What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2025-05-13 compared with 2024-05-08 · 72 added, 82 removed, 482 unchanged (24% of the section changed)

15 unchanged sentences

• default rates on the loans underlying our investments and the amount of related losses;

• prepayment rates, delinquency rates and the timing and amount of service advances;

• prepayment rates, delinquency rates and the timing and amount of servicer advances;

• competition;

7 unchanged sentences

Given the volatility and dislocation that the capital markets have experienced from time to time, many BDCs have faced, and may in the future face, a challenging environment in which to raise capital.

We could in the future have difficulty accessing debt and equity capital, and a severe disruption in U.S.

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

We may in the future have difficulty accessing debt and equity capital, and a severe disruption in U.S.

or 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.

In 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.

Additionally, volatility in the U.S.

repo market may affect other financial markets worldwide.

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.

Tariffs may adversely affect us or our portfolio companies.

Existing or new tariffs imposed on foreign goods imported by the United States or on U.S.

goods imported by foreign countries could subject us or our portfolio companies to additional risks.

Among other effects, tariffs could increase the cost of production for certain of our portfolio companies or reduce demand for their products, which could affect their results of operations.

We cannot predict whether, or to what extent, any tariff or other trade protections may affect us or our portfolio companies.

We may experience fluctuations in our quarterly and annual results based on the impact of inflation in the U.S.

3 unchanged sentences

Any decreases in the fair value of our investments could result in future unrealized losses and therefore reduce our net assets resulting from operations.

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

Public health threats, such as pandemics, 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 instability.

In the event of a future public health threat, our portfolio companies may face limitations on their business activities for an unknown period of time, including shutdowns that may be requested or mandated by governmental authorities, may experience disruptions in their supply chains or decreased consumer demand, or may experience increases in health and safety expenses, payroll costs and other operating expenses.

These adverse economic impacts may decrease the value of the collateral securing our loans in such portfolio companies, as well as the value of our equity investments.

In addition, these adverse impacts could cause certain of our portfolio companies to have difficulty meeting their debt service requirements, which in turn could lead to an increase in defaults, and/or could diminish the ability of certain of our portfolio companies to engage in liquidity events.

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

1 unchanged sentence

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 have risen recently, may lead prospective purchasers of our securities to expect a higher distribution yield.

An increase in market interest rates may lead prospective purchasers of our securities to expect a higher distribution yield.

In addition, higher interest rates have increased our borrowing costs.

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

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

Changes in interest rates may negatively impact our investments and have an adverse effect on our business, financial condition, results of operations, and cash flows.

2 unchanged sentences

A substantial portion of our debt investments have variable interest rates that reset periodically and are generally based on SOFR.

As interest rates have increased, the operating performance of certain of our portfolio companies has been affected by increasing debt service obligations and, therefore, may affect our results of operations.

In addition, to the extent that further increases in interest rates make it difficult or impossible to make payments on outstanding indebtedness to us or other financial sponsors or refinance debt that is maturing in the near term, some of our portfolio companies may be unable to repay such debt at maturity and may be forced to sell assets, undergo a recapitalization or seek bankruptcy protection.

If interest rates increase, the operating performance of certain of our portfolio companies may be affected by increasing debt service obligations and, therefore, may affect our results of operations.

In addition, to the extent that increases in interest rates make it difficult or impossible to make payments on outstanding indebtedness to us or other financial sponsors or refinance debt that is maturing in the near term, some of our portfolio companies may be unable to repay such debt at maturity and may be forced to sell assets, undergo a recapitalization or seek bankruptcy protection.

Elevated interest rates could also cause borrowers to shift cash from other productive uses to the payment of interest, which may have a material adverse effect on their business and operations and could, over time, lead to increased defaults.

3 unchanged sentences

Trading prices tend to fluctuate more for fixed rate securities that have longer maturities.

There can be no guarantee the Federal Reserve Board will raise rates at a gradual pace, or at all, nor can there be any assurance that markets will not adversely react to rate increases.

Recent and future increases in interest rates could have a negative effect on our investments, which could negatively impact our operating results, financial condition, and cash flows.

Conversely, reduced interest rates will result in a decrease in our total investment income unless offset by interest rate floors or an increase in the spread of our debt investments with variable interest rates.

If interest rates remain elevated or rise again in the future, it could have a negative effect on our investments, which could negatively impact our operating results, financial condition, and cash flows.

Conversely, reduced interest rates, including recent rate decreases, will result in a decrease in our total investment income unless offset by interest rate floors or an increase in the spread of our debt investments with variable interest rates.

