

Our Board of Directors also has the power, without stockholder approval, to set

the terms of any such classes or series of preferred stock that may be issued, including voting rights, dividend rights and preferences over our common stock with respect to dividends or upon our dissolution, winding-up or liquidation, and other terms.

Holders of our outstanding mandatorily redeemable preferred stock have, and holders of any future debt securities will have,

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additional preferred stock with voting rights that dilute the voting power of our common stock, the rights of holders of our common stock or the market price of our common stock could be adversely affected.

Risks Related to Our Mandatorily Redeemable Preferred Stock

An active trading market for the mandatorily redeemable preferred stock may not exist or continue, which could adversely affect the market price of the

mandatorily redeemable preferred stock or a holders ability to sell its shares.

Our Series D Term Preferred Stock and Series E Term Preferred

Stock are listed on Nasdaq.

However, we cannot provide any assurances that an active trading market for the mandatorily redeemable preferred stock will exist in the future or that stockholders will be able to sell their shares of mandatorily

redeemable preferred stock.

Even if an active trading market does exist, shares of the mandatorily redeemable preferred stock may trade at a discount from the liquidation preference for such shares depending on prevailing interest rates, the market

for similar securities, general economic conditions, our issuance of debt or preferred equity securities and our financial condition, results of operation and prospects.

To the extent an active trading market does not exist, the liquidity and

trading price for shares of the mandatorily redeemable preferred stock may be harmed.

Accordingly, holders may be required to bear the financial risk of an investment in the mandatorily redeemable preferred stock for an indefinite period of time.

An investment in preferred stock with a fixed interest rate bears interest rate risk.

Our Series E Term Preferred Stock is listed on Nasdaq.

we cannot provide any assurances that an active trading market for the mandatorily redeemable preferred stock will exist in the future or that stockholders

will be able to sell their shares of mandatorily redeemable preferred stock.

Even if an active trading market does exist, shares of the mandatorily redeemable preferred stock may trade at a

discount from the liquidation preference for such shares depending on prevailing interest rates, the market for similar securities, general economic conditions, our issuance of debt or preferred equity securities and our financial condition, results

of operation and prospects.

To the extent an active trading market does not exist, the liquidity and trading price for shares of the mandatorily redeemable preferred stock may be harmed.

Accordingly, holders may be required to bear the financial

risk of an investment in the mandatorily redeemable preferred stock for an indefinite period of time.

An investment in preferred stock with a fixed

interest rate bears interest rate risk.

Our series of mandatorily redeemable preferred stock pays dividends at a fixed dividend rate.

Prices of fixed income investments vary inversely with changes in

market yields.

The market yields on securities comparable to our mandatorily redeemable preferred stock may increase, which would likely result in a decline in the secondary market price of the mandatorily redeemable preferred stock prior to the

mandatory redemption date for that series of mandatorily redeemable preferred stock.

The mandatorily redeemable preferred stock is not rated.

Our series of mandatorily redeemable preferred stock are not rated by any rating agency.

Unrated securities usually trade at a discount to similar, rated

Prices of fixed

income investments vary inversely with changes in market yields.

The market yields on securities comparable to our mandatorily redeemable preferred stock may increase, which would likely result in a decline in the secondary market price of the

mandatorily redeemable preferred stock prior to the mandatory redemption date for that series of mandatorily redeemable preferred stock.

mandatorily redeemable preferred stock is not rated.

Our series of mandatorily redeemable preferred stock is not rated by any rating agency.

securities usually trade at a discount to similar, rated securities.

As a result, the series of mandatorily redeemable preferred stock may trade at prices that are lower than they might otherwise trade if rated by a rating agency.

Our mandatorily redeemable preferred stock bears a risk of early redemption by us.

We may voluntarily redeem some or all of the Series D Term Preferred Stock at any time, and the Series E Term Preferred Stock on or after August 31,

We also may be forced to redeem some or all of the outstanding shares of mandatorily redeemable preferred stock to meet regulatory requirements or the asset coverage requirements of such shares.

We are also required to redeem all of the

mandatorily redeemable preferred stock upon certain change of control transactions.

Any such redemption may occur at a time that is unfavorable to holders of the affected series of mandatorily redeemable preferred stock.