In addition, our net investment income could decrease if there is no reduction or credit to the base management or incentive fees that we pay to the Adviser or if we are unable to refinance our fixed rate debt obligations or issue new fixed rate debt at lower rates.

1 unchanged sentence

A change in interest rates may adversely affect our profitability and any hedging strategy 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.

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

As a result, a portion of our income depends 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.

19 unchanged sentences

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.

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.

15 unchanged sentences

Deterioration in a borrower’s financial condition and prospects usually will be accompanied by deterioration in the value of any collateral and a reduction in the likelihood of realizing on any guaranties we may have obtained from the borrower’s management.

As of March 31, 2024, loans to two portfolio companies were on non-accrual status with an aggregate debt cost basis of $59.1 million, or 9.0% of the cost basis of all debt investments in our portfolio.

As of March 31, 2025, loans to four portfolio companies were on non-accrual status with an aggregate debt cost basis of $90.2 million, or 13.1% of the cost basis of all debt investments in our portfolio.

We cannot assure you that our efforts to improve profitability and cash flows of these companies will prove successful.

8 unchanged sentences

• Lower Middle Market businesses generally have less predictable operating results.

We expect that our portfolio companies may have significant variations in their operating results, may from time to time be exposed to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, may require substantial additional capital to support their operations, to finance expansion or to maintain their competitive position, may otherwise have a weak financial position or may be adversely affected by changes in the business cycle.

changes in the business cycle.

Our portfolio companies may not meet net income, cash flow and other coverage tests typically imposed by their senior lenders.

36 unchanged sentences

The participation of our Adviser’s investment professionals in our valuation process and Mr.

Gladstone’s 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.

Gladstone’s 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.

7 unchanged sentences

Our NAV could be materially affected if the Adviser’s 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 as expected.

3 unchanged sentences

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.

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

5 unchanged sentences

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.

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.

1 unchanged sentence

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 borrower’s 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, 2024, we had investments in 24 portfolio companies, the five largest of which included SFEG, Nocturne, Nth Degree, Old World, and Brunswick and comprised $393.5 million, or 42.7%, 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 due to the current inflation and interest rate environment.

As of March 31, 2025, we had investments in 25 portfolio companies, the five largest of which included SFEG, Ricardo, Brunswick, Nielsen-Kellerman and E3 and comprised $401.7 million, or 41.0%, of our total investment portfolio, at fair value.

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.

19 unchanged sentences

We may be unable to accurately estimate our exposure to litigation risk if we record balance sheet reserves for probable loss contingencies.

As a result, any reserves we establish to cover any settlements or

judgments may not be sufficient to cover our actual financial exposure, which may have a material impact on our results of operations, financial condition, or cash flows.

As a result, any reserves we establish to cover any settlements or judgments may not be sufficient to cover our actual financial exposure, which may have a material impact on our results of operations, financial condition, or cash flows.

While we believe we would have valid defenses to potential claims brought due to our investment in any portfolio company, and will defend any such claims vigorously, we may nevertheless expend significant amounts of money in defense costs and expenses.

8 unchanged sentences

Risks Related to Our External Financing

In addition to regulatory limitations on our ability to raise capital, the Credit Facility contains various covenants which, if not complied with, could accelerate our repayment obligations under the facility, thereby materially and adversely affecting our liquidity, financial condition, results of operations, cash flows, and ability to pay distributions.

In addition to regulatory limitations on our ability to raise capital, our Credit Facility contains various covenants which, if not complied with, could accelerate our repayment obligations under the facility, thereby materially and adversely affecting our liquidity, financial condition, results of operations, cash flows, and ability to pay distributions.

We will have a continuing need for capital to finance our investments.

As of March 31, 2024, we, through our wholly-owned subsidiary, Business Investment, had $67.0 million of borrowings outstanding under the Credit Facility, which provides for maximum borrowings of $200.0 million, with a revolving period end date of October 30, 2026 (the “Revolving Period End Date”).

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.

As of March 31, 2025, we, through our wholly-owned subsidiary, Business Investment, had no borrowings outstanding under our Credit Facility, which provides for maximum borrowings of $270.0 million, with a revolving period end date of October 30, 2026 (the “Revolving Period End Date”).

Our 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, our 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.