We may have an incentive to

redeem a series of mandatorily redeemable preferred stock voluntarily before the mandatory redemption date for such series if market conditions allow us to issue other preferred stock or debt securities at a rate that is lower than the dividend rate

on such series of mandatorily redeemable preferred stock or for other reasons.

If we redeem shares of the mandatorily redeemable preferred stock before the mandatory redemption date for such series of mandatorily redeemable preferred stock, the

holders of such redeemed shares face the risk that the return on an investment purchased with proceeds from such redemption may be lower than the return previously obtained from the investment in the mandatorily redeemable preferred stock.

Claims of holders of the mandatorily redeemable preferred stock will be subject to a risk of

subordination relative to holders of our debt instruments.

While holders of the mandatorily redeemable preferred stock will have equal liquidation

rights to the holder of any other outstanding series of our mandatorily redeemable preferred stock, such holders will be subordinated to the rights of holders of our current and any future indebtedness, including the Credit Facility.

Even though the

mandatorily redeemable preferred stock is classified as a liability for purposes of GAAP and considered senior securities under the 1940 Act, the mandatorily redeemable preferred stock are not debt instruments.

Therefore, dividends, distributions

and other payments to holders of mandatorily redeemable preferred stock in liquidation or otherwise may be subject to prior payments due to the holders of our indebtedness.

In addition, under some circumstances the 1940 Act may provide debt holders

with voting rights that are superior to the voting rights of holders of the mandatorily redeemable preferred stock.

Holders of the mandatorily

redeemable preferred stock will bear dividend risk.

We may be unable to pay dividends on the series of mandatorily redeemable preferred stock under

some circumstances.

The terms of our indebtedness, including the Credit Facility, preclude the payment of dividends in respect of equity securities, including the mandatorily redeemable preferred stock, under certain conditions.

We may voluntarily redeem some or all of the Series E Term Preferred Stock at any time.

We also may be forced to redeem some or all of the outstanding

shares of mandatorily redeemable preferred stock to meet regulatory requirements or the asset coverage requirements of such shares.

We are also required to redeem all of the mandatorily redeemable preferred stock upon certain change of control

transactions.

Any such redemption may occur at a time that is unfavorable to holders of the mandatorily redeemable preferred stock.

We may have an incentive to redeem the mandatorily redeemable preferred stock voluntarily before the mandatory

redemption date for such series if market conditions allow us to issue other preferred stock or debt securities at a rate that is lower than the dividend rate on such series of mandatorily redeemable preferred stock or for other reasons.

redeem shares of the mandatorily redeemable preferred stock before the mandatory redemption date for such series of mandatorily redeemable preferred stock, the holders of such redeemed shares face the risk that the return on an investment purchased

with proceeds from such redemption may be lower than the return previously obtained from the investment in the mandatorily redeemable preferred stock.

Claims of holders of the mandatorily redeemable preferred stock will be subject to a risk of subordination relative to holders of our debt instruments.

While holders of the mandatorily redeemable preferred stock will have equal liquidation rights to the holder of any other outstanding series of our

mandatorily redeemable preferred stock, such holders will be subordinated to the rights of holders of our current and any future indebtedness, including the Credit Facility and the 2026 Notes.

Even though the mandatorily redeemable preferred stock

is classified as a liability for purposes of GAAP and considered senior securities under the 1940 Act, the mandatorily redeemable preferred stock are not debt instruments.

Therefore, dividends, distributions and other payments to holders of

mandatorily redeemable preferred stock in liquidation or otherwise may be subject to prior payments due to the holders of our indebtedness.

In addition, under some circumstances the 1940 Act may provide debt holders with voting rights that are

superior to the voting rights of holders of the mandatorily redeemable preferred stock.

Holders of the mandatorily redeemable preferred stock will bear dividend risk.

We may be unable to pay dividends on the series of mandatorily redeemable preferred stock under some circumstances.

The terms of our indebtedness, including

the Credit Facility and the 2026 Notes, preclude the payment of dividends in respect of equity securities, including the mandatorily redeemable preferred stock, under certain conditions.

There is a risk of delay in our redemption of the mandatorily redeemable preferred stock, and we may fail to redeem such securities as required by their

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market price of the mandatorily redeemable preferred stock might be adversely affected.

Risks Related to the 2026 Notes

The 2026 Notes are unsecured and therefore are effectively subordinated to any secured indebtedness we may incur in the future and will rank pari passu

with, or equal to, all outstanding and future unsecured indebtedness issued by us and our general liabilities (total liabilities, less debt).

Notes are not secured by any of our assets or any of the assets of our subsidiaries.

As a result, the 2026 Notes are effectively subordinated to any secured indebtedness we may incur in the future (or any indebtedness that is initially unsecured to

which we subsequently grant security) to the extent of the value of the assets securing such indebtedness.

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 to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the holders of the

In addition, the 2026 Notes will rank pari passu with, or equal to, all outstanding and future unsecured indebtedness issued by us and our general liabilities (total liabilities, less debt).

The 2026 Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.

The 2026 Notes are obligations exclusively of the Company and not of any of our subsidiaries.

None of our subsidiaries is a guarantor of the 2026 Notes and the

2026 Notes are not required to be guaranteed by any subsidiaries we may acquire or create in the future.

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 subsidiaries (and therefore the claims of our creditors, including holders of the 2026 Notes) with respect to the assets of such subsidiaries.

Even if we are recognized as a creditor of one or more of our

subsidiaries, our claims would still be effectively subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiary senior to our claims.

Consequently, the 2026 Notes

are structurally subordinated to all indebtedness and other liabilities of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish.

Our wholly-owned subsidiary, Gladstone Business Investment, is the obligor under

our Credit Facility, which is structurally senior to the 2026 Notes.

In addition, our subsidiaries may incur substantial additional indebtedness in the future, all of which would be structurally senior to the 2026 Notes.

The indenture under which the 2026 Notes were issued contains limited protection for holders of the 2026

The indenture under which the 2026 Notes were issued offers limited protection to holders of the 2026 Notes.

The terms of the indenture and the

2026 Notes 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 an adverse impact on your investment in the 2026 Notes.

particular, the terms of the indenture and the 2026 Notes 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 2026 Notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the 2026 Notes 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 2026 Notes 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 2026 Notes 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) 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, which generally prohibit us incurring additional debt or issuing additional debt or preferred 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 2026 Notes, including our preferred stock and any subordinated indebtedness, in each case other than dividends, purchases, redemptions or payments that would cause our asset coverage to fall below the

threshold specified in Section 18(a)(1)(B) as modified by Section 61(a)(2) of the 1940 Act or any successor provisions thereto, whether or not we are subject to such provisions of the 1940 Act, giving effect to any no-action relief granted by the SEC to another BDC and upon which we may reasonably rely (or to us if we determine to seek such similar

SEC no-action or other relief) permitting the BDC to declare any cash dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) as modified by

Section 61(a)(2) of the 1940 Act to maintain the BDCs status as a RIC under Subchapter M of the Code;

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;

create restrictions on the payment of dividends or other amounts to us from our subsidiaries.

In addition, the indenture and the 2026 Notes do not require us to make an offer to purchase the 2026 Notes in connection with a change

of control or any other event.

Furthermore, the terms of the indenture and the 2026 Notes do not protect holders of the 2026 Notes 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 2026 Notes) and take a number of other actions that are not limited by the terms of the 2026 Notes may have important consequences for you as a holder of the 2026 Notes, including making it more difficult for us to satisfy our

obligations with respect to the 2026 Notes or negatively affecting the trading value of the 2026 Notes.

Other debt we issue or incur in the future could contain more protections for its holders than the indenture

and the 2026 Notes, 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 2026 Notes.

An active trading market for the 2026 Notes may not exist, which could limit your ability to sell the 2026 Notes or affect the market price of the 2026

An active trading market for the 2026 Notes may not exist in the future and holders may not be able to sell their 2026 Notes.

Even if an active

trading market does exist, the 2026 Notes may trade at a discount from their initial offering price depending on prevailing interest rates, the market for similar securities, our credit ratings, if any, general economic conditions, our financial

condition, performance and prospects and other factors.

To the extent an active trading market does not exist, the liquidity and trading price for the 2026 Notes may be harmed.

Accordingly, holders of the 2026 Notes may be required to bear the

financial risk of an investment in the 2026 Notes for an indefinite period of time.

If we default on our obligations to pay our other indebtedness, we

may not be able to make payments on the 2026 Notes.