Our 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 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 $348.7 million as of March 31, 2024;

Our 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, our Credit Facility contains a performance guarantee that requires the Company to maintain (i) a minimum net worth 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 $412.9 million as of March 31, 2025;

(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, 2024, and as defined in the performance guaranty of the Credit Facility, we had a net worth of $822.4 million, asset coverage on our senior securities representing indebtedness of 219.0%, 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, 2024, we were in compliance with all covenants under the Credit Facility;

As of March 31, 2025, and as defined in the performance guaranty of our Credit Facility, we had a net worth of $953.3 million, asset coverage on our senior securities representing indebtedness of 204.4%, calculated in accordance with the requirements of Sections 18 and 61 of the 1940 Act, and an active status as a BDC and RIC.

March 31, 2025, we were in compliance with all covenants under our Credit Facility;

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

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.

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 our 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 October 30, 2028 (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.

Any inability to renew, extend or replace our 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 our Credit Facility is not renewed or extended by the Revolving Period End Date, all principal and interest will be due and payable on October 30, 2028 (two years after the Revolving Period End Date).

Subject to certain terms and conditions, our 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 our Credit Facility, we will be unable to expand our Credit Facility and thus will continue to have limited availability to finance new investments under our Credit Facility.

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

Our ability to expand our 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 our Credit Facility, or to renew, extend or refinance our 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.

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

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

If we are able to renew, extend or refinance our 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.

3 unchanged sentences

• Senior Securities :

We may issue "senior securities representing indebtedness" (including borrowings under the Credit Facility, our 5.00% 2026 Notes, our 4.875% 2028 Notes and our 8.00% 2028 Notes) and "senior securities that are stock", up to the maximum amount permitted by the 1940 Act.

We may issue "senior securities representing indebtedness" (including borrowings under our Credit Facility, our 5.00% 2026 Notes, our 4.875% 2028 Notes, our 8.00% 2028 Notes and our 7.875% 2030 Notes) and "senior securities that are 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.

5 unchanged sentences

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.

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.

13 unchanged sentences

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, this potential will be further magnified.

We have incurred leverage in the past and currently incur leverage through the Credit Facility, the 5.00% 2026 Notes, the 4.875% 2028 Notes and the 8.00% 2028 Notes and, from time to time, may incur additional leverage to the extent permitted under the 1940 Act.

We have incurred leverage in the past and currently incur leverage through the Credit Facility, the 5.00% 2026 Notes, the 4.875% 2028 Notes, the 8.00% 2028 Notes and 7.875% 2030 Notes 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.

8 unchanged sentences

(A) The hypothetical return to common stockholders is calculated by multiplying our total assets as of March 31, 2025 by the assumed rates of return and subtracting all interest on our debt expected to be paid during the twelve months following March 31, 2025, and then dividing the resulting difference by our total net assets attributable to common stock as of March 31, 2025.

Based on $938.1 million in total assets, $67.0 million of borrowings outstanding on the Credit Facility, $127.9 million of 5.00% 2026 Notes, at cost, $134.6 million of 4.875% 2028 Notes, at cost, $74.8 million of 8.00% 2028 Notes, at cost, and $492.7 million in net assets as of March 31, 2024.

Based on $1.0 billion in total assets, no borrowings outstanding on our Credit Facility, $127.9 million of 5.00% 2026 Notes, at cost, $134.6 million of 4.875% 2028 Notes, at cost, $74.8 million of 8.00% 2028 Notes, at cost, $126.5 million of 7.875% 2030 Notes, at cost, and $499.1 million in net assets as of March 31, 2025.

Based on an aggregate outstanding indebtedness of $463.7 million, at cost, as of March 31, 2025, the effective annual cash interest rate of 6.2 % as of that date, our investment portfolio at fair value would have to produce an annual return of at least 3.0 % to cover annual interest payments on the outstanding debt.

4 unchanged sentences

Because we use leverage, we are subject to certain asset coverage ratio requirements under the 1940 Act and could, under certain circumstances, be restricted from making distributions necessary to qualify as a RIC.

Warrants we may receive with respect to debt investments generally

create original issue discount (“OID”), which we must recognize as ordinary income over the term of the debt investment.

Warrants we may receive with respect to debt investments generally create original issue discount (“OID”), which we must recognize as ordinary income over the term of the debt investment.

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

25 unchanged sentences

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 holder’s 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.

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.

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.

13 unchanged sentences

Risks Related to Our External Management

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

We are particularly dependent upon David Gladstone and David Dullum 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.

7 unchanged sentences

Searches for qualified personnel may divert management’s 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.

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 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.

16 unchanged sentences

Thus, we may be required to pay the Adviser incentive compensation for a fiscal quarter even if there is a decline in the value of our portfolio or we incur a net realized or unrealized loss for that quarter.

For additional information on incentive compensation under the Advisory Agreement with the Adviser, see “ Business — Investment Advisory and Management Agreement .”

For additional information on

incentive compensation under the Advisory Agreement with the Adviser, see “ Business — Investment Advisory and Management Agreement .”

We may be required to pay the Adviser incentive compensation on income accrued, but not yet received in cash.

13 unchanged sentences

Gladstone, our chairman and chief executive officer, is the chairman of the board and chief executive officer of the Adviser and Administrator, and the Affiliated Public Funds.

In addition, Mr.

Brubaker, our chief operating officer, is also the vice chairman and chief operating officer of the Adviser and Administrator, and chief operating officer of the Affiliated Public Funds.

Dullum, our president, is also an executive vice president of the Adviser.

10 unchanged sentences

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.

• Pursuant to the Co-Investment Order, we may co-invest, under certain circumstances, with certain of our affiliates, including Gladstone Capital and any future BDC or closed-end management investment company that is advised (or sub-advised if it controls the fund) by the Adviser, or any combination of the foregoing subject to the conditions in the Co-Investment Order.

• Pursuant to the Co-Investment Order, we may co-invest, under certain circumstances, with certain of our affiliates, including Gladstone Capital, Gladstone Alternative and any future BDC or closed-end management investment company that is advised (or sub-advised if it controls the fund) by the Adviser, or any combination of the foregoing subject to the conditions in the Co-Investment Order.

Certain of our officers, who are also officers of the Adviser, may from time to time serve as directors of certain of our portfolio companies.

22 unchanged sentences

We may retain some or all of our net realized long-term capital gains, if any, and designate them as deemed distributions to supplement our equity capital and support the growth of our portfolio, although our Board of Directors may determine to distribute these net realized long-term capital gains to our stockholders in cash.

In addition, the Credit Facility restricts the amount of distributions we are permitted to make annually.

In addition, our Credit Facility restricts the amount of distributions we are permitted to make annually.

We cannot assure investors that we will achieve investment results or maintain a tax status that will allow or require any specified level of cash distributions.

17 unchanged sentences

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.

Risks Related to the 5.00% 2026 Notes, 4.875% 2028 Notes and 8.00% 2028 Notes (collectively, the "Notes")

Risks Related to the 5.00% 2026 Notes, 4.875% 2028 Notes, 8.00% 2028 Notes and 7.875% 2030 Notes (collectively, the "Notes")

The 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).

8 unchanged sentences

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 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.

Consequently, the 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, Business Investment, is the obligor under our Credit Facility, which is structurally senior to the Notes.

32 unchanged sentences

We may choose to redeem the Notes when prevailing interest rates are relatively low.

At any time with respect to the 5.00% 2026 Notes and the 4.875% 2028 Notes and on or after August 1, 2025, with respect to the 8.00% 2028 Notes, we may choose to redeem the Notes from time to time, especially if prevailing interest rates are lower than the rate borne by the Notes.

At any time with respect to the 5.00% 2026 Notes and the 4.875% 2028 Notes, on or after August 1, 2025, with respect to the 8.00% 2028 Notes and on or after February 1, 2027, with respect to the 7.875% 2030 Notes, we may choose to redeem the Notes from time to time, especially if prevailing interest rates are lower than the rate borne by the Notes.

If prevailing rates are lower at the time of redemption, and we redeem the 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 Notes being redeemed.

18 unchanged sentences

Recent technological advances in artificial intelligence and machine learning technology pose risks to our Company and our portfolio companies.

Our Company and our portfolio companies could be exposed to the risks of artificial intelligence and machine learning technology if third-party service providers or any counterparties, whether or not known to our Company, also use artificial intelligence and machine learning technology in their business activities.

We and our portfolio companies could be exposed to the risks of artificial intelligence and machine learning technology if third-party service providers or any counterparties, whether or not known to us, also use artificial intelligence and machine learning technology in their business activities.

We and our portfolio companies may not be in a position to control the use of artificial intelligence and machine learning technology in third-party products or services.

9 unchanged sentences

Additionally, new regulatory initiatives related to ESG that are applicable to us and our portfolio companies could adversely affect our business.

The SEC has adopted rules that require additional disclosures about ESG investment practices by investment advisers and certain funds, including BDCs.

The SEC has also adopted rules that, among other matters, establish a framework for reporting of climate-related risks.

Compliance with these rules may be onerous and expensive.

15 unchanged sentences

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.

For additional information regarding the regulations to which we are subject, see “ Business—Material U.S.

Federal Income Tax Considerations — RIC Status” and “Business — Regulation as a BDC.

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 and rising interest rates.

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.

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.

2 unchanged sentences

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