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 holders of such indebtedness could make us unable to pay principal, premium, if any, and interest on the

2026 Notes and substantially decrease the market value of the 2026 Notes.

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, in the instruments governing our indebtedness, we could be in default under the terms of the agreements governing such

indebtedness, including the 2026 Notes.

In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under the

Credit Facility or other debt we may incur in the future could elect to terminate their commitments, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation.

operating performance declines, we may in the future need to refinance or restructure our debt, including the 2026 Notes, 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 we are unable to implement one or more of these alternatives, we may not be able to meet our payment obligations under the 2026 Notes or

our other debt.

If we breach our covenants under the Credit Facility or other debt and seek a waiver, we may not be able to obtain a waiver from the required lenders or holders.

If this occurs, we would be in default under the Credit Facility or

other debt, the lenders or holders could exercise their rights as described above, and we could be forced into bankruptcy or liquidation.

If we are unable to repay debt, lenders having secured obligations, including the lenders under the Credit

Facility, could proceed against the collateral securing the debt.

Because the Credit Facility has, and any future credit facilities will likely have, customary cross-default provisions, if the indebtedness under the 2026 Notes or the Credit Facility

or under any future credit facility is accelerated, we may be unable to repay or finance the amounts due.

We may choose to redeem the 2026 Notes when

prevailing interest rates are relatively low.

On or after May 1, 2023, we may choose to redeem the 2026 Notes from time to time, especially if

prevailing interest rates are lower than the rate borne by the 2026 Notes.

If prevailing rates are lower at the time of redemption, and we redeem the 2026 Notes, 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 2026 Notes being redeemed.

Our redemption right also may adversely impact your ability to sell the 2026 Notes as the optional redemption date or period approaches.

A downgrade, suspension or withdrawal of any credit rating assigned by a rating agency to us or the 2026

Notes could cause the liquidity or market value of the 2026 Notes to decline significantly.

Any credit rating is an assessment by the assigning rating

agency of our ability to pay our debts when due.

Consequently, real or anticipated changes in any credit ratings will generally affect the market value of the 2026 Notes.

These credit ratings may not reflect the potential impact of risks relating to

the structure or marketing of the 2026 Notes.

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.

There can be no assurance that

any credit ratings will remain for any given period of time or that such credit ratings will not be lowered or withdrawn entirely by the rating agencies if in their judgment future circumstances relating to the basis of the credit ratings, such as

adverse changes in our Company, so warrant.

General Risks Factors

Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, or the operations of businesses in

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ability to pay dividends to our stockholders.

Changes in laws or regulations governing our operations, or changes in the interpretation thereof, and

any failure by us to comply with laws or regulations governing our operations may adversely affect our business.

We, and our portfolio companies, are

subject to regulation by laws at the local, state and federal levels.

These laws and regulations, as well as their interpretation, may be changed from time to time.

Accordingly, any change in these laws or regulations, or their interpretation, or

any failure by us or our portfolio companies to comply with these laws or regulations may adversely affect our business.

Refer to BusinessMaterial U.S.

Federal Income Tax Considerations RIC Status and

Business Regulation as a BDC for additional information regarding the regulations to which we are subject.

We may experience

fluctuations in our quarterly and annual operating results.

We may experience fluctuations in our quarterly and annual operating results due to a

number of factors, including, among others, variations in our investment income, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, rapidly changing valuation of our portfolio

companies, placing and removing investments on non-accrual status, the degree to which we encounter competition in our markets, the ability to sell investments at attractive terms, the ability to fund and

close suitable investments, and general economic conditions, including the impacts of inflation or the current COVID-19 pandemic.

The majority of our portfolio companies are in industries that are directly

impacted by inflation, such as manufacturing and consumer goods and services.

Our portfolio companies may not be able to pass on to customers increases in their costs of production which could greatly affect their operating results, impacting their

ability to service and repay our loans.

In addition, any potential future decreases in our portfolio companies operating results due to inflation could adversely impact the fair value of those investments.

Any decreases in the fair value of

our investments could result in future realized and unrealized losses and therefore reduce our net assets.

As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.

UNRESOLVED STAFF COMMENTS

We do not own any real estate or other physical properties material to our operations.

The Adviser is the current leaseholder of all properties in which we

We occupy these premises pursuant to our Advisory and Administration Agreements with the Adviser and Administrator, respectively.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors