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Item 1A. Risk Factors

2021-05-05 compared with 2020-05-06 · 1938 added, 1299 removed, 72 unchanged (98% of the section changed)

Investing in our securities involves a number of significant risks.

In addition to other information contained in this Annual Report on Form 10-K, you should consider carefully the following information before making an investment in our securities.

The risks set forth below are the principal risks with respect to the Company generally and with respect

to business development companies, they may not be the only risks we face.

This section nonetheless describes the principal risk factors associated with investment in the Company specifically, as well as those factors generally associated with

investment in a company with investment objectives, investment policies, capital structure or trading markets similar to the Companys.

If any of the risks occur, our business, financial condition and results of operations could be materially

adversely affected.

In such case, our net asset value and the trading price of our securities could decline and you may lose all or part of your investment.

Risks Related to Our Business and Structure

volatility and the condition of the debt and equity capital markets could negatively impact our financial condition and stock price.

From time to time, capital markets may experience periods of disruption and instability.

For example, between 2008 and 2009, the U.S.

global capital markets were unstable as evidenced by periodic disruptions in liquidity in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the

broadly syndicated credit market and the failure of major financial institutions.

Despite actions of the U.S.

federal government and foreign governments, these events contributed to worsening general economic conditions that materially and adversely

impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial services firms in particular.

While market conditions have largely recovered from the events of 2008

and 2009, there have been continuing periods of volatility, some lasting longer than others.

For example, the referendum by U.K.

voters to exit the European Union in June 2016 led to further disruption and instability in the global markets (see

Risk FactorsRisks Related to Our Business and StructureUncertainty about the financial stability of the United States, China and several countries in Europe could have a significant adverse effect on our business, financial

condition and results of operations.).

There can be no assurance these market conditions will not repeat themselves or worsen in the future.

Equity capital may be difficult to raise during periods of adverse or volatile market conditions because, subject to some limited exceptions,

as a BDC, we are generally not able to issue additional shares of our common stock at a price less than net asset value without first obtaining approval for such issuance from our stockholders and our independent directors.

For information about

risks related to the potential impact that volatile market conditions may have on our 6.25% Notes due 2025 (the 2025 Notes), see Risks Relating to Our 2025 NotesPublic health threats may affect the market for the 2025 Notes,

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

Volatility and

dislocation in the capital markets can also create a challenging environment in which to raise or access debt capital.

The reappearance of market conditions similar to those experienced from 2008 through 2009 for any substantial length of time could

make it difficult to extend the maturity of or refinance our existing indebtedness or obtain new indebtedness with similar terms and any failure to do so could have a material adverse effect on our business.

The debt capital that will be available

to us in the future, if at all, may be at a higher cost and on less favorable terms and conditions than what we currently experience including being at a higher cost due to a rising rate environment.

If we are unable to raise or refinance debt, then

our equity investors may not benefit from the potential for increased returns on equity resulting from leverage and we may be limited in our ability to make new commitments or to fund existing commitments to our portfolio companies.

Significant changes or volatility in the capital markets may also have a negative effect on the valuations of our investments.

While most of

our investments are not publicly traded, applicable accounting standards require us to assume as part of our valuation process that our investments are sold in a principal market to market participants (even if we plan on holding an investment

through its maturity).

Significant changes in the capital markets may also affect the pace of our investment activity and the potential for liquidity events involving our investments.

Thus, the illiquidity of our investments may make it difficult

for us to sell such investments to access capital if required, and as a result, we could realize significantly less than the value at which we have recorded our investments if we were required to sell them for liquidity purposes.

An inability to

raise or access capital could have a material adverse effect on our business, financial condition or results of operations.

Presidential Administration may make substantial changes to financial regulation, as well as

fiscal and tax policies that may adversely affect our business.

The Republican Party currently controls the executive branch and

the Senate portion of the legislative branch of government, which we believe increases the likelihood that legislation may be adopted that could significantly affect the regulation of U.S.

financial markets.

Areas subject to potential change,

amendment or repeal include the Dodd-Frank Act and the authority of the Federal Reserve and the Financial Stability Oversight Council.

The United States may also potentially withdraw from or renegotiate various trade agreements and take other

actions that would change current trade policies of the United States.

We cannot predict which, if any, of these actions will be taken or, if taken, their effect on the financial stability of the United States.

Such actions could have a significant

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

We cannot predict the duration of the effects related to these or similar events in the future on the U.S.

economy and securities markets or on our investments.

monitor developments and seek to manage our investments in a manner consistent with achieving our investment objective, but there can be no assurance that we will be successful in doing so.

The current U.S.

presidential administration has called for significant changes to U.S.

trade, healthcare, immigration, foreign and

government regulatory policy.

In this regard, there is significant uncertainty with respect to legislation, regulation and government policy at the federal level, as well as the state and local levels.

Recent events have created a climate of

heightened uncertainty and introduced new and difficult-to-quantify macroeconomic and political risks with potentially

far-reaching implications.

There has been a corresponding meaningful increase in the uncertainty surrounding interest rates, inflation, foreign exchange rates, trade volumes and fiscal and monetary policy.

the extent the U.S.

Congress or the current administration implements changes to U.S.

policy, those changes may impact, among other things, the U.S.

and global economy, international trade and relations, unemployment, immigration, corporate taxes,

healthcare, the U.S.

regulatory environment, inflation and other areas.

Although we cannot predict the impact, if any, of these changes to business, they could adversely affect our business, financial condition, operating results and cash flows.

Until we know what policy changes are made and how those changes impact business and the business of our competitors over the long term, we will not know if, overall, we will benefit from them or be negatively affected by them.

Uncertainty about the financial stability of the United States, China and several countries in Europe could have a significant adverse effect on our

business, financial condition and results of operations.

Downgrades by rating agencies to the U.S.

governments credit and

deficit levels in general, could cause interest rates and borrowing costs to rise, which may negatively impact both the perception of credit risk associated with our debt portfolio and our ability to access the debt markets on favorable terms.

addition, a decreased U.S.

government credit rating could create broader financial turmoil and uncertainty, which may weigh heavily on our financial performance and the value of our common stock.

Deterioration in the economic conditions in the Eurozone and globally, including instability in financial markets, may pose a risk to our

In recent years, financial markets have been affected at times by a number of global macroeconomic and political events, including the following:

large sovereign debts and fiscal deficits of several countries in Europe and in emerging

markets jurisdictions, levels of non-performing loans on the balance sheets of European banks, the potential effect of any European country leaving the Eurozone, the potential effect of the United Kingdom

leaving the European Union, the potential effect of Scotland leaving the United Kingdom, and market volatility and loss of investor confidence driven by political events.

Market and economic disruptions have affected, and may in the future affect,

consumer confidence levels and spending, personal bankruptcy rates, levels of incurrence and default on consumer debt and home prices, among other factors.

We cannot assure you that market disruptions in Europe, including the increased cost of

funding for certain governments and financial institutions, will not impact the global economy, and we cannot assure you that assistance packages will be available, or if available, be sufficient to stabilize countries and markets in Europe or

elsewhere affected by a financial crisis.

To the extent uncertainty regarding any economic recovery in Europe negatively impacts consumer confidence and consumer credit factors, our business, financial condition and results of operations could be

significantly and adversely affected.

In June 2016, the United Kingdom held a referendum in which voters approved an exit from the

European Union (Brexit), and, subsequently, on March 29, 2017, the U.K.

government began the formal process of leaving the European Union.

The United Kingdom formally left the European Union on January 31, 2020 and immediately

entered a transition period set to expire on December 31, 2020.

Brexit has created political and economic uncertainty and instability in the global markets (including currency and credit markets), and especially in the United Kingdom and the

European Union, and this uncertainty and instability may last indefinitely.

The implications of the United Kingdoms withdrawal from the European Union are unclear at present.

There is also continued concern about national-level support for the

Euro and the accompanying coordination of fiscal and wage policy among European Economic and Monetary Union member countries.

These market conditions have historically and could again have a material adverse effect on debt and equity capital markets

in the United States and Europe, which could have a materially negative impact on our business, financial condition and results of operations.

We and other companies in the financial services sector may have to access, if available, alternative

markets for debt and equity capital.

The Chinese capital markets have also experienced periods of instability over the past several

The current political climate has also intensified concerns about a potential trade war between the U.S.

and China in connection with each countrys recent or proposed tariffs on the other countrys products.

These market and

economic disruptions, the potential trade war with China and the impact of public health epidemics like the coronavirus currently affecting China and the wider global community may have a material adverse impact on the ability of our portfolio

companies to fulfill their end customers orders due to supply chain delays, limited access to key commodities or technologies or other events that impact their manufacturers or their suppliers.

Such events have affected, and may in the future

affect, the global and U.S.

capital markets, and our business, financial condition or results of operations.

These developments, along

with the United States governments credit and deficit concerns, the European sovereign debt crisis and the economic slowdown in China, could cause interest rates to be volatile, which may negatively impact our ability to access the debt

markets on favorable terms.

We may be obligated to pay Saratoga Investment Advisors incentive fees even if we incur a net loss, or there is a

decline in the value of our portfolio.

Saratoga Investment Advisors is entitled to incentive fees for each fiscal quarter in an

amount equal to a percentage of the excess of our investment income for that quarter (before deducting incentive compensation, but net of operating expenses and certain other items) above a threshold return for that quarter.

Our pre-incentive fee net investment income, for incentive compensation purposes, excludes realized and unrealized capital gains or losses that we may incur in the fiscal quarter, even if such capital gains or losses

result in a net gain or loss on our consolidated statements of operations for that quarter.

Thus, we may be required to pay Saratoga Investment Advisors incentive fees for a fiscal quarter even if there is a decline in the value of our portfolio or

we incur a net loss for that quarter.

Under the terms of the Management Agreement, we may have to pay incentive fees to Saratoga Investment

Advisors in connection with the sale of an investment that is sold at a price higher than the fair value of such investment on May 31, 2010, even if we incur a loss on the sale of such investment.

Incentive fees on capital gains paid to Saratoga Investment Advisors under the Management Agreement equals 20.0% of our incentive fee

capital gains, which equals our realized capital gains on a cumulative basis from May 31, 2010 through the end of the fiscal year, if any, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis on

each investment in the Companys portfolio, less the aggregate amount of any previously paid capital gain incentive fee.

Under the Management Agreement, the capital gains portion of the incentive fee is based on realized gains and realized and

unrealized losses from May 31, 2010.

Therefore, realized and unrealized losses incurred prior to such time will not be taken into account when calculating the capital gains portion of the incentive fee, and Saratoga Investment Advisors will be

entitled to 20.0% of the incentive fee capital gains that arise after May 31, 2010.

In addition, the cost basis for computing realized gains and losses on investments held by us as of May 31, 2010 will equal the fair value of such

investments as of such date.

See our Form 10-Q for the quarter ended May 31, 2010 that was filed with the SEC on July 15, 2010 for the fair value and other information related to our investments as of such

As a result, we may be required to pay incentive fees to Saratoga Investment Advisors on the sale of an investment even if we incur a realized loss on such investment, so long as the investment is sold for an amount greater than its fair value

as of May 31, 2010.

The way in which the base management and incentive fees under the Management Agreement is determined

may encourage Saratoga Investment Advisors to take actions that may not be in our best interests.

The incentive fee payable by us

to our Investment Adviser may create an incentive for it to make investments on our behalf that are risky or more speculative than would be the case in the absence of such compensation arrangement, which could result in higher investment losses,

particularly during cyclical economic downturns.

The way in which the incentive fee payable to our Investment Adviser is determined, which is calculated separately in two components as a percentage of the income (subject to a hurdle rate) and as a

percentage of the realized gain on invested capital, may encourage our Investment Adviser to use leverage to increase the return on our investments or otherwise manipulate our income so as to recognize income in quarters where the hurdle rate is

Moreover, we pay Saratoga Investment Advisors a base management fee based on our total assets, including any investments made with borrowings, which may create an incentive for it to cause us to incur more leverage than is prudent, or not

to repay our outstanding indebtedness when it may be advantageous for us to do so, in order to maximize its compensation.

Under certain circumstances, the use of leverage may increase the likelihood of default, which would disfavor the holders of

our securities.

The incentive fee payable by us to our Investment Adviser also may create an incentive for our Investment Adviser to

invest on our behalf in instruments that have a deferred interest feature.

Under these investments, we would accrue the interest over the life of the investment but would not receive the cash income from the investment until the end of the

investments term, if at all.

Our net investment income used to calculate the income portion of our incentive fee, however, includes accrued interest.

Thus, a portion of the incentive fee would be based on income that we have not yet received

in cash and may never receive in cash if the portfolio company is unable to satisfy such interest payment obligation to us.

Consequently, while we may make incentive fee payments on income accruals that we may not collect in the future and with

respect to which we do not have a claw back right against our Investment Adviser per se, the amount of accrued income written off in any period will reduce the income in the period in which such

write-off was taken and may thereby reduce such periods incentive fee payment.

Saratoga Investment Advisors receives a quarterly income incentive fee based, in part, on our pre-incentive fee net investment income, if any, for the immediately preceding calendar quarter.

incentive fee is subject to a fixed quarterly hurdle rate before providing an income incentive fee return to Saratoga Investment Advisors.

This fixed hurdle rate was determined when then current interest rates were relatively low on a historical

Thus, if interest rates rise, it would become easier for our investment income to exceed the hurdle rate and, as a result, more likely that Saratoga Investment Advisors will receive an income incentive fee than if interest rates on our

investments remained constant or decreased.

However, if we repurchase our outstanding debt securities, including the 2025 Notes and such repurchase results in our recording a net gain or loss on the extinguishment of debt for financial reporting and

tax purposes, such net gain or loss will not be included in our pre-incentive fee net investment income for purposes of determining the income incentive fee payable to our Investment Adviser under the

Management Agreement.

Moreover, our Investment Adviser receives the incentive fee based, in part, upon net capital gains realized on our

Unlike the portion of the incentive fee based on income, there is no performance threshold applicable to the portion of the incentive fee based on net capital gains.

As a result, our Investment Adviser may have a tendency to invest more

in investments that are likely to result in capital gains as compared to income producing securities.

Such a practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher

investment losses, particularly during economic downturns.

Our board of directors will seek to ensure that Saratoga Investment Advisors

is acting in our best interests and that any conflict of interest faced by Saratoga Investment Advisors in its capacity as our Investment Adviser does not negatively impact us.

The base management fee we pay to Saratoga Investment Advisors may induce it to influence our leverage, which may be contrary to our interest.

We pay Saratoga Investment Advisors a quarterly base management fee based on the value of our total assets (including any assets

acquired with leverage).

Accordingly, Saratoga Investment Advisors has an economic incentive to increase our leverage.

Our board of directors monitors the conflicts presented by this compensation structure by approving the amount of leverage that we

If our leverage is increased, we will be exposed to increased risk of loss, bear the increase cost of issuing and servicing such senior indebtedness, and will be subject to any additional covenant restrictions imposed on us in an indenture or

other instrument or by the applicable lender.

We employ leverage, which magnifies the potential for gain or loss on amounts invested and may

in our securities involves a number of significant risks.

In addition to other information contained in this Annual Report on Form 10-K,

you should consider carefully the following information before making an investment in our securities.

The risks set forth below are

the principal risks with respect to the Company generally and with respect to business development companies, they may not be the only

risks we face.

This section nonetheless describes the principal risk factors associated with investment in the Company specifically,

as well as those factors generally associated with investment in a company with investment objectives, investment policies, capital structure

or trading markets similar to the Company’s.

If any of the risks occur, our business, financial condition and results of operations

could be materially adversely affected.

In such case, our net asset value and the trading price of our securities could decline and you

may lose all or part of your investment.

OF RISK FACTORS

following is a summary of the principal risks that you should carefully consider before investing in our securities.

These and other

risk factors are described more fully in this “Item 1A.

Risk Factors.”

Related to Our Business and Structure

employ leverage, which magnifies the potential for gain or loss on amounts invested and may

increase the risk of investing in us.

Borrowings, also known as leverage, magnify the potential for gain or loss on amounts

invested and, therefore, increase the risks associated with investing in us.

are exposed to risks associated with changes in interest rates including potential effects

on our cost of capital and net investment income.

relating to the LIBOR calculation process may adversely affect the value of our portfolio

of LIBOR-indexed, floating- rate debt securities.

are significant potential conflicts of interest which could adversely impact our investment

and external cyber threats, as well as other disasters, could impair our ability to conduct

business effectively.

will be subject to corporate-level U.S.

federal income tax if we fail to qualify as a RIC.

Related to the Current Environment

economic, political and market conditions may adversely affect our business, results of operations

and financial condition, including our revenue growth and profitability.

outside of our control, including public health crises such as the ongoing COVID-19 pandemic,

may negatively affect our results of operations and financial performance.

are currently operating in a period of capital markets disruption and economic uncertainty.

recessions or downturns could impair the ability of our portfolio companies to repay loans

and harm our operating results.

Related to Our Adviser and Its Affiliates

may be obligated to pay Saratoga Investment Advisors incentive fees even if we incur a net

loss, or there is a decline in the value of our portfolio.

way in which the base management and incentive fees under the Management Agreement is determined

may encourage Saratoga Investment Advisors to take actions that may not be in our best interests.

Investment Advisors’

liability is limited under the Management Agreement and we will

indemnify Saratoga Investments Advisors against certain liabilities, which may lead it to

act in a riskier manner on our behalf than it would when acting for its own account.

ability to enter into transactions with our affiliates is restricted.

Related to Our Investments

majority of our debt investments are not required to make principal payments until the maturity

of such debt securities and are generally riskier than other types of loans.

lack of liquidity in our investments may adversely affect our business.

investment in Saratoga CLO constitutes a leveraged investment in a portfolio of subordinated

notes representing the lowest-rated securities issued by a pool of predominantly senior secured

first lien term loans and is subject to additional risks and volatility.

All losses in the

pool of loans will be borne by our subordinated notes and only after the value of our subordinated

notes is reduced to zero will the higher-rated notes issued by the pool bear any losses.

● Investments

in equity securities involve a substantial degree of risk.

Related to Our Common Stock

may choose to pay dividends in our own stock, in which case you may be required to pay tax

in excess of the cash you receive.

to the COVID-19 pandemic or other disruptions in the economy, we may reduce or defer our

dividends and choose to incur US federal excise tax in order preserve cash and maintain flexibility.

market price of our common stock may fluctuate significantly.

is a risk that you may not receive distributions or that our distributions may not grow over

Related to Our Notes

Notes are unsecured and therefore are effectively subordinated to any secured indebtedness

we have incurred or may incur in the future.

active trading market for the Public Notes may not develop or be sustained, which could limit

the market price of the Public Notes or the ability to sell them.

health threats may affect the market for the Public Notes, impact the businesses in which

we invest and affect our business, operating results and financial condition.

RELATED TO OUR BUSINESS AND STRUCTURE

employ leverage, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing in us.

also known as leverage, magnify the potential for gain or loss on amounts invested and, therefore, increase the risks associated with

investing in us.

We borrow from and issue senior debt securities to banks and other lenders that is secured by a lien on our assets.

Holders of these senior securities have fixed dollar

claims on our assets that are superior to the claims of the holders of our securities.

Holders of these senior securities have fixed dollar claims on our assets that are superior to the claims of the holders of our securities.

Leverage is generally considered a speculative investment technique.

Any increase in our income in excess of interest payable on our outstanding indebtedness

would cause our net income to increase more than it would have had we not incurred leverage, while any decrease in our income would cause net income to decline more sharply than it would have had we not incurred leverage.

Such a decline could

negatively affect our ability to make common stock distributions or scheduled debt payments, including with respect to the 2025 Notes.

Any increase in our income in excess of interest payable on our

outstanding indebtedness would cause our net income to increase more than it would have had we not incurred leverage, while any decrease

in our income would cause net income to decline more sharply than it would have had we not incurred leverage.

Such a decline could negatively

affect our ability to make common stock distributions or scheduled debt payments, including with respect to the Notes, as defined below.

There can be no assurance that our leveraging strategy will be successful.

Our outstanding indebtedness imposes, and additional debt we may incur in the future will likely impose, financial and operating covenants

that restrict our business activities, including limitations that could hinder our ability to finance additional loans and investments or to make the distributions required to maintain our status as a RIC.

A failure to add new debt facilities or

issue additional debt securities or other evidences of indebtedness in lieu of or in addition to existing indebtedness could have a material adverse effect on our business, financial condition or results of operations.

As of February 29, 2020, there were no outstanding borrowings under the Credit Facility.

As of February 29, 2020, we had issued

$150.0 million in SBA-guaranteed debentures and $60.0 million in aggregate principal amount of 2025 Notes.

On January 13, 2017, we redeemed the $61.8 million of outstanding 2020 Notes using the proceeds from the issuance of the

2023 Notes, leaving $9.8 million in net proceeds from the 2023 Notes offering.

On December 21, 2019 and February 7, 2020, the Company redeemed $50.0 million and $24.5 million, respectively, in aggregate principal amount of

the $74.5 million in aggregate principal amount of issued and outstanding 2023 Notes.

We may incur additional indebtedness in the future, including, but not limited to, borrowings under the Credit Facility or the issuance of additional debt

securities in one or more public or private offerings, although there can be no assurance that will be successful in doing so.

Our ability to service our debt depends largely on our financial performance and is subject to prevailing economic

conditions and competitive pressures.

The amount of leverage that we employ at any particular time will depend on our managements and our board of directors assessment of market and other factors at the time of any proposed borrowing.

Saratoga Investment Advisors liability is limited under the Management Agreement and we will indemnify Saratoga Investments Advisors against

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

Saratoga Investment Advisors has not assumed any responsibility to us other than to render the services described in the Management Agreement.

Pursuant to the Management Agreement, Saratoga Investment Advisors and its officers and employees are not liable to us for their acts under the Management Agreement absent willful misfeasance, bad faith, gross negligence or reckless disregard in the

performance of their duties.

We have agreed to indemnify, defend and protect Saratoga Investment Advisors and its officers and employees with respect to all damages, liabilities, costs and expenses resulting from acts of Saratoga Investment Advisors

not arising out of willful misfeasance, bad faith, gross negligence or reckless disregard in the performance of their duties under the Management Agreement.

These protections may lead Saratoga Investment Advisors to act in a riskier manner when

acting on our behalf than it would when acting for its own account.

Substantially all of our assets are subject to security interests under our

Credit Facility or claims of the SBA with respect to SBA-guaranteed debentures we may issue and if we default on our obligations thereunder, we may suffer adverse consequences, including the foreclosure on our

Substantially all of our assets are pledged as collateral under the Credit Facility or are subject to a superior claim

over the holders of our common stock or the 2025 Notes by the SBA pursuant to the SBA-guaranteed debentures.

If we default on our obligations under the Credit Facility or the

SBA-guaranteed debentures, Madison Capital Funding and/or the SBA may have the right to foreclose upon and sell, or otherwise transfer, the collateral subject to their security interests or superior claim.

such event, we may be forced to sell our investments to raise funds to repay our outstanding borrowings in order to avoid foreclosure and these forced sales may be at times and at prices we would not consider advantageous.

Moreover, such

deleveraging of our company could significantly impair our ability to effectively operate our business in the manner in which we have historically operated.

In addition, if Madison Capital Funding exercises its right to sell the assets pledged under the Credit Facility, such sales may be completed

at distressed sale prices, thereby diminishing or potentially eliminating the amount of cash available to us after repayment of the amounts outstanding under the Credit Facility.

We are exposed to risks associated with changes in interest rates including potential effects on our

cost of capital and net investment income.

General interest rate fluctuations and changes in credit spreads on floating rate loans

may have a substantial negative impact on our investments and investment opportunities and, accordingly, may have a material adverse effect on our rate of return on invested capital.

In addition, an increase in interest rates would make it more

expensive to use debt to finance our investments.

Decreases in credit spreads on debt that pays a floating rate of return would have an impact on the income generation of our floating rate assets.

Trading prices for debt that pays a fixed rate of

return tend to fall as interest rates rise.

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

Although we have no policy governing the maturities of our investments, under current market conditions we

expect that we will invest in a portfolio of debt generally having maturities of up to ten years.

This means that we will be subject to greater risk (other things being equal) than an entity investing solely in shorter-term securities.

Because we may borrow to fund our investments, a portion of our net investment income may be dependent upon the difference between the

interest rate at which we borrow funds and the interest rate at which we invest these funds.

A portion of our investments will have fixed interest rates, while a portion of our borrowings will likely have floating interest rates.

As a result, a

significant change in market interest rates could have a material adverse effect on our net investment income.

In periods of rising interest rates, our cost of funds could increase, which would reduce our net investment income.

We may hedge against

such interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts, subject to applicable legal requirements, including without limitation, all necessary registrations (or exemptions from

registration) with the Commodity Futures Trading Commission.

These activities may limit our ability to participate in the benefits of lower interest rates with respect to the hedged borrowings.

Adverse developments resulting from changes in interest

rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations.

Changes relating

to the LIBOR calculation process may adversely affect the value of our portfolio of LIBOR-indexed, floating-rate debt securities.

LIBOR, the London Interbank Offered Rate, is the basic rate of interest used in lending transactions between banks on the London interbank

market and is widely used as a reference for setting the interest rate on loans globally.

We typically use LIBOR as a reference rate in floating-rate loans we extend to portfolio companies such that the interest due to us pursuant to a term loan

extended to a portfolio company is calculated using LIBOR.

outstanding indebtedness imposes, and additional debt we may incur in the future will likely impose, financial and operating covenants

that restrict our business activities, including limitations that could hinder our ability to finance additional loans and investments

or to make the distributions required to maintain our status as a RIC.

A failure to add new debt facilities or issue additional debt

securities or other evidences of indebtedness in lieu of or in addition to existing indebtedness could have a material adverse effect

on our business, financial condition or results of operations.

of February 28, 2021, there were no outstanding borrowings under the Credit Facility.

As of February 28, 2021, we had issued $158.0 million

in SBA-guaranteed debentures and $60.0 million, $43.1 million, $5.0 million, $5.0 million and $10.0 million, respectively in aggregate

principal amount of the 6.25% notes due 2025 (the “6.25% 2025 Notes”), the 7.25% notes due 2025 (the “7.25% 2025 Notes,”

and together with the 6.25% 2025 Notes, the “Public Notes”), the 7.75% notes due 2025 (the “7.75% 2025 Notes”),

the 6.25% notes due 2027 (the “6.25% 2027 Notes), and the 6.25% notes due 2027 (the “Second 6.25% 2027 Notes,”

together with the Public Notes, the 7.75% 2025 Notes, and the 6.25% 2027 Notes, the “Notes”).

We may incur additional indebtedness

in the future, including, but not limited to, borrowings under the Credit Facility or the issuance of additional debt securities in one

or more public or private offerings, although there can be no assurance that we will be successful in doing so.

Our ability to service

our debt depends largely on our financial performance and is subject to prevailing economic conditions and competitive pressures.

amount of leverage that we employ at any particular time will depend on our management’s and our board of directors’

of market and other factors at the time of any proposed borrowing.

a BDC, we are generally required to meet a coverage ratio at least equal to 150.0% of total assets to total borrowings and other senior

securities, which include all of our borrowings (other than the Funds’

SBA leverage under the terms of SEC exemptive relief) and

any preferred stock we may issue in the future.

If this ratio declines below 150.0%, we may not be able to incur additional debt and

may need to sell a portion of our investments to repay some debt when it is disadvantageous to do so, and we may not be able to make

distributions to our stockholders.

following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns,

net of expenses.

The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing

in the table below.

Assumed Return on Our Portfolio

(net of expenses)

Assumed Return on Portfolio (Net of Expenses)

Corresponding Return to Common Stockholder (1)

(1) Assumes $561.5 million in average total assets, $245.6

million in average debt outstanding, $304.2 million in average net assets and an average interest rate of 4.5%.

Actual interest

payments may be different.

The various return scenarios above exclude borrowing costs, which are then separately deducted from

the net return to common stockholders calculated base on average debt outstanding and average interest rate.

Substantially

all of our assets are subject to security interests under our Credit Facility or claims of the SBA with respect to SBA-guaranteed debentures

we may issue and if we default on our obligations thereunder, we may suffer adverse consequences, including the foreclosure on our assets.

Substantially

all of our assets are pledged as collateral under the Credit Facility or are subject to a superior claim over the holders of our common

stock or the Notes by the SBA pursuant to the SBA-guaranteed debentures.

If we default on our obligations under the Credit Facility or

the SBA-guaranteed debentures, Madison Capital Funding and/or the SBA may have the right to foreclose upon and sell, or otherwise transfer,

the collateral subject to their security interests or superior claim.

In such event, we may be forced to sell our investments to raise

funds to repay our outstanding borrowings in order to avoid foreclosure and these forced sales may be at times and at prices we would

not consider advantageous.

Moreover, such deleveraging of our company could significantly impair our ability to effectively operate our

business in the manner in which we have historically operated.

addition, if Madison Capital Funding exercises its right to sell the assets pledged under the Credit Facility, such sales may be completed

at distressed sale prices, thereby diminishing or potentially eliminating the amount of cash available to us after repayment of the amounts

outstanding under the Credit Facility.

are exposed to risks associated with changes in interest rates including potential effects on our cost of capital and net investment

interest rate fluctuations and changes in credit spreads on floating rate loans may have a substantial negative impact on our investments

and investment opportunities and, accordingly, may have a material adverse effect on our rate of return on invested capital.

an increase in interest rates would make it more expensive to use debt to finance our investments.

Decreases in credit spreads on debt

that pays a floating rate of return would have an impact on the income generation of our floating rate assets.

Trading prices for debt

that pays a fixed rate of return tend to fall as interest rates rise.

Trading prices tend to fluctuate more for fixed rate securities

that have longer maturities.

Although we have no policy governing the maturities of our investments, under current market conditions

we expect that we will invest in a portfolio of debt generally having maturities of up to ten years.

This means that we will be subject

to greater risk (other things being equal) than an entity investing solely in shorter-term securities.

we may borrow to fund our investments, a portion of our net investment income may be dependent upon the difference between the interest

rate at which we borrow funds and the interest rate at which we invest these funds.

A portion of our investments will have fixed interest

rates, while a portion of our borrowings will likely have floating interest rates.

As a result, a significant change in market interest

rates could have a material adverse effect on our net investment income.

In periods of rising interest rates, our cost of funds could

increase, which would reduce our net investment income.

We may hedge against such interest rate fluctuations by using standard hedging

instruments such as futures, options and forward contracts, subject to applicable legal requirements, including without limitation, all

necessary registrations (or exemptions from registration) with the Commodity Futures Trading Commission.

These activities may limit our

ability to participate in the benefits of lower interest rates with respect to the hedged borrowings.

Adverse developments resulting

from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and

results of operations.

relating to the LIBOR calculation process may adversely affect the value of our portfolio of LIBOR-indexed, floating- rate debt securities.

the London Interbank Offered Rate, is the basic rate of interest used in lending transactions between banks on the London interbank market

and is widely used as a reference for setting the interest rate on loans globally.

We typically use LIBOR as a reference rate in floating-rate

loans we extend to portfolio companies such that the interest due to us pursuant to a term loan extended to a portfolio company is calculated

The terms of our debt investments generally include minimum interest rate floors which are calculated based on LIBOR.

Further, the borrowings of the senior secured revolving credit facility

entered into with Madison Capital Funding LLC (the Credit Facility) typically use LIBOR as a reference rate.

In the recent

past, concerns have been publicized that some of the member banks surveyed by the British Bankers Association (BBA) in connection with the calculation of LIBOR across a range of maturities and currencies may have been

under-reporting or otherwise manipulating the inter-bank lending rate applicable to them in order to profit on their derivative positions or to avoid an appearance of capital insufficiency or adverse reputational or other consequences that may have

resulted from reporting inter-bank lending rates higher than those they actually submitted.

A number of BBA member banks entered into settlements with their regulators and law enforcement agencies with respect to alleged manipulation of LIBOR, and

investigations by regulators and governmental authorities in various jurisdictions are ongoing.

Actions by the ICE Benchmark

Administration, 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.

the borrowings of the senior secured revolving credit facility entered into with Madison Capital Funding LLC (the “Credit Facility”)

Credit Facility typically use LIBOR as a reference rate.

the recent past, concerns have been publicized that some of the member banks surveyed by the British Bankers’

Association (“BBA”)

in connection with the calculation of The London Inter-bank Offered Rate (“LIBOR”) across a range of maturities and currencies

may have been under-reporting or otherwise manipulating the inter-bank lending rate applicable to them in order to profit on their derivative

positions or to avoid an appearance of capital insufficiency or adverse reputational or other consequences that may have resulted from

reporting inter-bank lending rates higher than those they actually submitted.

A number of BBA member banks entered into settlements with

their regulators and law enforcement agencies with respect to alleged manipulation of LIBOR, and investigations by regulators and governmental

authorities in various jurisdictions are ongoing.

by the ICE Benchmark Administration, 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.

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 an adverse impact on the market for LIBOR-based securities or the value of our portfolio of LIBOR-indexed, floating-rate debt securities, loans, and other financial obligations or extensions of credit

held by or due to us.

On July 27, 2017, the U.K.

Financial Conduct Authority, which regulates LIBOR, announced that it intends to

stop persuading or compelling banks to submit LIBOR rates after 2021.

It is unclear if at that time LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist after 2021.

have exposure to LIBOR, including in financial instruments that mature after 2021.

Our exposure arises from the value of our portfolio of LIBOR-indexed, floating-rate debt securities.

In the United States, the Federal Reserve Board and the Federal Reserve Bank of New York, in conjunction with the Alternative Reference Rates

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

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 an adverse impact on the market for LIBOR-based securities or the value of our portfolio of LIBOR-indexed, floating-rate

debt securities, loans, and other financial obligations or extensions of credit held by or due to us.

July 27, 2017, the U.K.

Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling

banks to submit LIBOR rates after 2021.

We have exposure to LIBOR, including in financial instruments that mature after 2021.

arises from the value of our portfolio of LIBOR-indexed, floating-rate debt securities.

The Company intends to monitor the developments

with respect to the scheduled phasing out of LIBOR after 2021 and work with its portfolio companies and lenders to ensure such transition

away from LIBOR will have minimal impact on its financial condition, but can provide no assurances regarding the impact of the discontinuation

the United States, the Federal Reserve Board and the Federal Reserve Bank of New York, in conjunction with the Alternative Reference

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

financial institutions, is considering replacing U.S.

dollar LIBOR with a new index calculated by short-term repurchase agreements, backed by Treasury securities called the Secured

Overnight Financing Rate (SOFR).

dollar LIBOR with

a new index calculated by short-term repurchase agreements, backed by Treasury securities called the Secured Overnight Financing Rate

(“SOFR”).

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

Whether or not SOFR attains market traction as a LIBOR replacement remains a question and the future

of LIBOR at this time is uncertain.

The elimination of LIBOR or any other changes or reforms to the determination or supervision

of LIBOR could have an adverse impact on the market for or value of any LIBOR-indexed, floating-rate debt securities, loans, and other financial obligations or extensions of credit held by or due to us or on our overall financial condition or

results of operations.

If LIBOR ceases to exist, we may need to renegotiate the credit agreements extending beyond 2021 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.

In the event that the LIBOR Rate is no longer available or published on a current basis or no longer made available or used for determining the interest rate of loans, our administrative agent that manages our loans

will generally select a comparable successor rate;

provided that (i) to the extent a comparable or successor rate is approved by the administrative agent, the approved rate shall be applied in a manner consistent with market practice;

(ii) to the extent such market practice is not administratively feasible for the administrative agent, such approved rate shall be applied as otherwise reasonably determined by the administrative agent.

There are significant potential conflicts of interest which could adversely impact our investment returns.

Our executive officers and directors, and the members of our Investment 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 the best

interests of us or our stockholders.

In addition, on March 25, 2020,

Financial Conduct Authority stated that, although the central assumption that firms cannot rely on LIBOR being published after

the end of 2021 has not changed, the outbreak of COVID-19 has impacted the timing of many firms’

transition planning, and the U.K.

Financial Conduct Authority will continue to assess the impact of the COVID-19 outbreak on transition timelines and update the marketplace

as soon as possible.

Furthermore, on November 30, 2020, the Intercontinental Exchange, Inc.

(“ICE”) announced that the

ICE Benchmark Administration Limited, a wholly owned subsidiary of ICE and the administrator of LIBOR, announced its plan to extend the

date that most U.S.

LIBOR values would cease being computed from December 31, 2021 to June 30, 2023.

Despite this extension

LIBOR transition deadline for certain LIBOR values, U.S.

regulators continue to urge financial institutions to stop entering

into new LIBOR transactions by the end of 2021.

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

dollar LIBOR, at this time, it is not possible to predict the effect of any

such changes, any establishment of alternative reference rates or other reforms to LIBOR that may be enacted in the United States, United

Kingdom or elsewhere or, whether the COVID-19 outbreak will have further effect on LIBOR transition plans.

The elimination of LIBOR or

any other changes or reforms to the determination or supervision of LIBOR could have an adverse impact on the market for or value of

any LIBOR-indexed, floating-rate debt securities, loans, and other financial obligations or extensions of credit held by or due to us

or on our overall financial condition or results of operations.

Presidential Administration initiatives could negatively impact our business, financial condition and results of operations.

government has recently called for significant changes to U.S.

trade, healthcare, immigration, foreign and government regulatory

In this regard, there is significant uncertainty with respect to legislation, regulation and government policy at the federal

level, as well as the state and local levels.

Recent events have created a climate of heightened uncertainty and introduced new and difficult-to-quantify

macroeconomic and political risks with potentially far-reaching implications.

There has been a corresponding meaningful increase in the

uncertainty surrounding interest rates, inflation, foreign exchange rates, trade volumes and fiscal and monetary policy.

To the extent

Congress or the current administration implements changes to U.S.

policy, those changes may impact, among other things, the

and global economy, international trade and relations, unemployment, immigration, corporate taxes, healthcare, the U.S.

environment, inflation and other areas.

Although we cannot predict the impact, if any, of these changes to our business, they could adversely

affect our business, financial condition, operating results and cash flows.

Until we know what policy changes are made and how those

changes impact our business and the business of our competitors over the long term, we will not know if, overall, we will benefit from

them or be negatively affected by them.

particular area identified as subject to potential change, amendment or repeal includes the Dodd-Frank Act, including the Volcker Rule

and various swaps and derivatives regulations, credit risk retention requirements and the authorities of the Federal Reserve, the Financial

Stability Oversight Council and the SEC.

Given the uncertainty associated with the manner in which and whether the provisions of the

Dodd-Frank Act will be implemented, repealed, amended, or replaced, the full impact such requirements will have on our business, results

of operations or financial condition is unclear.

The changes resulting from the Dodd-Frank Act or any changes to the regulations already

implemented thereunder may require us to invest significant management attention and resources to evaluate and make necessary changes

in order to comply with new statutory and regulatory requirements.

Failure to comply with any such laws, regulations or principles, or

changes thereto, may negatively impact our business, results of operations or financial condition.

While we cannot predict what effect

any changes in the laws or regulations or their interpretations would have on us as a result of recent financial reform legislation,

these changes could be materially adverse to us and our stockholders.

are significant potential conflicts of interest which could adversely impact our investment returns.

executive officers and directors, and the members of our Investment 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.

they may have obligations to investors in those entities, the fulfillment of which might not be in the best interests of us or our stockholders.

For example, Christian L.

Oberbeck, our chief executive officer and managing member of our Investment Adviser, is the managing partner of Saratoga Partners, a middle market private equity investment firm.

addition, the principals of our Investment Adviser may manage other funds which may from time to time have overlapping investment objectives with those of us and accordingly invest in, whether principally or secondarily, asset classes similar to

those targeted by us.

If this should occur, the principals of our Investment Adviser will face conflicts of interest in the allocation of investment opportunities to us and such other funds.

Although our investment professionals will endeavor to

allocate investment opportunities in a fair and equitable manner, we and our common stockholders could be adversely affected in the event investment opportunities are allocated among us and other investment vehicles managed or sponsored by, or

affiliated with, our executive officers, directors and Investment Adviser, and the members of our Investment Adviser.

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 are subject to regulation at the local, state and federal levels.

These laws and regulations, as well as their interpretation, may be

changed from time to time.

Any change in these laws or regulations, or their interpretation, or any failure by us to comply with these laws or regulations may adversely affect our business.

Changes to United States tariff and import/export regulations may have a negative effect on our portfolio companies and, in turn, harm us.

There has been on-going discussion and commentary regarding potential significant changes to United States trade policies, treaties and

The current administration, along with Congress, has created significant uncertainty about the future relationship between the United States and other countries with respect to the trade policies, treaties and tariffs.

These developments,

or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between the impacted

nations and the United States.

Any of these factors could depress economic activity and restrict our portfolio companies access to suppliers or customers and have a material adverse effect on their business, financial condition and results of

operations, which in turn would negatively impact us.

We are dependent on information systems and systems failures could significantly disrupt our

business, which may, in turn, negatively affect the market price of our common stock and our ability to pay dividends.

business is dependent on our and third parties communications and information systems.

Any failure or interruption of those systems, including as a result of the termination of an agreement with any

third-party service providers, could cause delays or other problems in our activities.

Oberbeck, our chief executive officer and managing member of our Investment Adviser, is the managing partner

of Saratoga Partners, a middle market private equity investment firm.

In addition, the principals of our Investment Adviser may manage

other funds which may from time to time have overlapping investment objectives with those of us and accordingly invest in, whether principally

or secondarily, asset classes similar to those targeted by us.

If this should occur, the principals of our Investment Adviser will face

conflicts of interest in the allocation of investment opportunities to us and such other funds.

Although our investment professionals

will endeavor to allocate investment opportunities in a fair and equitable manner, we and our common stockholders could be adversely

affected in the event investment opportunities are allocated among us and other investment vehicles managed or sponsored by, or affiliated

with, our executive officers, directors and Investment Adviser, and the members of our Investment Adviser.

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.

are subject to regulation at the local, state and federal level.

New legislation may be enacted or new interpretations, rulings or regulations

could be adopted, including those governing the types of investments we are permitted to make, any of which could harm us and our stockholders,

potentially with retroactive effect.

In addition, any change to the SBA’s current debenture program could have a significant impact

on our ability to obtain low-cost leverage and, therefore, our competitive advantage over other funds.

tax and regulatory changes could occur that may adversely affect us.

For example, from time to time the market for private equity transactions

has been (and is currently being) adversely affected by a decrease in the availability of senior and subordinated financings for transactions,

in part in response to credit market disruptions and/or regulatory pressures on providers of financing to reduce or eliminate their exposure

to the risks involved in such transactions.

Additionally,

any changes to the laws and regulations governing our operations related to permitted investments may cause us to alter our

investment strategy in order to meet our investment objectives.

Such changes could result in material differences to the strategies

and plans set forth in this Annual Report and may shift our investment focus from the areas of expertise of our Investment Adviser

to other types of investments in which our Investment Adviser may have little or no expertise or experience.

Any such changes, if

they occur, could have a material adverse effect on our results of operations and the value of your investment.

or other actions relating to taxes could have a negative effect on the Company.

or other actions relating to taxes could have a negative effect on the Company and its investors.

The rules dealing with U.S.

income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S.

Treasury Department.

We cannot predict with certainty how any changes in the tax laws might affect the Company, its investments or its investors.

New legislation

Treasury regulations, administrative interpretations or court decisions interpreting such legislation could significantly

and negatively affect the Company’s ability to qualify for tax treatment as a RIC or the U.S.

federal income tax consequences to

the Company and its investors of such qualification, or could have other adverse consequences.

You are urged to consult with your tax

advisor with respect to the impact of the status of any legislative, regulatory or administrative developments and proposals and their

potential effect on your investment in our securities.

is uncertainty surrounding potential legal, regulatory and policy changes by new presidential administrations in the United States that

may directly affect financial institutions and the global economy.

a result of the November 2020 elections in the United States, the Democratic Party gained control of both the Presidency and the Senate

from the Republican Party.

Therefore, changes in federal policy, including tax policies, and at regulatory agencies are expected to occur

over time through policy and personnel changes, which may lead to changes involving the level of oversight and focus on the financial

services industry or the tax rates paid by corporate entities.

The nature, timing and economic and political effects of potential changes

to the current legal and regulatory framework affecting financial institutions remain highly uncertain.

Uncertainty surrounding future

changes may adversely affect our operating environment and therefore our business, financial condition, results of operations and growth

to United States tariff and import/export regulations may have a negative effect on our portfolio companies and, in turn, harm us.

has been ongoing discussion and commentary regarding potential significant changes to United States trade policies, treaties and tariffs.

The current U.S.

presidential administration, along with Congress, has created significant uncertainty about the future relationship

between the United States and other countries with respect to the trade policies, treaties and tariffs.

These developments, or the perception

that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial

markets, and may significantly reduce global trade and, in particular, trade between the impacted nations and the United States.

of these factors could depress economic activity and restrict our portfolio companies’

access to suppliers or customers and have

a material adverse effect on their business, financial condition and results of operations, which in turn would negatively impact us.

are dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect

the market price of our common stock and our ability to pay dividends.

business is dependent on our and third parties’

communications and information systems.

Any failure or interruption of those systems,

including as a result of the termination of an agreement with any third-party service providers, could cause delays or other problems

in our activities.

Our financial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly

or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control and adversely affect our business.

or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control and

adversely affect our business.

There could be:

sudden electrical or telecommunications outages;

natural disasters such as earthquakes, tornadoes and hurricanes;

disease pandemics or other serious public health events, such as the recent global outbreak of COVID-19 (more commonly known as the Coronavirus);

events arising from local or larger scale political or social matters, including terrorist acts;

electrical or telecommunications outages;

disasters such as earthquakes, tornadoes and hurricanes;

pandemics or other serious public health events, such as the recent global outbreak of COVID-19

(more commonly known as the Coronavirus);

arising from local or larger scale political or social matters, including terrorist acts;

● cyber-attacks.

These events, in turn, could have a material adverse effect on our operating results and negatively affect the market price of our common

stock and our ability to pay dividends to our stockholders.

Events outside of our control, including public health crises such as the ongoing COVID-19 pandemic, may negatively affect our results of operations and financial performance.

The continuing spread of an infectious respiratory illness caused by a novel strain of coronavirus (known as

COVID-19) has caused volatility, severe market dislocations and liquidity constraints in many markets, including securities the Company holds, and may adversely affect the Companys investments and

The outbreak was first detected in December 2019 and subsequently spread globally.

On March 11, 2020, the World Health Organization declared COVID-19 as a pandemic, and on March 13,

2020 the United States declared a national emergency with respect to COVID-19.

The transmission of COVID-19 and efforts to contain its spread have resulted in

travel restrictions and disruptions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, quarantines, event and service cancellations or

interruptions, disruptions to business operations (including staff reductions), supply chains and consumer activity, as well as general concern and uncertainty that has negatively affected the economic environment.

These disruptions have led to

instability in the market place, including stock market losses and overall volatility.

The impact of COVID-19, and other infectious illness outbreaks, epidemics or pandemics that may arise in the future, could

adversely affect the economies of many nations or the entire global economy, the financial performance of individual issuers, borrowers and sectors and the health of the markets generally in potentially significant and unforeseen ways.

the impact of infectious illnesses, such as COVID-19, in emerging market countries may be greater due to generally less established healthcare systems.

This crisis or other public health crises may exacerbate

other pre-existing political, social and economic risks in certain countries or globally.

foregoing could lead to a significant economic downturn or recession, increased market volatility, a greater number of market closures, higher default rates and adverse effects on the values and liquidity of securities or other assets.

Such impacts,

which may vary across asset classes, may adversely affect the performance of the Companys investments, the Company and your investment in the Company.

In certain cases, an exchange or market may close or issue trading halts on either specific

securities or even the entire market, which may result in the Company being, among other things, unable to buy or sell certain securities or financial instruments or to accurately price their investments.

The Company and the Investment Adviser have in place business continuity plans reasonably designed to ensure that they maintain normal

business operations, and that the Company, its portfolio and assets are protected.

As a result, the transition of the Investment Advisers whole team to remote work took place smoothly and enables the team to maintain normal functionality to

complete operational requirements in supporting the Company.

However, in the event of a pandemic or an outbreak, such as COVID-19, there can be no assurance that the Company, the Investment Adviser and service

providers, or the Companys portfolio companies, will be able to maintain normal business operations for an extended period of time or will not lose the services of key personnel on a temporary or long-term basis due to illness or other

A pandemic or disease could also impair the information technology and other operational systems upon which the Investment Adviser relies and could otherwise disrupt the ability of the Companys service providers to perform essential

Governmental authorities and regulators throughout the world, such as the U.S.

Federal Reserve, have in the past responded to

major economic disruptions with changes to fiscal and monetary policy, including but not limited to, direct capital infusions, new monetary programs and dramatically lower interest rates.

Certain of those policy changes, such as the passage of the

Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020, are being implemented in response to the COVID-19 pandemic.

Such policy changes may adversely affect the value, volatility and

liquidity of dividend and interest paying securities.

The effect of recent efforts undertaken by the U.S.

Federal Reserve to address the economic impact of the COVID-19 pandemic, such as the reduction of the

federal funds target rate, and other monetary and fiscal actions that may be taken by the U.S.

federal government to stimulate the U.S.

economy, are not yet fully known.

The duration of the COVID-19 outbreak

and its full impacts are unknown, resulting in a high degree of uncertainty for potentially extended periods of time.

operational and financial performance of the portfolio companies in which we make investments may be significantly impacted by COVID-19, which may in turn impact the valuation of our investments.

As of February 29, 2020, the Company valued its

portfolio investments in conformity with U.S.

generally accepted accounting principles (U.S.

GAAP) based on the facts and circumstances known by the Company at that time, or reasonably expected to be known at that time.

As a result, any

impairment to the financial condition of our portfolio companies caused by the global disruptions related to COVID-19 that ensued after February 29, 2020, such as widespread quarantines and disruptions to business operations, were not able to be

accounted for in the Companys portfolio valuations as of February 29, 2020.

Due to the overall volatility that the COVID-19 pandemic has caused during the months that followed our February 29, 2020 fair value determination, any current and

future fair value analysis conducted in conformity with U.S.

GAAP could result in a lower fair value of our portfolio.

If COVID-19 continues to spread in the United

States, we expect to experience disruptions that could adversely impact our business.

It is unknown how long these disruptions could continue, were they to occur.

The outbreak of COVID-19 may also have a

material adverse impact on the ability of our portfolio companies to fulfill their end customers orders due to supply chain delays, limited access to key commodities or technologies or other events that impact their manufacturers or their

Such events have affected, and may in the future affect our business, financial condition or results of operations.

As the global outbreak of COVID-19 continues to rapidly evolve, the extent to

which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted.

We are currently operating in a period of capital markets disruption and economic uncertainty.

capital markets have experienced extreme volatility and disruption following the global outbreak of

COVID-19 that began in December 2019.

Some economists and major investment banks have expressed concern that the continued spread of the virus globally could lead to a world-wide economic downturn.

in the capital markets have increased the spread between the yields realized on risk-free and higher risk securities, resulting in illiquidity in parts of the capital markets.

These and future market disruptions and/or illiquidity would be expected

to have an adverse effect on our business, financial condition, results of operations and cash flows.

Unfavorable economic conditions also would be expected to increase our funding costs, limit our access to the capital markets or result in a

decision by lenders not to extend credit to us.

These events have limited and could continue to limit our investment originations, limit our ability to grow and have a material negative impact on our operating results and the fair values of our debt

and equity investments.

Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a

compromise or corruption of our confidential information and/or damage to our business relationships, all of which could negatively impact our business, results of operations or financial condition.

Our business operations rely upon secure information technology systems for data processing, storage and reporting.

Despite careful security

and controls design, implementation and updating, our information technology systems could become subject to cyber- attacks and cyber incidents.

A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or

availability of our information resources.

These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential

information, corrupting data or causing operational disruption.

The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability for stolen information, misappropriation of assets, increased

cybersecurity protection and insurance costs, litigation and damage to our business relationships.

Any such attack could result in significant losses, reputational damage, litigation, regulatory fines or penalties, or otherwise adversely affect our

business, financial condition or results of operations.

In addition, we may be required to expend significant additional resources to modify our protective measures and to investigate and remediate vulnerabilities or other exposures arising from

operational and security risks.

We face risks posed to our information systems, both internal and those provided to us by third-party service providers.

We, our Adviser and its affiliates have implemented processes, procedures and internal controls

to help mitigate cybersecurity risks and cyber intrusions, but these measures, as well as our increased awareness of the nature and extent of a risk of a cyber-incident, may be ineffective and do not guarantee that a cyber-incident will not occur or

that our financial results, operations or confidential information will not be negatively impacted by such an incident.

Third parties

with which we do business (including those that provide services to us) may also be sources or targets of cybersecurity or other technological risks.

We outsource certain functions and these relationships allow for the storage and processing of our

information and assets, as well as certain investor, counterparty, employee and borrower information.

While we engage in actions to reduce our exposure resulting from outsourcing, ongoing threats may result in unauthorized access, loss, exposure or

destruction of data, or other cybersecurity incidents, with increased costs and other consequences, including those described above.

Privacy and information security laws and regulation changes, and compliance with those changes, may also result in

cost increases due to system changes and the development of new administrative processes.

We and our service providers are currently impacted by quarantines and similar measures being enacted by governments in response to COVID-19, which are

obstructing the regular functioning of business workforces (including requiring employees to work from external locations and their homes).

events, in turn, could have a material adverse effect on our operating results and negatively affect the market price of our common stock

and our ability to pay dividends to our stockholders.

ability to enter into transactions involving derivatives and financial commitment transactions may be limited.

comprehensive new global regulatory regimes impacting derivatives ( e.g.

, the Wall Street Reform and Consumer Protection Act of

2010 (“Dodd-Frank Act”), European Market Infrastructure Regulation (“EMIR”), Markets in Financial Investments

Regulation (“MIFIR”)/Markets in Financial Instruments Directive (“MIFID II”)), certain over-the-counter derivatives

transactions in which we may engage are either now or will soon be subject to various requirements, such as mandatory central clearing

of transactions which include additional margin requirements and in certain cases trading on electronic platforms, pre-and post-trade

transparency reporting requirements and mandatory bi-lateral exchange of initial margin for non-cleared swaps.

The Dodd-Frank Act also

created new categories of regulated market participants, such as “swap dealers,”

“security-based swap dealers,”

“major swap participants,”

and “major security-based swap participants”

who are subject to significant new capital,

registration, recordkeeping, reporting, disclosure, business conduct and other regulatory requirements.

The EU and some other jurisdictions

are implementing similar requirements.

Because these requirements are new and evolving (and some of the rules are not yet final), their

ultimate impact remains unclear.

However, even if the Company itself is not located in a particular jurisdiction or directly subject

to the jurisdiction’s derivatives regulations, we may still be impacted to the extent we enter into a derivatives transaction with

a regulated market participant or counterparty that is organized in that jurisdiction or otherwise subject to that jurisdiction’s

derivatives regulations.

on information available as of the date of this Annual Report, the effect of such requirements will be likely to (directly or indirectly)

increase our overall costs of entering into derivatives transactions.

In particular, new margin requirements, position limits and significantly

higher capital charges resulting from new global capital regulations, even if not directly applicable to us, may cause an increase in

the pricing of derivatives transactions entered into by market participants to whom such requirements apply or affect our overall ability

to enter into derivatives transactions with certain counterparties.

Such new global capital regulations and the need to satisfy the various

requirements by counterparties are resulting in increased funding costs, increased overall transaction costs, and significantly affecting

balance sheets, thereby resulting in changes to financing terms and potentially impacting our ability to obtain financing.

Administrative

costs, due to new requirements such as registration, recordkeeping, reporting, and compliance, even if not directly applicable to us,

may also be reflected in our derivatives transactions.

New requirements to trade certain derivatives transactions on electronic trading

platforms and trade reporting requirements may lead to (among other things) fragmentation of the markets, higher transaction costs or

reduced availability of derivatives, and/or a reduced ability to hedge, all of which could adversely affect the performance of certain

of our trading strategies.

In addition, changes to derivatives regulations may impact the tax and/or accounting treatment of certain

derivatives, which could adversely impact us.

November 2020, the SEC adopted new rules regarding the ability of a BDC (or a registered investment company) to use derivatives and other

transactions that create future payment or delivery obligations.

BDCs that use derivatives would be subject to a value-at-risk leverage

limit, certain other derivatives risk management program and testing requirements and requirements related to board reporting.

new requirements would apply unless the BDC qualified as a “limited derivatives user,”

as defined in the SEC’s adopted

A BDC that enters into reverse repurchase agreements or similar financing transactions would need to aggregate the amount of indebtedness

associated with the reverse repurchase agreements or similar financing transactions could either (i) comply with the asset coverage

requirements of the Section 18 of the 1940 Act when engaging in reverse repurchase agreements or (ii) choose to treat such

agreements as derivative transactions under the adopted rule.

Under the adopted rule, a BDC may enter into an unfunded commitment agreement

that is not a derivatives transaction, such as an agreement to provide financing to a portfolio company, if the BDC has a reasonable

belief, at the time it enters into such an agreement, that it will have sufficient cash and cash equivalents to meet its obligations

with respect to all of its unfunded commitment agreements, in each case as it becomes due.

If the BDC cannot meet this test, it is required

to treat unfunded commitments as a derivatives transaction subject to the requirements of the rule.

Collectively, these requirements

may limit our ability to use derivatives and/or enter into certain other financial contracts.

and external cyber threats, as well as other disasters, could impair our ability to conduct business effectively.

occurrence of a disaster, such as a cyber-attack against us or against a third-party that has access to our data or networks, a natural

catastrophe, an industrial accident, failure of our disaster recovery systems, or consequential employee error, could have an adverse

effect on our ability to communicate or conduct business, negatively impacting our operations and financial condition.

This adverse effect

can become particularly acute if those events affect our electronic data processing, transmission, storage, and retrieval systems, or

impact the availability, integrity, or confidentiality of our data.

depend heavily upon computer systems to perform necessary business functions.

Despite our implementation of a variety of security measures,

our computer systems, networks, and data, like those of other companies, could be subject to cyber-attacks and unauthorized access, use,

alteration, or destruction, such as from physical and electronic break-ins or unauthorized tampering, malware and computer virus attacks,

or system failures and disruptions.

If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary,

and other information processed, stored in, and transmitted through our computer systems and networks.

Such an attack could cause interruptions

or malfunctions in our operations, which could result in financial losses, litigation, regulatory penalties, client dissatisfaction or

loss, reputational damage, and increased costs associated with mitigation of damages and remediation.

If unauthorized parties gain access

to such information and technology systems, they may be able to steal, publish, delete or modify private and sensitive information, including

nonpublic personal information related to stockholders (and their beneficial owners) and material nonpublic information.

we have implemented to manage risks relating to these types of events could prove to be inadequate and, if compromised, could become

inoperable for extended periods of time, cease to function properly or fail to adequately secure private information.

Breaches such as

those involving covertly introduced malware, impersonation of authorized users and industrial or other espionage may not be identified

even with sophisticated prevention and detection systems, potentially resulting in further harm and preventing them from being addressed

appropriately.

The failure of these systems or of disaster recovery plans for any reason could cause significant interruptions in our

and our investment advisor’s operations and result in a failure to maintain the security, confidentiality or privacy of sensitive

data, including personal information relating to stockholders, material nonpublic information and other sensitive information in our

disaster or a disruption in the infrastructure that supports our business, including a disruption involving electronic communications

or other services used by us or third parties with whom we conduct business, or directly affecting our headquarters, could have a material

adverse impact on our ability to continue to operate our business without interruption.

Our disaster recovery programs may not be sufficient

to mitigate the harm that may result from such a disaster or disruption.

In addition, insurance and other safeguards might only partially

reimburse us for our losses, if at all.

parties with which we do business may also be sources of cybersecurity or other technological risk.

We outsource certain functions and

these relationships allow for the storage and processing of our information, as well as client, counterparty, employee, and borrower

While we engage in actions to reduce our exposure resulting from outsourcing, ongoing threats may result in unauthorized

access, loss, exposure, destruction, or other cybersecurity incident that affects our data, resulting in increased costs and other consequences

as described above.

addition, cybersecurity has become a top priority for regulators around the world, and some jurisdictions have enacted laws requiring

companies to notify individuals of data security breaches involving certain types of personal data.

If we fail to comply with the

relevant laws and regulations, we could suffer financial losses, a disruption of our businesses, liability to investors, regulatory intervention

or reputational damage.

and our service providers are currently impacted by quarantines and similar measures being enacted by governments in response to the

global COVID-19 pandemic, which are obstructing the regular functioning of business workforces (including requiring employees to work

from external locations and their homes).

Policies of extended periods of remote working, whether by us or by our service providers,

could strain technology resources, introduce operational risks and otherwise heighten the risks described above.

Remote working environments

may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts that seek to exploit the

COVID-19 pandemic.

Accordingly, the risks described above are heightened under current conditions.

Regulations governing our operation as a BDC will affect our ability to raise additional capital.

Our business requires a substantial amount of additional capital.

We may acquire additional capital from the issuance of senior securities or

other indebtedness or the issuance of additional shares of our common stock.

However, we may not be able to raise additional capital in the future on favorable terms or at all.

We may issue debt securities or preferred securities, which we refer to

collectively as senior securities, and we may borrow money from banks or other financial institutions, up to the maximum amount permitted by the 1940 Act.

We are generally permitted to incur indebtedness or issue senior securities in amounts such that our asset coverage, as defined in the 1940

Cybersecurity risks

and cyber incidents may adversely affect our business or the business of our portfolio companies by causing a disruption to

our operations or the operations of our portfolio companies, a compromise or corruption of our confidential information or the confidential

information of our portfolio companies and/or damage to our business relationships or the business relationships of our portfolio companies,

all of which could negatively impact the business, financial condition and operating results of us or our portfolio companies.

A cyber incident

is considered to be any adverse event that threatens the confidentiality, integrity or availability of the information resources of us

or our portfolio companies.

These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized

access to our information systems or those of our portfolio companies for purposes of misappropriating assets, stealing confidential

information, corrupting data or causing operational disruption.

The result of these incidents may include disrupted operations, misstated

or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance

costs, litigation and damage to business relationships.

As our and our portfolio companies’

reliance on technology has increased,

so have the risks posed to our information systems, both internal and those provided by third-party service providers, and the information

systems of our portfolio companies.

We have implemented processes, procedures and internal controls to help mitigate cybersecurity risks

and cyber intrusions, but these measures, as well as our increased awareness of the nature and extent of a risk of a cyber-incident,

do not guarantee that a cyber-incident will not occur and/or that our financial results, operations or confidential information will

not be negatively impacted by such an incident.

governing our operation as a BDC will affect our ability to raise additional capital.

business requires a substantial amount of additional capital.

We may acquire additional capital from the issuance of senior securities

or other indebtedness or the issuance of additional shares of our common stock.

However, we may not be able to raise additional capital

in the future on favorable terms or at all.

We may issue debt securities or preferred securities, which we refer to collectively as “senior

securities,”

and we may borrow money from banks or other financial institutions, up to the maximum amount permitted by the 1940

are generally permitted to incur indebtedness or issue senior securities in amounts such that our asset coverage, as defined in the 1940

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

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 business development company, therefore, we may need to issue equity more frequently than our privately-owned competitors,

which may lead to greater stockholder dilution.

With respect to stock that is a senior security, we must make provisions to prohibit any dividend distribution to our stockholders or the repurchase of certain of our securities, unless we meet the

applicable asset coverage ratios at the time of the dividend distribution or repurchase.

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

If that happens, we may be required to liquidate a portion of our

investments and repay a portion of our indebtedness at a time when such sales may be disadvantageous in order to make dividend distributions or repurchase certain of our securities.

We are not generally able to issue and sell our common stock at a price below net asset

value per share.

We may, however, sell our common stock, or issue warrants, options or rights to acquire our common stock, at a price below the current net asset value of the common stock if our board of directors determines that such sale is in our

best interests and the best interests of our stockholders, and the holders of a majority of our outstanding voting securities have approved such issuances within the prior year.

In any such case, the price at which our securities are to be issued

and sold may not be less than a price which, in the determination of our board of directors, closely approximates the market value of such securities (less any commission or discount).

If our common stock trades at a discount to net asset value,

this restriction could adversely affect our ability to raise capital.

We do not currently have stockholder approval of issuances below net asset value.

Legislation that took effect in 2018 would allow us to incur additional leverage.

The 1940 Act generally prohibits us from incurring indebtedness unless immediately after such borrowing we have an asset coverage for total

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 business development company, therefore, we may need to issue equity more frequently

than our privately-owned competitors, which may lead to greater stockholder dilution.

With respect to stock that is a senior security,

we must make provisions to prohibit any dividend distribution to our stockholders or the repurchase of certain of our securities, unless

we meet the applicable asset coverage ratios at the time of the dividend distribution or repurchase.

If the value of our assets declines,

we may be unable to satisfy the asset coverage test.

If that happens, we may be required to liquidate a portion of our investments and

repay a portion of our indebtedness at a time when such sales may be disadvantageous in order to make dividend distributions or repurchase

certain of our securities.

are not generally able to issue and sell our common stock at a price below net asset value per share.

We may, however, sell our common

stock, or issue warrants, options or rights to acquire our common stock, at a price below the current net asset value of the common stock

if our board of directors determines that such sale is in our best interests and the best interests of our stockholders, and the holders

of a majority of our outstanding voting securities have approved such issuances within the prior year.

In any such case, the price at

which our securities are to be issued and sold may not be less than a price which, in the determination of our board of directors, closely

approximates the market value of such securities (less any commission or discount).

If our common stock trades at a discount to net asset

value, this restriction could adversely affect our ability to raise capital.

We do not currently have stockholder approval of issuances

below net asset value.

that took effect in 2018 would allow us to incur additional leverage.

1940 Act generally prohibits us from incurring indebtedness unless immediately after such borrowing we have an asset coverage for total

borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets).

However, the Small Business Credit Availability Act, which was signed into law on March 23, 2018, has modified the 1940 Act by allowing a BDC

to increase the maximum amount of leverage it may incur from an asset coverage ratio of 200% to an asset coverage ratio of 150%, if certain requirements are met.

Under the legislation, we were allowed to increase our leverage capacity once the

majority of our independent directors approved an increase in our leverage capacity, with such approval becoming effective after one year.

On April 16, 2018, our non-interested board of directors approved

of our becoming subject to a minimum asset coverage ratio of 150% under Sections 18(a)(1) and 18(a)(2) of the 1940 Act.

The 150% asset coverage ratio became effective on April 16, 2019.

We are required to make certain disclosures on our website

and in SEC filings regarding, among other things, the receipt of approval to increase our leverage, our leverage capacity and usage, and risks related to leverage.

Leverage magnifies the potential for loss on investments in our indebtedness and on invested equity capital.

As we use leverage to partially

finance our investments, our stockholders will experience increased risks of investing in our securities.

If the value of our assets increases, then leveraging would cause the net asset value attributable to our common stock to increase more sharply

than it would have had we not leveraged.

Conversely, if the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged our business.

Similarly, any increase in our

income in excess of interest payable on the borrowed funds would cause our net investment income to increase more than it would without the leverage, while any decrease in our income would cause net investment income to decline more sharply than it

would have had we not borrowed.

Such a decline could negatively affect our ability to pay common stock dividends, scheduled debt payments or other payments related to our securities.

Leverage is generally considered a speculative investment

See Risk FactorsRisks Related to Our Business and StructureWe employ leverage, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing in us.

The agreement governing our Credit Facility contains various covenants that, among other things, limits our discretion in operating our business and

provides for certain minimum financial covenants.

The agreement governing the Credit Facility contains customary default

provisions such as the termination or departure of certain key persons of Saratoga Investment Advisors, a material adverse change in our business and the failure to maintain certain minimum loan quality and performance standards.

event of default under the facility would result, among other things, in termination of the availability of further funds under the facility and an accelerated maturity date for all amounts outstanding under the facility, which would likely disrupt

our business and, potentially, the portfolio companies whose loans we financed through the facility.

This could reduce our revenues and, by delaying any cash payment allowed to us under the facility until the lender has been paid in full, reduce our

liquidity and cash flow and impair our ability to grow our business and maintain our status as a RIC.

Each loan origination under the

facility is subject to the satisfaction of certain conditions.

We cannot assure you that we will be able to borrow funds under the facility at any particular time or at all.

We will be subject to corporate-level U.S.

However, the Small Business Credit

Availability Act, which was signed into law on March 23, 2018, has modified the 1940 Act by allowing a BDC to increase the maximum amount

of leverage it may incur from an asset coverage ratio of 200% to an asset coverage ratio of 150%, if certain requirements are met.

the legislation, we were allowed to increase our leverage capacity once the majority of our independent directors approved an increase

in our leverage capacity, with such approval becoming effective after one year.

On April 16, 2018, our non-interested board of directors

approved of our becoming subject to a minimum asset coverage ratio of 150% under Sections 18(a)(1) and 18(a)(2) of the 1940 Act.

150% asset coverage ratio became effective on April 16, 2019.

We are required to make certain disclosures on our website and in SEC filings

regarding, among other things, the receipt of approval to increase our leverage, our leverage capacity and usage, and risks related to

magnifies the potential for loss on investments in our indebtedness and on invested equity capital.

As we use leverage to partially finance

our investments, our stockholders will experience increased risks of investing in our securities.

If the value of our assets increases,

then leveraging would cause the net asset value attributable to our common stock to increase more sharply than it would have had we not

Conversely, if the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise

would have had we not leveraged our business.

Similarly, any increase in our income in excess of interest payable on the borrowed funds

would cause our net investment income to increase more than it would without the leverage, while any decrease in our income would cause

net investment income to decline more sharply than it would have had we not borrowed.

Such a decline could negatively affect our ability

to pay common stock dividends, scheduled debt payments or other payments related to our securities.

Increased leverage may also cause

a downgrade of our credit rating.

Leverage is generally considered a speculative investment technique.

See “Risk Factors—Risks

Related to Our Business and Structure—We employ leverage, which magnifies the potential for gain or loss on amounts invested and

may increase the risk of investing in us.”

agreement governing our Credit Facility contains various covenants that, among other things, limits our discretion in operating our business

and provides for certain minimum financial covenants.

agreement governing the Credit Facility contains customary default provisions such as the termination or departure of certain “key

persons”

of Saratoga Investment Advisors, a material adverse change in our business and the failure to maintain certain minimum

loan quality and performance standards.

An event of default under the facility would result, among other things, in termination of the

availability of further funds under the facility and an accelerated maturity date for all amounts outstanding under the facility, which

would likely disrupt our business and, potentially, the portfolio companies whose loans we financed through the facility.

reduce our revenues and, by delaying any cash payment allowed to us under the facility until the lender has been paid in full, reduce

our liquidity and cash flow and impair our ability to grow our business and maintain our status as a RIC.

loan origination under the facility is subject to the satisfaction of certain conditions.

We cannot assure you that we will be able to

borrow funds under the facility at any particular time or at all.

will be subject to corporate-level U.S.

federal income tax if we fail to qualify as a RIC.

We intend to maintain our qualification as a RIC under the Code.

intend to maintain our qualification as a RIC under the Code.

As a RIC, we do not pay U.S.

federal income taxes on our income (including

realized gains) that is timely distributed to our stockholders, provided that we satisfy certain source-of-income, annual distribution and assetdiversification requirements.

The source-of-income requirement is satisfied if we derive at least 90.0% of our annual gross income

from interest, dividends, payments with respect to certain securities loans, gains from the sale or other disposition of securities or options thereon or foreign currencies, or other income derived with respect to our business of investing in such

securities or currencies, and net income from interests in qualified publicly traded partnerships, as defined in the Code.

The annual distribution requirement is satisfied if we timely distribute to our stockholders

on an annual basis an amount equal to at least 90.0% of our ordinary net taxable income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, reduced by deductible expenses.

We are subject to certain

asset coverage ratio requirements under the 1940 Act and covenants under our borrowing agreements that could, under certain circumstances, restrict us from making the required distributions.

In such case, if we are unable to obtain cash from other

sources or are prohibited from making distributions, we may be subject to corporate-level U.S.

realized gains) that is timely distributed to our stockholders, provided that we satisfy certain source-of-income, annual distribution

and asset–diversification requirements.

source-of-income requirement is satisfied if we derive at least 90.0% of our annual gross income from interest, dividends, payments with

respect to certain securities loans, gains from the sale or other disposition of securities or options thereon or foreign currencies,

or other income derived with respect to our business of investing in such securities or currencies, and net income from interests in

“qualified publicly traded partnerships,”

as defined in the Code.

annual distribution requirement is satisfied if we timely distribute to our stockholders on an annual basis an amount equal to at least

90.0% of our ordinary net taxable income and realized net short-term capital gains in excess of realized net long-term capital losses,

if any, reduced by deductible expenses.

We are subject to certain asset coverage ratio requirements under the 1940 Act and covenants

under our borrowing agreements that could, under certain circumstances, restrict us from making the required distributions.

In such case,

if we are unable to obtain cash from other sources or are prohibited from making distributions, we may be subject to corporate-level

federal income tax.

The asset-diversification requirements will be satisfied if we diversify our holdings so that at the end of each quarter of the taxable year:

asset-diversification requirements will be satisfied if we diversify our holdings so that at the end of each quarter of the taxable year:

(i) at least 50.0% of the value of our assets consists of cash, cash equivalents, U.S.

government securities, securities of other regulated investment companies, and other securities if such other securities of any one issuer do not represent

more than 5.0% of the value of our assets or more than 10% of the outstanding voting securities of the issuer;

and (ii) no more than 25.0% of the value of our assets is invested in the securities, other than U.S.

government securities or

securities of other regulated investment companies, of one issuer or of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or in

certain publicly traded partnerships.

Failure to meet these tests may result in our having to (i) dispose of certain investments

quickly or (ii) raise additional capital to prevent the loss of our RIC qualification.

Because most of our investments will be in private companies, any such dispositions could be made at disadvantageous prices and may result in substantial

If we raise additional capital to satisfy the asset-diversification requirements, it could take us time to invest such capital.

During this period, we will invest the additional capital in temporary

investments, such as cash and cash equivalents, which we expect will earn yields substantially lower than the interest income that we anticipate receiving in respect of investments in leveraged loans and mezzanine debt.

If we fail to qualify as a RIC for any reason, all of our taxable income will be subject to corporate-level U.S.

government securities, securities of other regulated

investment companies, and other securities if such other securities of any one issuer do not represent more than 5.0% of the value of

our assets or more than 10% of the outstanding voting securities of the issuer;

and (ii) no more than 25.0% of the value of our assets

is invested in the securities, other than U.S.

government securities or securities of other regulated investment companies, of one issuer

or of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar

or related trades or businesses or in certain publicly traded partnerships.

to meet these tests may result in our having to (i) dispose of certain investments quickly or (ii) raise additional capital to prevent

the loss of our RIC qualification.

Because most of our investments will be in private companies, any such dispositions could be made

at disadvantageous prices and may result in substantial losses.

If we raise additional capital to satisfy the asset- diversification

requirements, it could take us time to invest such capital.

During this period, we will invest the additional capital in temporary investments,

such as cash and cash equivalents, which we expect will earn yields substantially lower than the interest income that we anticipate receiving

in respect of investments in leveraged loans and mezzanine debt.

we fail to qualify as a RIC for any reason, all of our taxable income will be subject to corporate-level U.S.

federal income tax at regular

corporate rates.

The resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution to our common stockholders or payment of our outstanding indebtedness including the 2025 Notes.

Such a failure

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

Because we intend to distribute between 90% and 100% of

our income to our stockholders in connection with our election to be treated as a RIC, we will continue to need additional capital to finance our growth.

If additional funds are unavailable or not available on favorable terms, our ability to grow

will be impaired.

In order to qualify for the tax benefits available to RICs and to minimize corporate-level U.S.

federal income

taxes, we intend to distribute to our stockholders between 90% and 100% of our annual taxable income and capital gains, except that we may retain certain net capital gains for investment and treat such amounts as deemed distributions to our

stockholders.

If we elect to treat any amounts as deemed distributions, we must pay U.S.

The resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution

to our common stockholders or payment of our outstanding indebtedness including the Notes.

Such a failure would have a material adverse

effect on our results of operations and financial condition.

we intend to distribute between 90% and 100% of our income to our stockholders in connection with our election to be treated as a RIC,

we will continue to need additional capital to finance our growth.

If additional funds are unavailable or not available on favorable

terms, our ability to grow will be impaired.

order to qualify for the tax benefits available to RICs and to minimize corporate-level U.S.

federal income taxes, we intend to distribute

to our stockholders between 90% and 100% of our annual taxable income and capital gains, except that we may retain certain net capital

gains for investment and treat such amounts as deemed distributions to our stockholders.

If we elect to treat any amounts as deemed distributions,

we must pay U.S.

federal income taxes at the corporate rate on such deemed distributions on behalf of our stockholders.

As a result of these requirements, we will likely need to

raise capital from other sources to grow our business.

As a BDC, we generally are required to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, to total senior securities, which includes

all of our borrowings and any outstanding preferred stock, of at least 150% as of April 16, 2019;

These requirements limit the amount that we may borrow.

Because we will continue to need capital to grow our investment portfolio, these

limitations may prevent us from incurring debt and require us to raise additional equity at a time when it may be disadvantageous to do so.

While we expect to be able to borrow and to issue additional debt and equity securities, we cannot assure you that debt and equity financing

As a result of

these requirements, we will likely need to raise capital from other sources to grow our business.

As a BDC, we generally are required

to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, to total senior securities,

which includes all of our borrowings and any outstanding preferred stock, of at least 150% as of April 16, 2019;

These requirements limit

the amount that we may borrow.

Because we will continue to need capital to grow our investment portfolio, these limitations may prevent

us from incurring debt and require us to raise additional equity at a time when it may be disadvantageous to do so.

we expect to be able to borrow and to issue additional debt and equity securities, we cannot assure you that debt and equity financing

will be available to us on favorable terms, or at all.

Also, as a BDC, we generally are not permitted to issue equity securities priced below net asset value without stockholder approval.

If additional funds are not available to us, we could be

forced to curtail or cease new investment activities, and our net asset value and share price could decline.

We may have difficulty paying our

required distributions if we recognize income before or without receiving cash in respect of such income.

federal income

tax purposes, we may be required to recognize taxable income in circumstances in which we do not receive a corresponding payment in cash.

For example, we may on occasion hold debt obligations that are treated under applicable tax rules as having

original issue discount (such as debt instruments with PIK or, in certain cases, increasing interest rates or issued with warrants) and we must include in income each year a portion of the original issue discount that accrues over the life of the

obligation, regardless of whether cash representing such income is received by us in the same taxable year.

We may also have to include in income other amounts that we have not yet received in cash, such as deferred loan origination fees that are

paid after origination of the loan or are paid in non-cash compensation such as warrants or stock.

Also, as a BDC, we generally are not permitted to issue equity securities priced

below net asset value without stockholder approval.

If additional funds are not available to us, we could be forced to curtail or cease

new investment activities, and our net asset value and share price could decline.

may have difficulty paying our required distributions if we recognize income before or without receiving cash in respect of such income.

federal income tax purposes, we may be required to recognize taxable income in circumstances in which we do not receive a corresponding

payment in cash.

For example, we may on occasion hold debt obligations that are treated under applicable tax rules as having original

issue discount (such as debt instruments with PIK or, in certain cases, increasing interest rates or issued with warrants) and we must

include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether

cash representing such income is received by us in the same taxable year.

We may also have to include in income other amounts that we

have not yet received in cash, such as deferred loan origination fees that are paid after origination of the loan or are paid in non-cash

compensation such as warrants or stock.

In addition, we may be required to accrue for U.S.

federal income tax purposes amounts attributable to our

investment in Saratoga CLO, a collateralized loan obligation fund, that may differ from the distributions paid in respect of our investment in the subordinated notes of such collateralized loan obligation fund because of the factors set forth above

or because distributions on the subordinated notes are contractually required to be diverted for reinvestment or to pay down outstanding indebtedness.

Because original issue discount will be included in the Companys investment

company taxable income for the year of the accrual, we may be requested to make distributions to shareholders to satisfy the annual distribution requirement applicable to RICs, even where we have not received any corresponding cash amount.

a result, we may have difficulty meeting the annual distribution requirement necessary to maintain favorable tax treatment.

If we are not able to obtain cash from other sources, and choose not to make a qualifying share distribution, we may become

subject to corporate-level income tax.

Additionally, because investments with a deferred payment feature may have the effect of deferring a portion of the borrowers payment obligation until maturity of the debt investment, it may be difficult

for us to identify and address developing problems with borrowers in terms of their ability to repay us.

Our ability to enter into transactions

with our affiliates is restricted.

Because we have elected to be treated as a BDC, we are prohibited under the 1940 Act from

participating in certain transactions with certain of our affiliates without the prior approval of our independent directors and, in some cases, the SEC.

Any person that owns, directly or indirectly, 5.0% or more of our outstanding voting securities

is our affiliate for purposes of the 1940 Act and we are generally prohibited from buying or selling any securities (other than any security of which we are the issuer) from or to such affiliate, absent the prior approval of our independent

The 1940 Act also prohibits certain joint transactions with certain of our affiliates, which could include investments in the same portfolio company, without prior approval of our independent directors and, in some cases, the

If a person acquires more than 25.0% of our voting securities, we are prohibited from buying or selling any security (other than any security of which we are the issuer) from or to such person or certain of that persons affiliates, or

entering into prohibited joint transactions with such person, absent the prior approval of the SEC.

Similar restrictions limit our ability to transact business with our officers, directors or Investment Adviser or their affiliates.

As a result of

these restrictions, we may be prohibited from buying or selling any security (other than any security of which we are the issuer) from or to any portfolio company of a private equity fund managed by our Investment Adviser without the prior approval

of the SEC, which may limit the scope of investment opportunities that would otherwise be available to us.

We operate in a highly competitive

market for investment opportunities.

A number of entities compete with us to make the types of investments that we make in private

federal income tax purposes amounts attributable

to our investment in Saratoga CLO, a collateralized loan obligation fund, that may differ from the distributions paid in respect of our

investment in the subordinated notes of such collateralized loan obligation fund because of the factors set forth above or because distributions

on the subordinated notes are contractually required to be diverted for reinvestment or to pay down outstanding indebtedness.

original issue discount will be included in the Company’s “investment company taxable income”

for the year of the accrual,

we may be requested to make distributions to shareholders to satisfy the annual distribution requirement applicable to RICs, even where

we have not received any corresponding cash amount.

As a result, we may have difficulty meeting the annual distribution requirement necessary

to maintain favorable tax treatment.

If we are not able to obtain cash from other sources, and choose not to make a qualifying share

distribution, we may become subject to corporate-level income tax.

Additionally, because investments with a deferred payment feature

may have the effect of deferring a portion of the borrower’s payment obligation until maturity of the debt investment, it may be

difficult for us to identify and address developing problems with borrowers in terms of their ability to repay us.

operate in a highly competitive market for investment opportunities.

number of entities compete with us to make the types of investments that we make in private middle market companies.

We compete with

other BDCs, public and private funds (including SBICs), commercial and investment banks, commercial financing companies, insurance companies,

high-yield investors, hedge funds, and, to the extent they provide an alternative form of financing, private equity funds.

competitors are substantially larger and have considerably greater financial, technical and marketing resources than us.

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 that could 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.

As a result of this competition, we may not be able to take advantage of attractive investment opportunities from time

to time, and we cannot assure you that we will be able to identify and make investments that meet our investment objective.

we do not seek to compete primarily based on the interest rates we offer, we believe that some our competitors may make loans with interest

rates that are comparable or lower than the rates we offer.

may lose investment opportunities if we do not match our competitors’

pricing, terms and structure.

If we match our competitors’

pricing, terms and structure, we may experience decreased net interest income and increased risk of credit loss.

As a result of operating

in such a competitive environment, we may make investments that are on better terms to our portfolio companies than we originally anticipated,

which may impact our return on these investments.

are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited with respect to the proportion

of our assets that may be invested in securities of a single issuer.

are classified as a non-diversified investment company within the meaning of the 1940 Act, which means that we are not limited by the

1940 Act with respect to the proportion of our assets that we may invest in securities of a single issuer.

Although we seek to maintain

a diversified portfolio in accordance with our business strategies, to the extent that we assume large positions in the securities of

a small number of issuers, our net asset value may fluctuate to a greater extent than that of a diversified investment company as a result

of changes in the financial condition or the market’s assessment of the issuer.

We may also be more susceptible to any single economic

or regulatory occurrence than a diversified investment company.

Beyond our RIC asset-diversification requirements, we do not have fixed

guidelines for diversification, and our investments could be concentrated in relatively few portfolio companies.

financial condition and results of operations depend on our ability to manage future investments effectively.

ability to achieve our investment objective depends on our ability to acquire suitable investments and monitor and administer those investments,

which depends, in turn, on Saratoga Investment Advisors’

ability to identify, invest in and monitor companies that meet our investment

Accomplishing

this result on a cost-effective basis is largely a function of Saratoga Investment Advisors’

structuring of the investment process

and its ability to provide competent, attentive and efficient service to us.

Our executive officers and the officers and employees of

Saratoga Investment Advisors have substantial responsibilities in connection with their roles at Saratoga Partners as well as responsibilities

under the Management Agreement.

They may also be called upon to provide managerial assistance to our portfolio companies.

These demands

on their time, which will increase as the number of investments grow, may distract them or slow the rate of investment.

In order to grow,

Saratoga Investment Advisors may need to hire, train, supervise and manage new employees.

However, we cannot assure you that any such

employees will contribute to the work of Saratoga Investment Advisors.

Any failure to manage our future growth effectively could have

a material adverse effect on our business and financial condition.

may experience fluctuations in our quarterly and annual results.

could experience fluctuations in our quarterly operating results due to a number of factors, including the interest rate payable on the

debt investments we make, the default rate on such investments, the level of our expenses, variations in and the timing of the recognition

of realized and unrealized gains or losses, changes in our portfolio composition, the degree to which we encounter competition in our

markets and general economic conditions.

As a result of these factors, results for any period should not be relied upon as being indicative

of performance in future periods.

In addition, any of these factors could negatively impact our ability to achieve our investment objectives,

which may cause the net asset value of our common stock to decline.

attacks, acts of war, or natural disasters may affect any market for our common stock, impact the businesses in which we invest and harm

our business, operating results and financial condition.

investments may be affected by force majeure events (i.e., events beyond the control of the party claiming that the

event has occurred, including, without limitation, acts of God, fire, flood, earthquakes, war, terrorism and labor strikes).

majeure events may adversely affect the ability of a party (including a portfolio company or a counterparty to us or a portfolio company)

to perform its obligations until it is able to remedy the force majeure event.

In addition, the cost to a portfolio company of repairing

or replacing damaged assets resulting from such force majeure event could be considerable.

Additionally, a major governmental intervention

into industry, including the nationalization of an industry or the assertion of control over one or more companies or its assets, could

result in a loss to us, including if its investment in such issuer is cancelled, unwound or acquired (which could be without what we

consider to be adequate compensation).

To the extent we are exposed to investments in portfolio companies that as a group are exposed

to such force majeure events, the risks and potential losses to us are enhanced.

Substantially

all of our portfolio investments are recorded at fair value as approved in good faith by our board of directors;

such valuations are

inherently uncertain and may be materially higher or lower than the values that we ultimately realize upon the disposal of such investments.

Substantially

all of our portfolio is, and we expect will continue to be, comprised of investments that are not publicly traded.

The value of investments

that are not publicly traded may not be readily determinable.

We value these investments quarterly at fair value as approved in good

faith by our board of directors.

Saratoga Investment Advisors may utilize the services of an independent valuation firm to aid it in

determining fair value of investments for which market quotations are not readily available.

The types of factors that may be considered

in valuing our investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments

and its earnings, the markets in which the portfolio company does business, market yield trend analysis, comparison to publicly traded

companies, discounted cash flow and other relevant factors.

Because such valuations, and particularly valuations of private investments

and private companies are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our determinations

of fair value may differ materially from the values that would have been used if a ready market for these investments existed.

asset value could be materially affected if the determinations regarding the fair value of our investments were materially higher or

lower than the values that we ultimately realize upon the disposal of such investments.

board of directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval,

the effects of which may be adverse.

board of directors has the authority to modify or waive our current investment objective, operating policies and strategies without prior

notice and without stockholder approval.

We cannot predict the effect any changes to our current operating policies and strategies would

have on our business, financial condition, and value of our common stock.

However, the effects might be adverse, which could negatively

impact our ability to pay dividends and cause you to lose all or part of your investment.

have limited experience in managing a SBIC and any failure to comply with SBA regulations, resulting from our lack of experience or otherwise,

could have an adverse effect on our operations.

March 28, 2012, our wholly-owned subsidiary, Saratoga Investment Corp.

SBIC, LP, received a license from the SBA to operate as an SBIC

under Section 301(c) of the Small Business Investment Act of 1958 and is regulated by the SBA.

On August 14, 2019, our wholly-owned subsidiary,

SBIC II LP, also received an SBIC license from the SBA.

SBA places certain limitations on the financing terms of investments by SBICs in portfolio companies and prohibits SBICs from providing

funds for certain purposes or to businesses in a few prohibited industries.

Compliance with SBIC requirements may cause our SBIC subsidiaries

to forego attractive investment opportunities that are not permitted under SBA regulations.

SBA regulations require that an SBIC be periodically examined and audited by the SBA to determine its compliance with the relevant SBA

The SBA prohibits, without prior SBA approval, a “change of control”

of an SBIC or transfers that would result

in any person (or a group of persons acting in concert) owning 10% or more of a class of capital stock of an SBIC.

If our SBIC subsidiaries

fail to comply with applicable SBA regulations, the SBA could, depending on the severity of the violation, limit or prohibit its use

of debentures, declare outstanding debentures immediately due and payable, and/or limit it from making new investments.

the SBA can revoke or suspend a license for willful or repeated violation of, or willful or repeated failure to observe, any provision

of the Small Business Investment Act of 1958 or any rule or regulation promulgated thereunder.

These actions by the SBA would, in turn,

negatively affect us because our SBIC subsidiaries are our wholly-owned subsidiaries.

We do not have any prior experience managing a

Our lack of experience in complying with SBA regulations may hinder our ability to take advantage of our SBIC subsidiaries’

access to SBA-guaranteed debentures.

failure to comply with SBA regulations could have an adverse effect on our operations.

RELATED TO THE CURRENT ENVIRONMENT

economic, political and market conditions may adversely affect our business, results of operations and financial condition, including

our revenue growth and profitability.

and our portfolio companies are subject to regulation by laws at the U.S.

federal, state and local levels.

These laws and regulations,

as well as their interpretation, could change from time to time, including as the result of interpretive guidance or other directives

from the U.S.

President and others in the executive branch, and new laws, regulations and interpretations could also come into effect.

Any such new or changed laws or regulations could have a material adverse effect on our business, and political uncertainty could increase

regulatory uncertainty in the near term.

effects of legislative and regulatory proposals directed at the financial services industry or affecting taxation, could negatively impact

the operations, cash flows or financial condition of us and our portfolio companies, impose additional costs on us or our portfolio companies,

intensify the regulatory supervision of us or our portfolio companies or otherwise adversely affect our business or the business of our

portfolio companies.

In addition, if we do not comply with applicable laws and regulations, we could lose any licenses that we then hold

for the conduct of business and could be subject to civil fines and criminal penalties.

the last several years, there also has been an increase in regulatory attention to the extension of credit outside of the traditional

banking sector, raising the possibility that some portion of the non-bank financial sector will be subject to new regulation.

cannot be known at this time whether any regulation will be implemented or what form it will take, increased regulation of non-bank credit

extension could negatively impact our operations, cash flows or financial condition, impose additional costs on us, intensify the regulatory

supervision of us or otherwise adversely affect our business, financial condition and results of operations.

May 24, 2018, the President of the United States signed into law the Economic Growth, Regulatory Relief, and Consumer Protection

Act, which increased from $50 billion to $250 billion the asset threshold for designation of “systemically important

financial institutions”

or “SIFIs”

subject to enhanced prudential standards set by the Federal Reserve Board, staggering

application of this change based on the size and risk of the covered bank holding company.

On May 30, 2018, the Federal Reserve

Board voted to consider changes to the Volcker Rule that would loosen compliance requirements for all banks.

The effect of this change

and any further rules or regulations are and could be complex and far-reaching, and the change and any future laws or regulations or

changes thereto could negatively impact our operations, cash flows or financial condition, impose additional costs on us, intensify the

regulatory supervision of us or otherwise adversely affect our business, financial condition and results of operations.

we cannot predict the impact, if any, of these changes to our business, they could adversely affect our business, financial condition,

operating results and cash flows.

Until we know what policy changes are made and how those changes impact business and the business of

our competitors over the long term, we will not know if, overall, it will benefit from them or be negatively affected by them.

2010, a financial crisis emerged in Europe, triggered by high budget deficits and rising direct and contingent sovereign debt, which

created concerns about the ability of certain nations to continue to service their sovereign debt obligations.

Risks resulting from such

debt crisis, including any austerity measures taken in exchange for bailout of certain nations, and any future debt crisis in Europe

or any similar crisis elsewhere could have a detrimental impact on the global economic recovery, sovereign and non-sovereign debt in

certain countries and the financial condition of financial institutions generally.

On January 31, 2020, the United Kingdom (the

“UK”) ended its membership in the European Union (“Brexit”).

Under the terms of the withdrawal agreement negotiated

and agreed between the UK and the European Union, the UK’s departure from the European Union was followed by a transition period

(the “Transition Period”), which ran until December 31, 2020 and during which the UK continued to apply European Union

law and was treated for all material purposes as if it were still a member of the European Union.

On December 24, 2020, the European

Union and UK governments signed a trade deal that became provisionally effective on January 1, 2021 and that now governs the relationship

between the UK and European Union (the “Trade Agreement”).

The Trade Agreement implements significant regulation around trade,

transport of goods and travel restrictions between the UK and the European Union.

Notwithstanding the foregoing, the longer-term economic,

legal, political and social implications of Brexit are unclear at this stage and are likely to continue to lead to ongoing political

and economic uncertainty and periods of increased volatility in both the UK and in wider European markets for some time.

In particular,

Brexit could lead to calls for similar referendums in other European jurisdictions, which could cause increased economic volatility in

the European and global markets.

This mid- to long-term uncertainty could have adverse effects on the economy generally and on our ability

to earn attractive returns.

In particular, currency volatility could mean that our returns are adversely affected by market movements

and could make it more difficult, or more expensive, for us to execute prudent currency hedging policies.

Potential decline in the value

of the British Pound and/or the Euro against other currencies, along with the potential further downgrading of the UK’s sovereign

credit rating, could also have an impact on the performance of certain investments made in the UK or Europe.

outside of our control, including public health crises such as the ongoing COVID-19 pandemic, may negatively affect our results of operations

and financial performance.

of market volatility have occurred and could continue to occur in response to pandemics or other events outside of our control.

types of events have adversely affected and could continue to adversely affect operating results for us and for our portfolio companies.

For example, the COVID-19 pandemic has delivered a shock to the global economy.

This outbreak has led and for an unknown period of time

will continue to lead to disruptions in local, regional, national and global markets and economies affected thereby, including a recession

and a steep increase in unemployment in the United States.

respect to the U.S.

credit markets (in particular for middle market loans), this outbreak has resulted in, and until fully resolved is

likely to continue to result in, the following among other things:

(i) government imposition of various forms of shelter-in-place orders

and the closing of “non-essential”

businesses, resulting in significant disruption to the businesses of many middle-market

loan borrowers including supply chains, demand and practical aspects of their operations, as well as in lay-offs of employees,

and, while these effects are hoped to be temporary, some effects could be persistent or even permanent;

(ii) increased draws by

borrowers on revolving lines of credit;

(iii) increased requests by borrowers for amendments and waivers of their credit agreements

to avoid default, increased defaults by such borrowers and/or increased difficulty in obtaining refinancing at the maturity dates of

(iv) volatility and disruption of these markets including greater volatility in pricing and spreads and difficulty

in valuing loans during periods of increased volatility, and liquidity issues;

and (v) rapidly evolving proposals and/or actions

by state and federal governments to address problems being experienced by the markets and by businesses and the economy in general which

will not necessarily adequately address the problems facing the loan market and middle market businesses.

several countries, as well as certain states, counties and cities in the United States, have relaxed initial public health restrictions

with the view to partially or fully reopening their economies, many cities have since experienced a surge in the reported number of cases,

hospitalizations and deaths related to the COVID-19 pandemic.

These surges have led to the re-introduction of such restrictions and business

shutdowns in certain states in the United States and globally and could continue to lead to the re-introduction of such restrictions

Health advisors warn that recurring COVID-19 outbreaks will continue if reopening is pursued too soon or in the wrong manner,

which may lead to the re-introduction or continuation of certain public health restrictions (such as instituting quarantines, prohibitions

on travel and the closure of offices, businesses, schools, retail stores and other public venues).

Additionally, as of late December

2020, travelers from the United States are not allowed to visit Canada, Australia or the majority of countries in Europe, Asia, Africa

and South America.

These continued travel restrictions may prolong the global economic downturn.

In addition, although the Federal Food

and Drug Administration authorized vaccines produced by Pfizer-BioNTech and Moderna for emergency use starting in December 2020, and

Janssen starting in February 2021, it remains unclear how quickly the vaccines will be distributed nationwide and globally or when “herd

immunity”

will be achieved and the restrictions that were imposed to slow the spread of the virus will be lifted entirely.

in distributing the vaccines could lead people to continue to self-isolate and not participate in the economy at pre-pandemic levels

for a prolonged period of time.

Even after the COVID-19 pandemic subsides, the U.S.

economy and most other major global economies may

continue to experience a recession, and we anticipate our business and operations could be materially adversely affected by a prolonged

recession in the United States and other major markets.

outbreak is having, and any future outbreaks could have, an adverse impact on the markets and the economy in general, which could have

a material adverse impact on, among other things, the ability of lenders to originate loans, the volume and type of loans originated,

and the volume and type of amendments and waivers granted to borrowers and remedial actions taken in the event of a borrower default,

each of which could negatively impact the amount and quality of loans available for investment by us and returns to us, among other things.

As of the date of this Annual Report, it is impossible to determine the scope of this outbreak, or any future outbreaks, how

long any such outbreak, market disruption or uncertainties may last, the effect any governmental actions will have or the full potential

impact on us and our portfolio companies.

Any potential impact to our results of operations will depend to a large extent on future developments

and new information that could emerge regarding the duration and severity of COVID-19 and the actions taken by authorities

and other entities to contain COVID-19 or treat its impact, all of which are beyond our control.

These potential

impacts, while uncertain, could adversely affect our and our portfolio companies’

operating results.

the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies,

loan non-accruals, problem assets, and bankruptcies may increase.

In addition, collateral for our loans may decline in value,

which could cause loan losses to increase and the net worth and liquidity of loan guarantors could decline, impairing their ability to

honor commitments to us.

An increase in loan delinquencies and non-accruals or a decrease in loan collateral and guarantor

net worth could result in increased costs and reduced income which would have a material adverse effect on our business, financial condition

or results of operations.

Additionally, oil prices collapsed to an 18-year low on supply glut concerns, as shutdowns across the global

economy sharply reduced oil demand while Saudi Arabia and Russia engaged in a price war.

Central banks and governments have responded

with liquidity injections to ease the strain on financial systems and stimulus measures to buffer the shock to businesses and consumers.

These measures have helped stabilize certain portions of the financial markets over the short term, but volatility will likely remain

elevated until the health crisis itself is under control (via fewer new cases, lower infection rates and/or verified treatments).

are still many unknowns and new information is incoming daily, compounding the difficulty of modeling outcomes for epidemiologists and

economists alike.

cannot be certain as to the duration or magnitude of the economic impact of the COVID-19 pandemic in the markets in which we and our

portfolio companies operate, including with respect to travel restrictions, business closures, mitigation efforts (whether voluntary,

suggested, or mandated by law) and corresponding declines in economic activity that may negatively impact the U.S.

economy and the markets

for the various types of goods and services provided by U.S.

middle market companies.

We compete with other BDCs, public and private funds (including SBICs), commercial and investment banks, commercial financing companies, insurance companies, high-yield investors,

hedge funds, and, to the extent they provide an alternative form of financing, private equity funds.

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

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 that could 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.

As a result of this competition, we may not be able to

take advantage of attractive investment opportunities from time to time, and we cannot assure you that we will be able to identify and make investments that meet our investment objective.

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

interest rates that are 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.

If we match our competitors pricing, terms and structure, we may experience decreased net interest income and increased risk of credit loss.

As a result of operating in such a competitive

environment, we may make investments that are on better terms to our portfolio companies than we originally anticipated, which may impact our return on these investments.

Economic recessions or downturns could impair the ability of our portfolio companies to repay loans

and harm our operating results.

Many of our portfolio companies may be susceptible to economic slowdowns or recessions and may be

unable to repay our debt investments during these periods.

Therefore, our non-performing assets are likely to increase and the value of our portfolio is likely to decrease during these periods.

Adverse economic conditions also may decrease the value

of collateral securing some of our debt investments and the value of our equity investments.

Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in revenues, net income and assets.

Depending on the duration, magnitude and severity

of these conditions and their related economic and market impacts, certain portfolio companies may suffer declines in earnings and could

experience financial distress, which could cause them to default on their financial obligations to us and their other lenders.

will also be negatively affected if our operations and effectiveness or the operations and effectiveness of a portfolio company (or any

of the key personnel or service providers of the foregoing) is compromised or if necessary or beneficial systems and processes are disrupted.

public health emergency, including the COVID-19 pandemic or any outbreak of other existing or new epidemic diseases, or the

threat thereof, and the resulting financial and economic market uncertainty could have a significant adverse impact on us and the fair

value of our investments.

Our valuations, and particularly valuations of private investments and private companies, are inherently uncertain,

may fluctuate over short periods of time and are often based on estimates, comparisons and qualitative evaluations of private information

that may not show the complete impact of the COVID-19 pandemic and the resulting measures taken in response thereto.

These potential

impacts, while uncertain, could adversely affect our and our portfolio companies’

operating results.

are currently operating in a period of capital markets disruption and economic uncertainty.

capital markets have experienced extreme volatility and disruption following the global outbreak of COVID-19 that began in December

The global impact of the outbreak is rapidly evolving, and many countries have reacted by instituting quarantines, prohibitions

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

Businesses have also implementing similar

precautionary measures.

Such measures, as well as the general uncertainty surrounding the dangers and impact of COVID-19, have created

significant disruption in supply chains and economic activity.

The impact of COVID-19 has led to significant volatility and declines

in the global public equity markets and it is uncertain how long this volatility will continue.

As COVID-19 continues to spread,

the potential impacts, including a global, regional or other economic recession, are increasingly uncertain and difficult to assess.

Some economists and major investment banks have expressed concern that the continued spread of the virus globally could lead to a world-wide

economic downturn.

in the capital markets caused by the COVID-19 pandemic have increased the spread between the yields realized on risk-free and

higher risk securities, resulting in illiquidity in parts of the capital markets.

These and future market disruptions and/or illiquidity

would be expected to have an adverse effect on our business, financial condition, results of operations and cash flows.

Unfavorable economic

conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us.

These events could prevent us from adding to our investment portfolio, cause us to receive a

reduced level of interest income from our portfolio companies and/or reduce the fair market value of our investments.

Any of the foregoing events could adversely affect our distributable income and have a material adverse effect on our operating

We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we

are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer.

classified as a non-diversified investment company within the meaning of the 1940 Act, which means that we are not limited by the 1940 Act with respect to the proportion of our assets that we may invest in

securities of a single issuer.

Although we seek to maintain a diversified portfolio in accordance with our business strategies, to the extent that we assume large positions in the securities of a small number of issuers, our net asset value may

fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the markets assessment of the issuer.

We may also be more susceptible to any single economic or regulatory

occurrence than a diversified investment company.

Beyond our RIC asset-diversification requirements, we do not have fixed guidelines for diversification, and our investments could be concentrated in relatively

few portfolio companies.

Our financial condition and results of operations depend on our ability to manage future investments effectively.

Our ability to achieve our investment objective depends on our ability to acquire suitable investments and monitor and administer

those investments, which depends, in turn, on Saratoga Investment Advisors ability to identify, invest in and monitor companies that meet our investment criteria.

Accomplishing this result on a cost-effective basis is largely a function of Saratoga Investment Advisors structuring of the investment

process and its ability to provide competent, attentive and efficient service to us.

Our executive officers and the officers and employees of Saratoga Investment Advisors have substantial responsibilities in connection with their roles at Saratoga

Partners as well as responsibilities under the Management Agreement.

They may also be called upon to provide managerial assistance to our portfolio companies.

These demands on their time, which will increase as the number of investments grow, may

distract them or slow the rate of investment.

In order to grow, Saratoga Investment Advisors may need to hire, train, supervise and manage new employees.

However, we cannot assure you that any such employees will contribute to the work of Saratoga

Investment Advisors.

Any failure to manage our future growth effectively could have a material adverse effect on our business and financial condition.

We may experience fluctuations in our quarterly and annual results.

We could experience fluctuations in our quarterly operating results due to a number of factors, including the interest rate payable on the debt

investments we make, the default rate on such investments, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, changes in our portfolio composition, the degree to which we encounter

competition in our markets and general economic conditions.

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

In addition, any of these factors could negatively

impact our ability to achieve our investment objectives, which may cause the net asset value of our common stock to decline.

Substantially all of

our portfolio investments are recorded at fair value as approved in good faith by our board of directors;

such valuations are inherently uncertain and may be materially higher or lower than the values that we ultimately realize upon the disposal of

such investments.

Substantially all of our portfolio is, and we expect will continue to be, comprised of investments that are not

publicly traded.

The value of investments that are not publicly traded may not be readily determinable.

We value these investments quarterly at fair value as approved in good faith by our board of directors.

Saratoga Investment Advisors may utilize

the services of an independent valuation firm to aid it in determining fair value of investments for which market quotations are not readily available.

The types of factors that may be considered in valuing our investments include the nature and

realizable value of any collateral, the portfolio companys ability to make payments and its earnings, the markets in which the portfolio company does business, market yield trend analysis, comparison to publicly traded companies, discounted

cash flow and other relevant factors.

Because such valuations, and particularly valuations of private investments and private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our

determinations of fair value may differ materially from the values that would have been used if a ready market for these investments existed.

Our net asset value could be materially affected if the determinations regarding the fair value of our

investments were materially higher or lower than the values that we ultimately realize upon the disposal of such investments.

If we make unsecured debt investments, we may lack adequate protection in the event our portfolio

companies become distressed or insolvent and will likely experience a lower recovery than more senior debtholders in the event our portfolio companies default on their indebtedness.

We make unsecured debt investments in portfolio companies.

Unsecured debt investments are unsecured and junior to other indebtedness of the

portfolio company.

As a consequence, the holder of an unsecured debt investment may lack adequate protection in the event the portfolio company becomes distressed or insolvent and will likely experience a lower recovery than more senior debtholders

in the event the portfolio company defaults on its indebtedness.

In addition, unsecured debt investments of middle-market companies are often highly illiquid and in adverse market conditions may experience steep declines in valuation even if they

are fully performing.

If we invest in the securities and other obligations of distressed or bankrupt companies, such investments may be subject to

significant risks, including lack of income, extraordinary expenses, uncertainty with respect to satisfaction of debt, lower-than expected investment values or income potentials and resale restrictions.

We are authorized to invest in the securities and other obligations of distressed or bankrupt companies.

conditions also would be expected to increase our funding costs, limit our access to the capital markets or result in a decision by lenders

not to extend credit to us.

These events have limited and could continue to limit our investment originations, limit our ability to grow

and have a material negative impact on our operating results and the fair values of our debt and equity investments.

addition, due to the outbreak in the United States, certain personnel of our Investment Adviser are currently working remotely,

which may introduce additional operational risk to us.

Staff members of certain of our other service providers may also work

remotely during the COVID-19 outbreak.

An extended period of remote working could lead to service limitations or failures that could

impact us or our performance.

current market conditions resulting from the COVID-19 pandemic may make it difficult for us to obtain debt capital on favorable terms

and any failure to do so could have a material adverse effect on our business.

The debt capital that will be available to us in the future,

if at all, may be at a higher cost and on less favorable terms and conditions than what we would otherwise expect, including being at

a higher cost in rising rate environments.

If we are unable to raise debt, then our equity investors may not benefit from the potential

for increased returns on equity resulting from leverage and we may be limited in our ability to make or fund commitments to portfolio

An inability to obtain indebtedness could have a material adverse effect on our business, financial condition or results of

downgrades of the U.S.

credit rating, automatic spending cuts, or another government shutdown could negatively impact our liquidity,

financial condition and earnings.

debt ceiling and budget deficit concerns have increased the possibility of additional credit-rating downgrades and economic slowdowns,

or a recession in the United States.

Although U.S.

lawmakers passed legislation to raise the federal debt ceiling on multiple occasions,

ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States.

The impact of this or

any further downgrades to the U.S.

government’s sovereign credit rating or its perceived creditworthiness could adversely affect

and global financial markets and economic conditions.

Absent further quantitative easing by the Federal Reserve, these developments

could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable

In addition, disagreement over the federal budget has caused the U.S.

federal government to shut down for periods of time.

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

recessions or downturns could impair the ability of our portfolio companies to repay loans and harm our operating results.

of our portfolio companies are susceptible to economic slowdowns or recessions (including industry specific downturns) and may be unable

to repay our debt investments during these periods.

The global outbreak of COVID-19 has disrupted economic markets, and the prolonged

economic impact is uncertain.

Many manufacturers of goods in China and other countries in Asia have seen a downturn in production due

to the suspension of business and temporary closure of factories in an attempt to curb the spread of the illness.

As the impact of COVID-19

spreads to other parts of the world, similar impacts may occur with respect to affected countries.

In the past, instability in the global

capital markets resulted in disruptions in liquidity in the debt capital markets, significant write-offs in the financial services sector,

the re-pricing of credit risk in the broadly syndicated credit market and the failure of major domestic and international financial institutions.

In particular, in past periods of instability, the financial services sector was negatively impacted by significant write-offs as the

value of the assets held by financial firms declined, impairing their capital positions and abilities to lend and invest.

continued uncertainty surrounding the negotiation of trade deals between Britain and the European Union following the United Kingdom’s

exit from the European Union and uncertainty between the United States and other countries, including China, with respect to trade policies,

treaties, and tariffs, among other factors, have caused disruption in the global markets.

There can be no assurance that market conditions

will not worsen in the future.

an economic downturn, we may have non-performing assets or non-performing assets may increase, and the value of our portfolio is likely

to decrease during these periods.

Adverse economic conditions may also decrease the value of any collateral securing some of our debt

investments and the value of our equity investments.

Economic slowdowns or recessions could lead to financial losses in our portfolio

and a decrease in revenues, net income and assets.

Unfavorable economic conditions also could increase our funding costs, limit our access

to the capital markets or result in a decision by lenders not to extend credit to us.

These events could prevent us from increasing our

investments and harm our operating results.

occurrence of recessionary conditions and/or negative developments in the domestic and international credit markets may significantly

affect the markets in which we do business, the value of our investments, and our ongoing operations, costs and profitability.

unfavorable economic conditions, including rising interest rates, may also increase our funding costs, limit our access to capital markets

or negatively impact our ability to obtain financing, particularly from the debt markets.

In addition, any future financial market uncertainty

could lead to financial market disruptions and could further impact our ability to obtain financing.

These events could limit our investment

originations, limit our ability to grow and negatively impact our operating results and financial condition.

RELATED TO OUR ADVISER AND ITS AFFILIATES

may be obligated to pay Saratoga Investment Advisors incentive fees even if we incur a net loss, or there is a decline in the value of

our portfolio.

Investment Advisors is entitled to incentive fees for each fiscal quarter in an amount equal to a percentage of the excess of our investment

income for that quarter (before deducting incentive compensation, but net of operating expenses and certain other items) above a threshold

return for that quarter.

Our pre-incentive fee net investment income, for incentive compensation purposes, excludes realized and unrealized

capital gains or losses that we may incur in the fiscal quarter, even if such capital gains or losses result in a net gain or loss on

our consolidated statements of operations for that quarter.

Thus, we may be required to pay Saratoga Investment Advisors incentive fees

for a fiscal quarter even if there is a decline in the value of our portfolio or we incur a net loss for that quarter.

the terms of the Management Agreement, we may have to pay incentive fees to Saratoga Investment Advisors in connection with the sale

of an investment that is sold at a price higher than the fair value of such investment on May 31, 2010, even if we incur a loss on the

sale of such investment.

fees on capital gains paid to Saratoga Investment Advisors under the Management Agreement equals 20.0% of our “incentive fee capital

gains,”

which equals our realized capital gains on a cumulative basis from May 31, 2010 through the end of the fiscal year, if

any, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis on each investment in the

Company’s portfolio, less the aggregate amount of any previously paid capital gain incentive fee.

Under the Management Agreement,

the capital gains portion of the incentive fee is based on realized gains and realized and unrealized losses from May 31, 2010.

realized and unrealized losses incurred prior to such time will not be taken into account when calculating the capital gains portion

of the incentive fee, and Saratoga Investment Advisors will be entitled to 20.0% of the incentive fee capital gains that arise after

May 31, 2010.

In addition, the cost basis for computing realized gains and losses on investments held by us as of May 31, 2010 will equal

the fair value of such investments as of such date.

See our Form 10-Q for the quarter ended May 31, 2010 that was filed with the SEC

on July 15, 2010 for the fair value and other information related to our investments as of such date.

As a result, we may be required

to pay incentive fees to Saratoga Investment Advisors on the sale of an investment even if we incur a realized loss on such investment,

so long as the investment is sold for an amount greater than its fair value as of May 31, 2010.

way in which the base management and incentive fees under the Management Agreement is determined may encourage Saratoga Investment Advisors

to take actions that may not be in our best interests.

incentive fee payable by us to our Investment Adviser may create an incentive for it to make investments on our behalf that are risky

or more speculative than would be the case in the absence of such compensation arrangement, which could result in higher investment losses,

particularly during cyclical economic downturns.

The way in which the incentive fee payable to our Investment Adviser is determined,

which is calculated separately in two components as a percentage of the income (subject to a hurdle rate) and as a percentage of the

realized gain on invested capital, may encourage our Investment Adviser to use leverage to increase the return on our investments or

otherwise manipulate our income so as to recognize income in quarters where the hurdle rate is exceeded.

we pay Saratoga Investment Advisors a base management fee based on our total assets, including any investments made with borrowings,

which may create an incentive for it to cause us to incur more leverage than is prudent, or not to repay our outstanding indebtedness

when it may be advantageous for us to do so, in order to maximize its compensation.

Under certain circumstances, the use of leverage

may increase the likelihood of default, which would disfavor the holders of our securities.

incentive fee payable by us to our Investment Adviser also may create an incentive for our Investment Adviser to invest on our behalf

in instruments that have a deferred interest feature.

Under these investments, we would accrue the interest over the life of the investment

but would not receive the cash income from the investment until the end of the investment’s term, if at all.

Our net investment

income used to calculate the income portion of our incentive fee, however, includes accrued interest.

Thus, a portion of the incentive

fee would be based on income that we have not yet received in cash and may never receive in cash if the portfolio company is unable to

satisfy such interest payment obligation to us.

Consequently, while we may make incentive fee payments on income accruals that we may

not collect in the future and with respect to which we do not have a “claw back”

right against our Investment Adviser per

se, the amount of accrued income written off in any period will reduce the income in the period in which such write-off was taken and

may thereby reduce such period’s incentive fee payment.

addition, Saratoga Investment Advisors receives a quarterly income incentive fee based, in part, on our pre-incentive fee net investment

income, if any, for the immediately preceding calendar quarter.

This income incentive fee is subject to a fixed quarterly hurdle rate

before providing an income incentive fee return to Saratoga Investment Advisors.

This fixed hurdle rate was determined when then current

interest rates were relatively low on a historical basis.

Thus, if interest rates rise, it would become easier for our investment income

to exceed the hurdle rate and, as a result, more likely that Saratoga Investment Advisors will receive an income incentive fee than if

interest rates on our investments remained constant or decreased.

However, if we repurchase our outstanding debt securities, including

the Notes, and such repurchase results in our recording a net gain or loss on the extinguishment of debt for financial reporting and

tax purposes, such net gain or loss will not be included in our pre-incentive fee net investment income for purposes of determining the

income incentive fee payable to our Investment Adviser under the Management Agreement.

Moreover, our Investment Adviser receives the

incentive fee based, in part, upon net capital gains realized on our investments.

Unlike the portion of the incentive fee based on income,

there is no performance threshold applicable to the portion of the incentive fee based on net capital gains.

As a result, our Investment

Adviser may have a tendency to invest more in investments that are likely to result in capital gains as compared to income producing

Such a practice could result in our investing in more speculative securities than would otherwise be the case, which could

result in higher investment losses, particularly during economic downturns.

board of directors will seek to ensure that Saratoga Investment Advisors is acting in our best interests and that any conflict of interest

faced by Saratoga Investment Advisors in its capacity as our Investment Adviser does not negatively impact us.

base management fee we pay to Saratoga Investment Advisors may induce it to influence our leverage, which may be contrary to our interest.

pay Saratoga Investment Advisors a quarterly base management fee based on the value of our total assets (including any assets acquired

with leverage).

Accordingly, Saratoga Investment Advisors has an economic incentive to increase our leverage.

Our board of directors

monitors the conflicts presented by this compensation structure by approving the amount of leverage that we incur.

If our leverage is

increased, we will be exposed to increased risk of loss, bear the increase cost of issuing and servicing such senior indebtedness, and

will be subject to any additional covenant restrictions imposed on us in an indenture or other instrument or by the applicable lender.

Investment Advisors’

liability is limited under the Management Agreement and we will indemnify Saratoga Investments Advisors against

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

Investment Advisors has not assumed any responsibility to us other than to render the services described in the Management Agreement.

Pursuant to the Management Agreement, Saratoga Investment Advisors and its officers and employees are not liable to us for their acts

under the Management Agreement absent willful misfeasance, bad faith, gross negligence or reckless disregard in the performance of their

We have agreed to indemnify, defend and protect Saratoga Investment Advisors and its officers and employees with respect to all

damages, liabilities, costs and expenses resulting from acts of Saratoga Investment Advisors not arising out of willful misfeasance,

bad faith, gross negligence or reckless disregard in the performance of their duties under the Management Agreement.

These protections

may lead Saratoga Investment Advisors to act in a riskier manner when acting on our behalf than it would when acting for its own account.

ability to enter into transactions with our affiliates is restricted.

we have elected to be treated as a BDC, we are prohibited under the 1940 Act from participating in certain transactions with certain

of our affiliates without the prior approval of our independent directors and, in some cases, the SEC.

Any person that owns, directly

or indirectly, 5.0% or more of our outstanding voting securities is our affiliate for purposes of the 1940 Act and we are generally prohibited

from buying or selling any securities (other than any security of which we are the issuer) from or to such affiliate, absent the prior

approval of our independent directors.

The 1940 Act also prohibits certain “joint”

transactions with certain of our affiliates,

which could include investments in the same portfolio company, without prior approval of our independent directors and, in some cases,

If a person acquires more than 25.0% of our voting securities, we are prohibited from buying or selling any security (other

than any security of which we are the issuer) from or to such person or certain of that person’s affiliates, or entering into prohibited

joint transactions with such person, absent the prior approval of the SEC.

Similar restrictions limit our ability to transact business

with our officers, directors or Investment Adviser or their affiliates.

As a result of these restrictions, we may be prohibited from

buying or selling any security (other than any security of which we are the issuer) from or to any portfolio company of a private equity

fund managed by our Investment Adviser without the prior approval of the SEC, which may limit the scope of investment opportunities that

would otherwise be available to us.

RELATED TO OUR INVESTMENTS

we make unsecured debt investments, we may lack adequate protection in the event our portfolio companies become distressed or insolvent

and will likely experience a lower recovery than more senior debtholders in the event our portfolio companies default on their indebtedness.

make unsecured debt investments in portfolio companies.

Unsecured debt investments are unsecured and junior to other indebtedness of

the portfolio company.

As a consequence, the holder of an unsecured debt investment may lack adequate protection in the event the portfolio

company becomes distressed or insolvent and will likely experience a lower recovery than more senior debtholders in the event the portfolio

company defaults on its indebtedness.

In addition, unsecured debt investments of middle- market companies are often highly illiquid and

in adverse market conditions may experience steep declines in valuation even if they are fully performing.

we invest in the securities and other obligations of distressed or bankrupt companies, such investments may be subject to significant

risks, including lack of income, extraordinary expenses, uncertainty with respect to satisfaction of debt, lower-than expected investment

values or income potentials and resale restrictions.

are authorized to invest in the securities and other obligations of distressed or bankrupt companies.

At times, distressed debt obligations

may not produce income and may require us to bear certain extraordinary expenses (including legal, accounting, valuation and transaction expenses) in order to protect and recover our investment.

Therefore, to the extent we invest in distressed debt,

our ability to achieve current income may be diminished which may affect our ability to make distributions on our common stock or make interest and principal payments of the 2025 Notes.

We also will be subject to significant uncertainty as to when and in what manner and for what value the distressed debt we invest in will

eventually be satisfied (e.g., through a liquidation of the obligors assets, an exchange offer or plan of reorganization involving the distressed debt securities or a payment of some amount in satisfaction of the obligation).

In addition, even

if an exchange offer is made or plan of reorganization is adopted with respect to distressed debt held by us, there can be no assurance that the securities or other assets received by us in connection with such exchange offer or plan of

reorganization will not have a lower value or income potential than may have been anticipated when the investment was made.

Moreover, any

securities received by us upon completion of an exchange offer or plan of reorganization may be restricted as to resale.

As a result of our participation in negotiations with respect to any exchange offer or plan of reorganization with respect to an

issuer of distressed debt, we may be restricted from disposing of such securities if we are in possession of material non-public information relating to the issuer.

Second priority liens on collateral securing loans that we make to our portfolio companies may be subject to control by senior creditors with first

priority liens.

If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us.

Certain loans that we make to portfolio companies will be secured on a second priority basis by the same collateral securing senior secured

debt of such companies.

The first priority liens on the collateral will secure the portfolio companys obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by the company

under the agreements governing the loans.

The holders of obligations secured by the first priority liens on the collateral will generally control the liquidation of and be entitled to receive proceeds from any realization of the collateral to repay

their obligations in full before us.

In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors.

There can be no assurance that the proceeds, if

any, from the sale or sales of all of the collateral would be sufficient to satisfy the loan obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens on the collateral.

proceeds are not sufficient to repay amounts outstanding under the loan obligations secured by the second priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against

the companys remaining assets, if any.

The rights we may have with respect to the collateral securing the loans we make to our

portfolio companies with senior debt outstanding may also be limited pursuant to the terms of one or more intercreditor agreements that we enter into with the holders of senior debt.

Under such an intercreditor agreement, at any time that

obligations that have the benefit of the first priority liens are outstanding, any of the following actions that may be taken with respect to the collateral will be at the direction of the holders of the obligations secured by the first priority

may not produce income and may require us to bear certain extraordinary expenses (including legal, accounting, valuation and transaction

expenses) in order to protect and recover our investment.

Therefore, to the extent we invest in distressed debt, our ability to achieve

current income may be diminished which may affect our ability to make distributions on our common stock or make interest and principal

payments of the Notes.

also will be subject to significant uncertainty as to when and in what manner and for what value the distressed debt we invest in will

eventually be satisfied (e.g., through a liquidation of the obligor’s assets, an exchange offer or plan of reorganization involving

the distressed debt securities or a payment of some amount in satisfaction of the obligation).

In addition, even if an exchange offer

is made or plan of reorganization is adopted with respect to distressed debt held by us, there can be no assurance that the securities

or other assets received by us in connection with such exchange offer or plan of reorganization will not have a lower value or income

potential than may have been anticipated when the investment was made.

any securities received by us upon completion of an exchange offer or plan of reorganization may be restricted as to resale.

of our participation in negotiations with respect to any exchange offer or plan of reorganization with respect to an issuer of distressed

debt, we may be restricted from disposing of such securities if we are in possession of material non-public information relating to the

priority liens on collateral securing loans that we make to our portfolio companies may be subject to control by senior creditors with

first priority liens.

If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority

creditors and us.

loans that we make to portfolio companies will be secured on a second priority basis by the same collateral securing senior secured debt

of such companies.

The first priority liens on the collateral will secure the portfolio company’s obligations under any outstanding

senior debt and may secure certain other future debt that may be permitted to be incurred by the company under the agreements governing

The holders of obligations secured by the first priority liens on the collateral will generally control the liquidation of

and be entitled to receive proceeds from any realization of the collateral to repay their obligations in full before us.

the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and

other factors.

There can be no assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient

to satisfy the loan obligations secured by the second priority liens after payment in full of all obligations secured by the first priority

liens on the collateral.

If such proceeds are not sufficient to repay amounts outstanding under the loan obligations secured by the second

priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim

against the company’s remaining assets, if any.

rights we may have with respect to the collateral securing the loans we make to our portfolio companies with senior debt outstanding

may also be limited pursuant to the terms of one or more intercreditor agreements that we enter into with the holders of senior debt.

Under such an intercreditor agreement, at any time that obligations that have the benefit of the first priority liens are outstanding,

any of the following actions that may be taken with respect to the collateral will be at the direction of the holders of the obligations

secured by the first priority liens:

the ability to cause the commencement of enforcement proceedings against the collateral;

the ability to control the conduct of such proceedings;

to control the conduct of such proceedings;

the approval of amendments to collateral documents;

releases of liens on the collateral;

waivers of past defaults under collateral documents.

We may not have the ability to control or direct such actions, even if our rights are adversely affected.

A majority of our debt investments are not required to make principal payments until the maturity of

such debt securities and are generally riskier than other types of loans.

As of February 29, 2020, 81.3% of our debt portfolio

consisted of interest-only loans, which are structured such that the borrower makes only interest payments throughout the life of the loan and makes a large, balloon payment at the end

of the loan term.

The ability of a borrower to make or refinance a balloon payment may be affected by a number of factors, including the financial condition of the borrower, prevailing economic conditions, interest rates, and collateral values.

the interest-only loan borrower is unable to make or refinance a balloon payment, we may experience greater losses than if the loan were structured as amortizing.

We may be exposed to higher risks with respect to our investments that include PIK interest, particularly our investments in interest- only loans.

To the extent our portfolio investments permit PIK interest and our portfolio companies elect to pay PIK interest, we will be

exposed to higher risks, including the following:

Because PIK interest results in an increase in the size of the loan balance of the underlying loan, our exposure

to potential loss increases when we receive PIK interest;

PIK instruments may have higher yields, which reflect the payment deferral and credit risk associated with these

PIK accruals may create uncertainty about the source of our distributions to stockholders;

PIK instruments may have unreliable valuations because their continuing accruals require continuing judgments

about the collectability of the deferred payments and the value of the collateral.

To the extent our investments are

structured as interest-only loans, PIK interest will increase the size of the balloon payment due at the end of the loan term.

and waivers of past defaults under collateral documents.

We may not have the ability to control or direct such actions, even if our rights

are adversely affected.

majority of our debt investments are not required to make principal payments until the maturity of such debt securities and are generally

riskier than other types of loans.

of February 28, 2021, 85.4% of our debt portfolio consisted of “interest-only”

loans, which are structured such that the

borrower makes only interest payments throughout the life of the loan and makes a large, “balloon payment”

at the end of

the loan term.

The ability of a borrower to make or refinance a balloon payment may be affected by a number of factors, including the

financial condition of the borrower, prevailing economic conditions, interest rates, and collateral values.

If the interest-only loan

borrower is unable to make or refinance a balloon payment, we may experience greater losses than if the loan were structured as amortizing.

may be exposed to higher risks with respect to our investments that include PIK interest, particularly our investments in interest- only

the extent our portfolio investments permit PIK interest and our portfolio companies elect to pay PIK interest, we will be exposed to

higher risks, including the following:

PIK interest results in an increase in the size of the loan balance of the underlying loan,

our exposure to potential loss increases when we receive PIK interest;

instruments may have higher yields, which reflect the payment deferral and credit risk associated

with these instruments;

accruals may create uncertainty about the source of our distributions to stockholders;

instruments may have unreliable valuations because their continuing accruals require continuing

judgments about the collectability of the deferred payments and the value of the collateral.

the extent our investments are structured as interest-only loans, PIK interest will increase the size of the balloon payment due at the

end of the loan term.

PIK interest payments on such loans may increase the probability and magnitude of a loss on our investment, particularly

with respect to our interest-only loans.

As of February 29, 2020, 25.0% of our interest-only loans provided for contractual PIK interest, which represents contractual interest added to a loan balance and

due at the end of such loans term, and 77.9% of such investments elected to pay a portion of interest due in PIK.

As of February 29, 2020, 19.4% of the Companys interest-only loans are loans that pay contractual PIK interest only.

The lack of liquidity in our investments may adversely affect our business.

We primarily make investments in private companies.

As of February 28, 2021, 14.7% of our interest-only loans provided for contractual PIK interest,

which represents contractual interest added to a loan balance and due at the end of such loan’s term, and 73.4% of such investments

elected to pay a portion of interest due in PIK.

As of February 28, 2021, 0.4% of the Company’s interest-only loans are loans that

pay contractual PIK interest only.

lack of liquidity in our investments may adversely affect our business.

primarily make investments in private companies.

A portion of these securities may be subject to legal and other restrictions on resale,

transfer, pledge or other disposition or will otherwise be less liquid than publicly traded securities.

The illiquidity of our investments may make it difficult for us to sell such investments if the need arises.

In addition, if we are required to

liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded our investments.

In addition, we may face other restrictions on our ability to liquidate an investment in a

business entity to the extent that we or our Investment Adviser has or could be deemed to have material non-public information regarding such business entity.

The debt securities in which we invest are subject to credit risk and prepayment risk.

An issuer of a debt security may be unable to make interest payments and repay principal.

We could lose money if the issuer of a debt

obligation is, or is perceived to be, unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations.

Substantially all of the debt investments held in our portfolio hold a non-investment grade rating by

one or more rating agencies or, if not rated, would be rated below investment grade if rated, which are often referred to as junk.

Certain debt instruments may contain call or redemption provisions which would allow the issuer thereof to prepay principal prior to the debt

instruments stated maturity.

The illiquidity of our investments

may make it difficult for us to sell such investments if the need arises.

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

of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded our investments.

we may face other restrictions on our ability to liquidate an investment in a business entity to the extent that we or our Investment

Adviser has or could be deemed to have material non-public information regarding such business entity.

may not have the funds to make additional investments in our portfolio companies which could impair the value of our portfolio.

our initial investment in a portfolio company, we may be called upon from time to time to provide additional funds to such company or

have the opportunity to increase our investment through the exercise of a warrant to purchase common stock.

There is no assurance that

we will make, or will have sufficient funds to make, follow-on investments.

Any decisions not to make a follow-on investment

or any inability on our part to make such an investment may have a negative impact on a portfolio company in need of such an investment,

may result in a missed opportunity for us to increase our participation in a successful operation or may reduce the expected yield on

the investment.

Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment

because we may not want to increase our level of risk, because we prefer other opportunities or because we are inhibited by compliance

with BDC requirements, SBA regulations or the desire to maintain our RIC tax treatment.

Our ability to make follow-on investments

may also be limited by our Investment Adviser allocation policy.

debt securities in which we invest are subject to credit risk and prepayment risk.

issuer of a debt security may be unable to make interest payments and repay principal.

We could lose money if the issuer of a debt obligation

is, or is perceived to be, unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations.

Substantially all of the debt investments held in our portfolio hold a non-investment grade rating by one or more rating agencies or,

if not rated, would be rated below investment grade if rated, which are often referred to as “junk.”

debt instruments may contain call or redemption provisions which would allow the issuer thereof to prepay principal prior to the debt

instrument’s stated maturity.

This is known as prepayment risk.

Prepayment risk is greater during a falling interest rate environment as issuers can reduce their cost of capital by refinancing higher interest debt instruments with lower

interest debt instruments.

An issuer may also elect to refinance their debt instruments with lower interest debt instruments if the credit standing of the issuer improves.

To the extent debt securities in our portfolio are called or redeemed, we may

receive less than we paid for such security and we may be forced to reinvest in lower yielding securities or debt securities of issuers of lower credit quality.

Our investment in Saratoga CLO constitutes a leveraged investment in a portfolio of subordinated notes

representing the lowest-rated securities issued by a pool of predominantly senior secured first lien term loans and is subject to additional risks and volatility.

All losses in the pool of loans will be borne by our subordinated notes and only after

the value of our subordinated notes is reduced to zero will the higher-rated notes issued by the pool bear any losses.

29, 2020, our investment in the subordinated notes of Saratoga CLO, a collateralized loan obligation fund, had a fair value of $22.6 million and constituted 4.6% of our portfolio.

This investment constitutes a first loss position in a portfolio

that, as of February 29, 2020, was composed of $528.4 million in aggregate principal amount of primarily senior secured first lien term loans and $9.1 million in uninvested cash.

In addition, as of February 29, 2020, we also own

$2.5 million in aggregate principal of the F-R-2 Notes with a fair value of $2.5 million and $7.5 million in aggregate principal of the G-R-2 Notes with a fair value of $7.4 million in the Saratoga CLO, that only rank senior to the subordinated notes.

As of February 29, 2020, our investment in CLO 2013-1 Warehouse 2, a wholly-owned subsidiary of Saratoga CLO, had a fair value of $2.2 million.

A first loss position means that we will suffer the first economic losses if the value of Saratoga

CLO decreases.

First loss positions typically carry a higher risk and earn a higher yield.

Interest payments generated from this portfolio will be used to pay the administrative expenses of Saratoga CLO and interest on the debt issued by Saratoga

CLO before paying a return on the subordinated notes.

Principal payments will be similarly applied to pay administrative expenses of Saratoga CLO and for reinvestment or repayment of Saratoga CLO debt before paying a return on, or repayment of, the

subordinated notes.

In addition, 80.0% of our fixed management fee and 100.0% our incentive management fee for acting as the collateral manager of Saratoga CLO is subordinated to the payment of interest and principal on Saratoga CLO debt.

on the portfolio will accordingly reduce the cash flow available to pay these management fees and provide a return on, or repayment of, our investment.

Depending on the amount and timing of such losses, we may experience smaller than expected

returns and, potentially, the loss of our entire investment.

As the manager of the portfolio of Saratoga CLO, we will have some ability

to direct the composition of the portfolio, but our discretion is limited by the terms of the debt issued by Saratoga CLO which may limit our ability to make investments that we feel are in the best interests of the subordinated notes, and the

availability of suitable investments.

The performance of Saratoga CLOs portfolio is also subject to many of the same risks sets forth in this Annual Report with respect to portfolio investments in leveraged loans.

Saratoga CLOs investments are exposed to leveraged credit risk.

Generally, Saratoga CLO is in a subordinated position with respect to realized losses on the senior secured loans underlying its investments.

The leveraged nature of collateralized loan obligation funds, in particular, magnifies the adverse impact of senior secured loan defaults.

A collateralized loan obligation funds investments represent a leveraged investment with respect to the

underlying senior secured loans.

Therefore, changes in the market value of such funds investments could be greater than the change in the market value of the underlying senior secured loans, which are subject to credit, liquidity and interest

As a result, there is the potential for interruption and deferral of cash flow from Saratoga CLOs investments.

If certain minimum collateral value ratios and/or interest coverage ratios are not met by Saratoga CLO, primarily due to

senior secured loan defaults, then cash flow that otherwise would have been available to pay distributions to Saratoga CLO on its investments may instead be used to redeem any senior notes or to purchase additional senior secured loans, until the

ratios again exceed the minimum required levels or any senior notes are repaid in full.

This could result in an elimination, reduction or deferral in the distribution and/or principal paid to the senior debtholders of Saratoga CLO, which would

adversely impact its returns.

In the event that a bankruptcy court orders the substantive consolidation of us with Saratoga CLO, the creditors of

Saratoga CLO, including the holders of $528.4 million aggregate principal amount of debt, as of February 29, 2020 issued by Saratoga CLO, would have claims against the consolidated bankruptcy estate, which would include our assets.

We believe that we have observed and will observe certain formalities and operating procedures that are generally recognized requirements for

maintaining our separate existence and that our assets and liabilities can be readily identified as distinct from those of Saratoga CLO.

However, we cannot assure you that a bankruptcy court would agree in the event that we or Saratoga CLO became a

debtor in connection with a bankruptcy proceeding.

If a bankruptcy court concludes that substantive consolidation of us with Saratoga CLO is warranted, the creditors of Saratoga CLO would have claims against the consolidated bankruptcy estate.

Substantive consolidation means that our assets are placed in a single bankruptcy estate with those of Saratoga CLO, rather than kept separate, and that the creditors of Saratoga CLO have a claim against that single estate (including our assets), as

opposed to retaining their claims against only Saratoga CLO.

Our investments in Saratoga CLO have a different risk profile than would direct

investments made by us, including less information available and fewer rights regarding repayment compared to companies we invest in directly as well as complicated accounting and tax implications.

Due to our investments in the Saratoga CLO being primarily broadly syndicated loans, there may be less information available to us on those

Prepayment risk is greater during a falling interest rate environment

as issuers can reduce their cost of capital by refinancing higher interest debt instruments with lower interest debt instruments.

issuer may also elect to refinance their debt instruments with lower interest debt instruments if the credit standing of the issuer improves.

To the extent debt securities in our portfolio are called or redeemed, we may receive less than we paid for such security and we may

be forced to reinvest in lower yielding securities or debt securities of issuers of lower credit quality.

investment in Saratoga CLO constitutes a leveraged investment in a portfolio of subordinated notes representing the lowest-rated securities

issued by a pool of predominantly senior secured first lien term loans and is subject to additional risks and volatility.

in the pool of loans will be borne by our subordinated notes and only after the value of our subordinated notes is reduced to zero will

the higher-rated notes issued by the pool bear any losses.

February 28, 2021, our investment in the subordinated notes of Saratoga CLO, a collateralized loan obligation fund, had a fair value

of $31.4 million and constituted 5.7% of our portfolio.

This investment constitutes a first loss position in a portfolio that, as of

February 28, 2021, was composed of $603.7 million in aggregate principal amount of primarily senior secured first lien term loans and

$114.1 million in uninvested cash.

In addition, as of February 28, 2021, we also own $17.9 million in aggregate principal of the F-R-3

Notes with a fair value of $17.9 million in the Saratoga CLO, that only rank senior to the subordinated notes.

A first loss position

means that we will suffer the first economic losses if the value of Saratoga CLO decreases.

First loss positions typically carry a higher

risk and earn a higher yield.

Interest payments generated from this portfolio will be used to pay the administrative expenses of Saratoga

CLO and interest on the debt issued by Saratoga CLO before paying a return on the subordinated notes.

payments will be similarly applied to pay administrative expenses of Saratoga CLO and for reinvestment or repayment of Saratoga CLO debt

before paying a return on, or repayment of, the subordinated notes.

In addition, 80.0% of our fixed management fee and 100.0% our incentive

management fee for acting as the collateral manager of Saratoga CLO is subordinated to the payment of interest and principal on Saratoga

Any losses on the portfolio will accordingly reduce the cash flow available to pay these management fees and provide a return

on, or repayment of, our investment.

Depending on the amount and timing of such losses, we may experience smaller than expected returns

and, potentially, the loss of our entire investment.

the manager of the portfolio of Saratoga CLO, we will have some ability to direct the composition of the portfolio, but our discretion

is limited by the terms of the debt issued by Saratoga CLO which may limit our ability to make investments that we feel are in the best

interests of the subordinated notes, and the availability of suitable investments.

The performance of Saratoga CLO’s portfolio

is also subject to many of the same risks sets forth in this Annual Report with respect to portfolio investments in leveraged loans.

the event that a bankruptcy court orders the substantive consolidation of us with Saratoga CLO, the creditors of Saratoga CLO, including

the holders of $603.7 million aggregate principal amount of debt, as of February 28, 2021 issued by Saratoga CLO, would have claims against

the consolidated bankruptcy estate, which would include our assets.

believe that we have observed and will observe certain formalities and operating procedures that are generally recognized requirements

for maintaining our separate existence and that our assets and liabilities can be readily identified as distinct from those of Saratoga

However, we cannot assure you that a bankruptcy court would agree in the event that we or Saratoga CLO became a debtor in connection

with a bankruptcy proceeding.

If a bankruptcy court concludes that substantive consolidation of us with Saratoga CLO is warranted, the

creditors of Saratoga CLO would have claims against the consolidated bankruptcy estate.

consolidation means that our assets are placed in a single bankruptcy estate with those of Saratoga CLO, rather than kept separate, and

that the creditors of Saratoga CLO have a claim against that single estate (including our assets), as opposed to retaining their claims

against only Saratoga CLO.

investments in Saratoga CLO have a different risk profile than would direct investments made by us, including less information available

and fewer rights regarding repayment compared to companies we invest in directly as well as complicated accounting and tax implications.

to our investments in the Saratoga CLO being primarily broadly syndicated loans, there may be less information available to us on those

companies as compared to most investments that we make directly.

For example, we will typically have fewer rights relating to how such companies manage their cash flow to repay debt, the inclusion of protective covenants, default penalties, lien

protection, change of control provisions and board observation rights in deal terms, and our general ability to oversee the companys operations.

Our investment in Saratoga CLO is also subject to the risk of leverage associated with the debt

issued by Saratoga CLO and the repayment priority of senior debt holders in Saratoga CLO.

The accounting and tax implications of such investments are complicated.

In particular,

reported earnings from the equity tranche investment of Saratoga CLO are recorded under U.S.

For example, we will typically have fewer rights relating to how such

companies manage their cash flow to repay debt, the inclusion of protective covenants, default penalties, lien protection, change of

control provisions and board observation rights in deal terms, and our general ability to oversee the company’s operations.

investment in Saratoga CLO is also subject to the risk of leverage associated with the debt issued by Saratoga CLO and the repayment

priority of senior debt holders in Saratoga CLO.

accounting and tax implications of such investments are complicated.

In particular, reported earnings from the equity tranche investment

of Saratoga CLO are recorded U.S.

GAAP based upon an effective yield calculation.

Current taxable earnings on these investments, however, will generally not be determinable until after the

end of the fiscal year of Saratoga CLO that ends within the Companys fiscal year, even though the investment is generating cash flow.

Current taxable earnings on these investments, however,

will generally not be determinable until after the end of the fiscal year of Saratoga CLO that ends within the Company’s fiscal

year, even though the investment is generating cash flow.

In general, the U.S.

federal income tax treatment of investment in Saratoga CLO may result in higher

distributable earnings in the early years and a capital loss at maturity, while for reporting purposes the totality of cash flows are reflected in a constant yield to maturity.

The senior loan portfolio of Saratoga CLO may be concentrated in a limited number of industries or borrowers, which may subject Saratoga CLO, and in

turn us, to a risk of significant loss if there is a downturn in a particular industry in which Saratoga CLO is concentrated.

Saratoga CLO has senior loan portfolios that may be concentrated in a limited number of industries or borrowers.

federal income tax treatment of investment in Saratoga

CLO may result in higher distributable earnings in the early years and a capital loss at maturity, while for reporting purposes the totality

of cash flows are reflected in a constant yield to maturity.

senior loan portfolio of Saratoga CLO may be concentrated in a limited number of industries or borrowers, which may subject Saratoga

CLO, and in turn us, to a risk of significant loss if there is a downturn in a particular industry in which Saratoga CLO is concentrated.

CLO has senior loan portfolios that may be concentrated in a limited number of industries or borrowers.

A downturn in any particular

industry or borrower in which Saratoga CLO is heavily invested may subject Saratoga CLO, and in turn us, to a risk of significant loss and could significantly impact the aggregate returns we realize.

If an industry in which Saratoga CLO is heavily

invested suffers from adverse business or economic conditions, a material portion of our investment in Saratoga CLO could be affected adversely, which, in turn, could adversely affect our financial position and results of operations.

For example, as

of February 29, 2020, Saratoga CLOs investments in the banking, finance, insurance & real estate industry represented approximately 17.6% of the fair value of Saratoga CLOs portfolio.

Companies in the banking, finance,

insurance & real estate industry are subject to general economic downturns and business cycles and will often suffer reduced revenues and rate pressures during periods of economic uncertainty.

In addition, investments in business service

represented approximately 9.1% of the fair value of Saratoga CLOs portfolio.

Changes in healthcare or other laws and regulations applicable to the businesses of some of the companies in which Saratoga CLO invests may occur that could increase

their compliance and other costs of doing business, require significant systems enhancements, or render their products or services less profitable or obsolete, any of which could have a material adverse effect on their results of operations.

has also been an increased political and regulatory focus on healthcare laws in recent years, and new legislation could have a material effect on the business and operations of companies in which Saratoga CLO invests.

Failure by Saratoga CLO to satisfy certain debt compliance ratios may entitle senior debtholders to additional payments, which may harm our operating

industry or borrower in which Saratoga CLO is heavily invested may subject Saratoga CLO, and in turn us, to a risk of significant loss

and could significantly impact the aggregate returns we realize.

If an industry in which Saratoga CLO is heavily invested suffers from

adverse business or economic conditions, a material portion of our investment in Saratoga CLO could be affected adversely, which, in

turn, could adversely affect our financial position and results of operations.

For example, as of February 28, 2021, Saratoga CLO’s

investments in the banking, finance, insurance & real estate industry represented approximately 17.9% of the fair value of Saratoga

CLO’s portfolio.

Companies in the banking, finance, insurance & real estate industry are subject to general economic downturns

and business cycles and will often suffer reduced revenues and rate pressures during periods of economic uncertainty.

In addition, investments

in business service represented approximately 9.4% of the fair value of Saratoga CLO’s portfolio.

Changes in healthcare or other

laws and regulations applicable to the businesses of some of the companies in which Saratoga CLO invests may occur that could increase

their compliance and other costs of doing business, require significant systems enhancements, or render their products or services less

profitable or obsolete, any of which could have a material adverse effect on their results of operations.

There has also been an increased

political and regulatory focus on healthcare laws in recent years, and new legislation could have a material effect on the business and

operations of companies in which Saratoga CLO invests.

by Saratoga CLO to satisfy certain debt compliance ratios may entitle senior debtholders to additional payments, which may harm our operating

results by reducing payments we would otherwise be entitled to receive from Saratoga CLO.

The failure by Saratoga CLO to satisfy

certain debt compliance ratios, specifically those with respect to adequate collateralization and/or interest coverage tests, could lead to a reduction in its payments to us.

In the event that Saratoga CLO failed these certain tests, senior debt

holders may be entitled to additional payments that would, in turn, reduce the payments we would otherwise be entitled to receive.

Separately, we may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms,

which may include the waiver of certain financial covenants, with Saratoga CLO or any other investment we may make.

If any of these occur, it could materially and adversely affect our operating results and cash flows.

Downgrades by rating agencies of broadly syndicated loans could adversely impact the financial performance of Saratoga CLO and its ability to pay equity

distributions and subordinated management fees to the Company in the future.

Ratings agencies have recently undergone reviews of

CLO tranches and their broadly syndicated loans in light of the COVID-19 pandemics adverse impact on the economic market.

failure by Saratoga CLO to satisfy certain debt compliance ratios, specifically those with respect to adequate collateralization and/or

interest coverage tests, could lead to a reduction in its payments to us.

In the event that Saratoga CLO failed these certain tests,

senior debt holders may be entitled to additional payments that would, in turn, reduce the payments we would otherwise be entitled to

Separately, we may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may

include the waiver of certain financial covenants, with Saratoga CLO or any other investment we may make.

If any of these occur, it could

materially and adversely affect our operating results and cash flows.

by rating agencies of broadly syndicated loans could adversely impact the financial performance of Saratoga CLO and its ability to pay

equity distributions in the future.

agencies have recently undergone reviews of CLO tranches and their broadly syndicated loans in light of the COVID-19 pandemic’s

adverse impact on the economic market.

Such reviews have, in some cases, resulted in downgrades of broadly syndicated loans.

Such downgrades of broadly

syndicated loans, as well as downgrades of broadly syndicated loans in the future, could adversely impact the financial performance of Saratoga CLO, thereby limiting Saratoga CLOs ability to pay equity distributions and subordinated management

fees to the Company in the future.

The full extent of downgrades by ratings agencies of broadly syndicated loans is currently unknown, thereby resulting in a high degree of uncertainty with respect to Saratoga CLOs financial performance and

ability to pay equity distributions and subordinated management fees to the Company in the future.

Available information about privately held

companies is limited.

We invest primarily in privately-held companies.

Generally, little public information exists about these

companies, and we are required to rely on the ability of our Investment Advisers investment professionals to obtain adequate information to evaluate the potential returns from investing in these companies.

These companies and their financial

information are not subject to the Sarbanes-Oxley Act of 2002 and other rules that govern public companies.

If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may

lose money on our investments.

When we are a debt or minority equity investor in a portfolio company, we may not be in a position to control the

entity, and its management may make decisions that could decrease the value of our investment.

We make both debt and minority

equity investments;

therefore, we are subject to the risk that a portfolio company may make business decisions with which we disagree, and the stockholders and management of such company may take risks or otherwise act in ways that do not serve our

Such downgrades

of broadly syndicated loans, as well as downgrades of broadly syndicated loans in the future, could adversely impact the financial performance

of Saratoga CLO, thereby limiting Saratoga CLO’s ability to pay equity distributions and subordinated management fees to the Company

in the future.

The full extent of downgrades by ratings agencies of broadly syndicated loans is currently unknown, thereby resulting

in a high degree of uncertainty with respect to Saratoga CLO’s financial performance and ability to pay equity distributions and

subordinated management fees to the Company in the future.

information about privately held companies is limited.

invest primarily in privately-held companies.

Generally, little public information exists about these companies, and we are required

to rely on the ability of our Investment Adviser’s investment professionals to obtain adequate information to evaluate the potential

returns from investing in these companies.

These companies and their financial information are not subject to the Sarbanes- Oxley Act

of 2002 and other rules that govern public companies.

If we are unable to uncover all material information about these companies, we

may not make a fully informed investment decision, and we may lose money on our investments.

we are a debt or minority equity investor in a portfolio company, we may not be in a position to control the entity, and its management

may make decisions that could decrease the value of our investment.

make both debt and minority equity investments;

therefore, we are subject to the risk that a portfolio company may make business decisions

with which we disagree, and the stockholders and management of such company may take risks or otherwise act in ways that do not serve

our interests.

As a result, a portfolio company may make decisions that could decrease the value of our portfolio holdings.

Our portfolio companies may incur debt or issue equity securities that rank equally with, or senior

to, our investments in such companies.

Our portfolio companies usually will have, or may be permitted to incur, other debt, or

issue other equity securities that rank equally with, or senior to, our investments.

By their terms, such instruments may provide that the holders are entitled to receive payment of dividends, interest or principal on or before the dates on which we

are entitled to receive payments in respect of our investments.

These debt instruments will usually prohibit the portfolio companies from paying interest on or repaying our investments in the event and during the continuance of a default under such

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

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

In the case of debtor ranking equally with our

investments, we would have to share on an equal basis any distributions with other holders in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.

There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability

If one of our portfolio companies were to go bankrupt, even though we may have structured our interest as senior debt,

depending on the facts and circumstances, including the extent to which we actually provided managerial assistance to that portfolio company, a bankruptcy court might re-characterize our debt holding and

subordinate all or a portion of our claim to that of other creditors.

In addition, lenders can be subject to lender liability claims for actions taken by them where they become too involved in the borrowers business or exercise control over

the borrower.

It is possible that we could become subject to a lenders liability claim, including as a result of actions taken if we actually render significant managerial assistance.

Investments in equity securities involve a substantial degree of risk.

We purchase common stock and other equity securities.

Although equity securities have historically generated higher average total returns than fixed-income securities over the long-term, equity securities also have experienced significantly more volatility in those returns and in recent years have significantly

underperformed relative to fixed-income securities.

The equity securities we acquire may fail to appreciate and may decline in value or become worthless and our ability to recover our investment will depend on

our portfolio companys success.

portfolio companies may incur debt or issue equity securities that rank equally with, or senior to, our investments in such companies.

portfolio companies usually will have, or may be permitted to incur, other debt, or issue other equity securities that rank equally with,

or senior to, our investments.

By their terms, such instruments may provide that the holders are entitled to receive payment of dividends,

interest or principal on or before the dates on which we are entitled to receive payments in respect of our investments.

These debt instruments

will usually prohibit the portfolio companies from paying interest on or repaying our investments in the event and during the continuance

of a default under such debt.

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

company, holders of securities 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.

After repaying such holders, the portfolio company may not have

any remaining assets to use for repaying its obligation to us.

In the case of debtor ranking equally with our investments, we would have

to share on an equal basis any distributions with other holders in the event of an insolvency, liquidation, dissolution, reorganization

or bankruptcy of the relevant portfolio company.

may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability

one of our portfolio companies were to go bankrupt, even though we may have structured our interest as senior debt, depending on the

facts and circumstances, including the extent to which we actually provided managerial assistance to that portfolio company, a bankruptcy

court might re-characterize our debt holding and subordinate all or a portion of our claim to that of other creditors.

In addition, lenders

can be subject to lender liability claims for actions taken by them where they become too involved in the borrower’s business or

exercise control over the borrower.

It is possible that we could become subject to a lender’s liability claim, including as a result

of actions taken if we actually render significant managerial assistance.

in equity securities involve a substantial degree of risk.

purchase common stock and other equity securities.

Although equity securities have historically generated higher average total returns

than fixed-income securities over the long-term, equity securities also have experienced significantly more volatility in those returns

and in recent years have significantly underperformed relative to fixed-income securities.

The equity securities we acquire may fail

to appreciate and may decline in value or become worthless and our ability to recover our investment will depend on our portfolio company’s

Investments in equity securities involve a number of significant risks, including:

any equity investment we make in a portfolio company could be subject to further dilution as a result of the

issuance of additional equity interests and to serious risks as a junior security that will be subordinate to all indebtedness or senior securities in the event that the issuer is unable to meet its obligations or becomes subject to a bankruptcy

to the extent that the portfolio company requires additional capital and is unable to obtain it, we may not

recover our investment in equity securities;

in some cases, equity securities in which we invest will not pay current dividends, and our ability to realize a

return on our investment, as well as to recover our investment, will be dependent on the success of our portfolio companies.

Even if the portfolio companies are successful, our ability to realize the value of our investment may be dependent on the

occurrence of a liquidity event, such as a public offering or the sale of the portfolio company.

It is likely to take a significant amount of time before a liquidity event occurs or we can sell our equity investments.

In addition, the equity

securities we receive or invest in may be subject to restrictions on resale during periods in which it could be advantageous to sell.

There are special risks associated with investing in preferred securities, including:

preferred securities may include provisions that permit the issuer, at its discretion, to defer distributions for

a stated period without any adverse consequences to the issuer.

If we own a preferred security that is deferring its distributions, we may be required to report income for U.S.

federal income tax purposes even though we have not received any cash

payments in respect of such income;

preferred securities are subordinated with respect to corporate income and liquidation payments, and are

therefore subject to greater risk than debt;

preferred securities may be substantially less liquid than many other securities, such as common securities or

equity investment we make in a portfolio company could be subject to further dilution as

a result of the issuance of additional equity interests and to serious risks as a junior

security that will be subordinate to all indebtedness or senior securities in the event that

the issuer is unable to meet its obligations or becomes subject to a bankruptcy process;

the extent that the portfolio company requires additional capital and is unable to obtain

it, we may not recover our investment in equity securities;

some cases, equity securities in which we invest will not pay current dividends, and our

ability to realize a return on our investment, as well as to recover our investment, will

be dependent on the success of our portfolio companies.

Even if the portfolio companies are

successful, our ability to realize the value of our investment may be dependent on the occurrence

of a liquidity event, such as a public offering or the sale of the portfolio company.

is likely to take a significant amount of time before a liquidity event occurs or we can

sell our equity investments.

In addition, the equity securities we receive or invest in may

be subject to restrictions on resale during periods in which it could be advantageous to

are special risks associated with investing in preferred securities, including:

securities may include provisions that permit the issuer, at its discretion, to defer distributions

for a stated period without any adverse consequences to the issuer.

If we own a preferred

security that is deferring its distributions, we may be required to report income for U.S.

federal income tax purposes even though we have not received any cash payments in respect

of such income;

securities are subordinated with respect to corporate income and liquidation payments, and

are therefore subject to greater risk than debt;

securities may be substantially less liquid than many other securities, such as common securities

government securities;

preferred security holders generally have no voting rights with respect to the issuing company, subject to

limited exceptions.

Our investments in foreign debt, including that of emerging market issuers, may involve significant

risks in addition to the risks inherent in U.S.

Although there are limitations on our ability to invest in foreign

debt, we may, from time to time, invest in debt of foreign companies, including the debt of emerging market issuers.

Investing in foreign companies may expose us to additional risks not typically associated with investing in U.S.

risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is generally the case in the United States, higher

transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility.

Investments in the debt of emerging market issuers may subject us to additional risks such as inflation, wage and price controls, and the

imposition of trade barriers.

Furthermore, economic conditions in emerging market countries are, to some extent, influenced by economic and securities market conditions in other emerging market countries.

Although economic conditions are different

in each country, investors reaction to developments in one country can have effects on the debt of issuers in other countries.

Although most of our investments will be U.S.

dollar-denominated, our investments that are denominated in a foreign currency will be subject

to the risk that the value of a particular currency will change in relation to one or more other currencies.

Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values

of similar assets in different currencies, long-term opportunities for investment and capital appreciation, and political developments.

We may employ hedging techniques to minimize these risks, but we cannot assure you that we will fully hedge

against these risks or that such strategies will be effective.

security holders generally have no voting rights with respect to the issuing company, subject

to limited exceptions.

investments in foreign debt, including that of emerging market issuers, may involve significant risks in addition to the risks inherent

there are limitations on our ability to invest in foreign debt, we may, from time to time, invest in debt of foreign companies, including

the debt of emerging market issuers.

Investing in foreign companies may expose us to additional risks not typically associated with investing

These risks include changes in exchange control regulations, political and social instability, expropriation, imposition

of foreign taxes, less liquid markets and less available information than is generally the case in the United States, higher transaction

costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual

obligations, lack of uniform accounting and auditing standards and greater price volatility.

in the debt of emerging market issuers may subject us to additional risks such as inflation, wage and price controls, and the imposition

of trade barriers.

Furthermore, economic conditions in emerging market countries are, to some extent, influenced by economic and securities

market conditions in other emerging market countries.

Although economic conditions are different in each country, investors’

to developments in one country can have effects on the debt of issuers in other countries.

most of our investments will be U.S.

dollar-denominated, our investments that are denominated in a foreign currency will be subject to

the risk that the value of a particular currency will change in relation to one or more other currencies.

Among the factors that may

affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in

different currencies, long-term opportunities for investment and capital appreciation, and political developments.

may employ hedging techniques to minimize these risks, but we cannot assure you that we will fully hedge against these risks or that

such strategies will be effective.

As a result, a change in currency exchange rates may adversely affect our profitability.

We may expose ourselves to risks if we engage in hedging transactions.

We may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge

may expose ourselves to risks if we engage in hedging transactions.

may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge

against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates.

Use of these hedging instruments may expose us to counter-party credit

Hedging against a decline in the values of our portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline.

However, such hedging can

establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions.

Such hedging transactions may also limit the opportunity for gain if the values of the portfolio

positions should increase.

Moreover, it may not be possible to hedge against an exchange rate or interest rate fluctuation that is generally anticipated at an acceptable price.

The success of our hedging transactions will depend on our ability to correctly predict movements in currencies and interest rates.

Therefore, while we may enter into such transactions to seek to reduce currency exchange rate and interest rate risks, unanticipated changes

in currency exchange rates or interest rates may result in poorer overall investment performance than if we had not engaged in any such hedging transactions.

In addition, the degree of correlation between price movements of the instruments used in a

hedging strategy and price movements in the portfolio positions being hedged may vary.

Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged.

Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss.

In addition, it may not be possible to hedge fully or perfectly against currency fluctuations affecting the value of securities

denominated in non-U.S.

currencies because the value of those securities is likely to fluctuate as a result of factors not entirely related to currency fluctuations.

To the extent we engage in hedging transactions, we also face the risk that

counterparties to the derivative instruments we hold may default, which may expose us to unexpected losses from positions where we believed that our risk had been appropriately hedged.

Our board of directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval, the effects

of which may be adverse.

Our board of directors has the authority to modify or waive our current investment objective, operating

policies and strategies without prior notice and without stockholder approval.

We cannot predict the effect any changes to our current operating policies and strategies would have on our business, financial condition, and value of our common stock.

However, the effects might be adverse, which could negatively impact our ability to pay dividends and cause you to lose all or part of your investment.

We have limited experience in managing a SBIC and any failure to comply with SBA regulations,

resulting from our lack of experience or otherwise, could have an adverse effect on our operations.

On March 28, 2012, our

wholly-owned subsidiary, Saratoga Investment Corp.

SBIC, LP, received a license from the SBA to operate as an SBIC under Section 301(c) of the Small Business Investment Act of 1958 and is regulated by the SBA.

On August 14, 2019, our

wholly-owned subsidiary, SBIC II LP, also received an SBIC license from the SBA.

The SBA places certain limitations on the financing

terms of investments by SBICs in portfolio companies and prohibits SBICs from providing funds for certain purposes or to businesses in a few prohibited industries.

Compliance with SBIC requirements may cause our SBIC subsidiaries to forego

attractive investment opportunities that are not permitted under SBA regulations.

Further, SBA regulations require that an SBIC be

periodically examined and audited by the SBA to determine its compliance with the relevant SBA regulations.

The SBA prohibits, without prior SBA approval, a change of control of an SBIC or transfers that would result in any person (or a

group of persons acting in concert) owning 10% or more of a class of capital stock of an SBIC.

If our SBIC subsidiaries fail to comply with applicable SBA regulations, the SBA could, depending on the severity of the violation, limit or prohibit its

use of debentures, declare outstanding debentures immediately due and payable, and/or limit it from making new investments.

In addition, the SBA can revoke or suspend a license for willful or repeated violation of, or willful or repeated failure to

observe, any provision of the Small Business Investment Act of 1958 or any rule or regulation promulgated thereunder.

These actions by the SBA would, in turn, negatively affect us because our SBIC subsidiaries are our wholly-owned subsidiaries.

do not have any prior experience managing a SBIC.

Our lack of experience in complying with SBA regulations may hinder our ability to take advantage of our SBIC subsidiaries access to SBA-guaranteed

Any failure to comply with SBA regulations could have an adverse effect on our operations.

Our investments may be risky, and you could lose all or part of your investment.

Substantially all of our debt investments hold a non-investment grade rating by one or more rating

agencies (which non-investment grade debt is commonly referred to as high yield and junk debt) or, where not rated by any rating agency, would be below investment grade or junk, if rated.

A below investment grade

or junk rating means that, in the rating agencys view, there is an increased risk that the obligor on such debt will be unable to pay interest and repay principal on its debt in full.

We also invest in debt that defers or pays PIK

To the extent interest payments associated with such debt are deferred, such debt will be subject to greater fluctuations in value based on changes in interest rates, such debt could produce taxable income without a corresponding cash

payment to us, and since we generally do not receive any cash prior to maturity of the debt, the investment will be of greater risk.

Use of these hedging instruments may expose us to counter-party credit risk.

Hedging against a decline in the values of our portfolio

positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such

positions decline.

However, such hedging can establish other positions designed to gain from those same developments, thereby offsetting

the decline in the value of such portfolio positions.

Such hedging transactions may also limit the opportunity for gain if the values

of the portfolio positions should increase.

Moreover, it may not be possible to hedge against an exchange rate or interest rate fluctuation

that is generally anticipated at an acceptable price.

success of our hedging transactions will depend on our ability to correctly predict movements in currencies and interest

while we may enter into such transactions to seek to reduce currency exchange rate and interest rate risks, unanticipated changes in

currency exchange rates or interest rates may result in poorer overall investment performance than if we had not engaged in any such

hedging transactions.

In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and

price movements in the portfolio positions being hedged may vary.

Moreover, for a variety of reasons, we may not seek to establish a

perfect correlation between such hedging instruments and the portfolio holdings being hedged.

Any such imperfect correlation may prevent

us from achieving the intended hedge and expose us to risk of loss.

In addition, it may not be possible to hedge fully or perfectly against

currency fluctuations affecting the value of securities denominated in non-U.S.

currencies because the value of those securities is likely

to fluctuate as a result of factors not entirely related to currency fluctuations.

To the extent we engage in hedging transactions, we

also face the risk that counterparties to the derivative instruments we hold may default, which may expose us to unexpected losses from

positions where we believed that our risk had been appropriately hedged.

investments may be risky, and you could lose all or part of your investment.

Substantially

all of our debt investments hold a non-investment grade rating by one or more rating agencies (which non- investment grade debt is commonly

referred to as “high yield”

and “junk”

debt) or, where not rated by any rating agency, would be below investment

grade or “junk”, if rated.

A below investment grade or “junk”

rating means that, in the rating agency’s

view, there is an increased risk that the obligor on such debt will be unable to pay interest and repay principal on its debt in full.

We also invest in debt that defers or pays PIK interest.

To the extent interest payments associated with such debt are deferred, such

debt will be subject to greater fluctuations in value based on changes in interest rates, such debt could produce taxable income without

a corresponding cash payment to us, and since we generally do not receive any cash prior to maturity of the debt, the investment will

be of greater risk.

addition, private middle market companies in which we invest are exposed to a number of significant risks, including:

limited financial resources and an inability to meet their obligations, which may be accompanied by a

deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees we may have obtained in connection with our investment;

shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend

to render them more vulnerable to competitors actions and market conditions, as well as general economic downturns;

dependence on the management talents and efforts of a small group of persons;

the death, disability, resignation

or termination of one or more of which could have a material adverse impact on the company and, in turn, on us;

less predictable operating results and, possibly, substantial additional capital requirements to support their

operations, finance expansion or maintain their competitive position;

difficulty accessing the capital markets to meet future capital needs.

In addition, our executive officers, directors and our Investment Adviser may, in the ordinary course of business, be named as defendants in

litigation arising from our investments in the portfolio companies.

Our portfolio may continue to be concentrated in a limited number of

industries, which may subject us to a risk of significant loss if there is a downturn in a particular industry in which a number of our investments are concentrated.

Our portfolio may continue to be concentrated in a limited number of industries.

financial resources and an inability to meet their obligations, which may be accompanied

by a deterioration in the value of any collateral and a reduction in the likelihood of us

realizing any guarantees we may have obtained in connection with our investment;

operating histories, narrower product lines and smaller market shares than larger businesses,

which tend to render them more vulnerable to competitors’

actions and market conditions,

as well as general economic downturns;

on the management talents and efforts of a small group of persons;

the death, disability,

resignation or termination of one or more of which could have a material adverse impact on

the company and, in turn, on us;

predictable operating results and, possibly, substantial additional capital requirements

to support their operations, finance expansion or maintain their competitive position;

accessing the capital markets to meet future capital needs.

addition, our executive officers, directors and our Investment Adviser may, in the ordinary course of business, be named as defendants

in litigation arising from our investments in the portfolio companies.

portfolio may continue to be concentrated in a limited number of industries, which may subject us to a risk of significant loss if there

is a downturn in a particular industry in which a number of our investments are concentrated.

portfolio may continue to be concentrated in a limited number of industries.

A downturn in any particular industry in which we are invested

could significantly impact the aggregate returns we realize.

As of February 29, 2020, our investments in the business services industry represented

approximately 58.8% of the fair value of our portfolio and our investments in the education industry represented approximately 15.9% of the fair value of our portfolio.

In addition, we may from time to time invest a relatively significant percentage

of our portfolio in industries we do not necessarily target.

If an industry in which we have significant investments suffers from adverse business or economic conditions, as these industries have to varying degrees, a material portion of our

investment portfolio could be affected adversely, which, in turn, could adversely affect our financial position and results of operations.

of our portfolio companies are in the Software-as-a-Service industry and such companies are subject to additional risks

that are unique to that industry, and the financial results of our portfolio companies in

the Software-as-a-Service industry could materially adversely affect our financial results.

A number of our portfolio companies are in the Software-as-a-Service (SAAS) industry and such companies are subject to additional

of February 28, 2021, our investments in the education software industry represented approximately 15.9% of the fair value of our portfolio

and our investments in the IT services industry represented approximately 13.2% of the fair value of our portfolio.

In addition, we may

from time to time invest a relatively significant percentage of our portfolio in industries we do not necessarily target.

If an industry

in which we have significant investments suffers from adverse business or economic conditions, as these industries have to varying degrees,

a material portion of our investment portfolio could be affected adversely, which, in turn, could adversely affect our financial position

and results of operations.

number of our portfolio companies are in the Software-as-a-Service industry and such companies are subject to additional risks that are

unique to that industry, and the financial results of our portfolio companies in the Software-as-a-Service industry could materially

adversely affect our financial results.

number of our portfolio companies are in the Software-as-a-Service (“SAAS”) industry and such companies are subject to additional

risks that are unique to the SAAS industry.

For example, such portfolio companies may be subject to consumer protection laws that are enforced by regulators such as the Federal Trade Commission (FTC) and private parties, and include

statutes that regulate the collection and use of information for marketing purposes.

Any new legislation or regulations regarding the Internet, mobile devices, software sales or export and/or the cloud or SAAS industry, and/or the application of

existing laws and regulations to the Internet, mobile devices, software sales or export and/or the cloud or SAAS industry, could create new legal or regulatory burdens on our portfolio companies that could have a material adverse effect on their

respective operations.

As a result, our SAAS portfolio companies may incur significant operating losses and negative cash flows because of their respective life cycles, resulting in an adverse impact on their operations and on their ability to repay

Because our SAAS portfolio companies are generally investments that are underwritten and valued on recurring revenue rather than EBITDA, the fair value determinations of such companies are inherently uncertain and may

fluctuate over short periods of time.

They are also subject to the risks that their customers have financial difficulties that make them unable or unwilling to pay for the software and services that drive a portfolio companys recurring revenue

There is often less collateral securing our loans to these companies as compared to our other portfolio companies, which could impair our ability to be repaid if the portfolio companies default on their obligations or otherwise

encounter financial difficulties.

For these reasons, our financial results could be materially adversely affected if our portfolio companies in the SAAS industry encounter financial difficulty and fail to repay their obligations.

As of February 29,

2020, our current total investments in SAAS companies were $256.0 million, or 52.7% of total investments.

We cannot predict how tax reform

legislation will affect us, our investments, or our stockholders, and any such legislation could adversely affect our business.

Legislative or other actions relating to taxes could have a negative effect on the Company.

The rules dealing with U.S.

federal income taxation

are constantly under review by persons involved in the legislative process and by the IRS and the U.S.

Treasury Department.

In 2017, the U.S.

House of Representatives and U.S.

Senate passed tax reform legislation, which the President signed into

Such legislation makes many changes to the Code, including significant changes to the taxation of business entities, the deductibility of interest expense, and the tax treatment of capital investment.

We cannot predict with certainty how these

changes in the tax laws might affect the Company, investors, or the Companys portfolio investments.

New legislation and any U.S.

Treasury regulations, administrative interpretations or court decisions interpreting such legislation could

significantly and negatively affect the Companys ability to qualify for tax treatment as a RIC or the U.S.

federal income tax consequences to the Company and its investors of such qualification, or could have other adverse consequences.

Investors are urged to consult with their tax advisor regarding tax legislative, regulatory, or administrative developments and proposals and their potential effect on an investment in the Companys securities.

Risks Related to Our Common Stock

Investing in our

common stock may involve an above average degree of risk.

The investments we make in accordance with our investment objective may

result in a higher amount of risk than alternative investment options and volatility or loss of principal.

Our investments in portfolio companies may be highly speculative and aggressive, and therefore, an investment in our common stock may not be

suitable for someone with lower risk tolerance.

We may choose to pay dividends in our own stock, in which case you may be required to pay tax in

excess of the cash you receive.

We have in the past, and may in the future, distribute taxable dividends that are payable to our

stockholders in part through the issuance of shares of our common stock.

For example, on October 30, 2013, our board of directors declared a dividend of $2.65 per share to shareholders payable in cash or shares of our common stock.

Under certain

applicable provisions of the Code and the Treasury regulations and a revenue procedure issued by the IRS, a RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder may elect to receive his or

her entire distribution in either cash or stock of the RIC, subject to a limitation that the aggregate amount of cash to be distributed to all stockholders must be at least 20% (which has been temporarily reduced to 10% for distributions declared on

or after April 1, 2020, and on or before December 31, 2020) of the aggregate declared distribution.

If too many stockholders elect to receive their distributions in cash, we must allocate the cash available for distribution among the shareholders

For example, such portfolio companies may be subject to consumer protection laws that are

enforced by regulators such as the Federal Trade Commission (“FTC”) and private parties, and include statutes that regulate

the collection and use of information for marketing purposes.

Any new legislation or regulations regarding the Internet, mobile devices,

software sales or export and/or the cloud or SAAS industry, and/or the application of existing laws and regulations to the Internet,

mobile devices, software sales or export and/or the cloud or SAAS industry, could create new legal or regulatory burdens on our portfolio

companies that could have a material adverse effect on their respective operations.

As a result, our SAAS portfolio companies may incur

significant operating losses and negative cash flows because of their respective life cycles, resulting in an adverse impact on their

operations and on their ability to repay their debt.

Because our SAAS portfolio companies are generally investments that are underwritten

and valued on “recurring revenue”

rather than EBITDA, the fair value determinations of such companies are inherently uncertain

and may fluctuate over short periods of time.

They are also subject to the risks that their customers have financial difficulties that

make them unable or unwilling to pay for the software and services that drive a portfolio company’s recurring revenue projections.

There is often less collateral securing our loans to these companies as compared to our other portfolio companies, which could impair

our ability to be repaid if the portfolio companies default on their obligations or otherwise encounter financial difficulties.

reasons, our financial results could be materially adversely affected if our portfolio companies in the SAAS industry encounter financial

difficulty and fail to repay their obligations.

As of February 28, 2021, our current total investments in SAAS companies were $300.4

million, or 54.2% of total investments.

our primary investments are deemed not to be qualifying assets, we could be precluded from investing in our desired manner or deemed

to be in violation of the 1940 Act.

order to maintain our status as a BDC, we may not acquire any assets other than “qualifying assets”

unless, at the time of

and after giving effect to such acquisition, at least 70.0% of our total assets are qualifying assets.

We believe that most of the investments

that we may acquire in the future will constitute qualifying assets.

However, we may be precluded from investing in what we believe are

attractive investments if such investments are not qualifying assets for purposes of the 1940 Act.

If we do not invest a sufficient portion

of our assets in qualifying assets, we could violate the 1940 Act provisions applicable to BDCs and be precluded from making follow-on investments

in existing portfolio companies (which could result in the dilution of our position) or required 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.

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.

Furthermore, any failure to comply with the requirements imposed on BDCs by the 1940

Act could cause the SEC to bring an enforcement action against us and/or expose us to claims of private litigants.

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.

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.

RELATED TO OUR COMMON STOCK

in our common stock may involve an above average degree of risk.

investments we make in accordance with our investment objective may result in a higher amount of risk than alternative investment options

and volatility or loss of principal.

Our investments in portfolio companies may be highly speculative and aggressive, and therefore,

an investment in our common stock may not be suitable for someone with lower risk tolerance.

may choose to pay dividends in our own stock, in which case you may be required to pay tax in excess of the cash you receive.

have in the past, and may in the future, distribute taxable dividends that are payable to our stockholders in part through the issuance

of shares of our common stock.

For example, on October 30, 2013, our board of directors declared a dividend of $2.65 per share to shareholders

payable in cash or shares of our common stock.

Under certain applicable provisions of the Code and the Treasury regulations and a revenue

procedure issued by the IRS, a RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each

stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC, subject to a limitation that the

aggregate amount of cash to be distributed to all stockholders must be at least 20% of the aggregate declared distribution.

stockholders elect to receive their distributions in cash, we must allocate the cash available for distribution among the shareholders

electing to receive cash (with the balance of the distribution paid in shares of our common stock).

If we decide to make any distributions consistent with this revenue procedure that are payable in part in our stock, taxable stockholders receiving

such dividends will be required to include the full amount of the dividend (whether received in cash, our stock, or a combination thereof) as ordinary income (or as long-term capital gain to the extent such distribution is properly reported as a

capital gain dividend) to the extent of our current and accumulated earnings and profits for U.S.

If we decide to make any distributions

consistent with this revenue procedure that are payable in part in our stock, taxable stockholders receiving such dividends will be required

to include the full amount of the dividend (whether received in cash, our stock, or a combination thereof) as ordinary income (or as

long-term capital gain to the extent such distribution is properly reported as a capital gain dividend) to the extent of our current

and accumulated earnings and profits for U.S.

federal income tax purposes.

As a result, a U.S.

stockholder may be required to pay tax with respect to such dividends in excess of any cash received.

stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the

Furthermore, with respect to non-U.S.

stockholder may be required to pay tax

with respect to such dividends in excess of any cash received.

stockholder sells the stock it receives as a dividend in order

to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market

price of our stock at the time of the sale.

with respect to non-U.S.

stockholders, we may be required to withhold U.S.

tax with respect to such dividends,

including in respect of all or a portion of such dividend that is payable in stock.

If a significant number of our stockholders determine to sell shares of our stock in order to pay taxes owed on dividends, it may put downward pressure on the

trading price of our stock.

Due to the COVID-19 pandemic or other disruptions in the economy, we may reduce or defer our dividends and choose to

incur US federal income or excise tax in order preserve cash and maintain flexibility.

As a BDC, we are not required to make any distributions to shareholders other than in connection with our election to be taxed as a RIC under

subchapter M of the Code.

In order to maintain our tax treatment as a RIC, we must distribute to shareholders for each taxable year at least 90% of our investment company taxable income (i.e., net ordinary income plus realized net short-term capital

gains in excess of realized net long-term capital losses).

We also have the option to keep net long-term capital gains as undistributed by classifying the net long-term capital gain as a deemed dividend and incurring federal income tax.

qualify for taxation as a RIC, we generally will not be subject to corporate-level US federal income tax on our investment company taxable income and net capital gains (i.e., realized net long-term capital gains in excess of realized net short-term

capital losses) that we timely distribute to shareholders.

We will be subject to a 4% US federal excise tax on undistributed earnings of a RIC unless we distribute each calendar year at least the sum of (i) 98.0% of our ordinary income for the

calendar year, (ii) 98.2% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year, and (iii) any ordinary income and net capital gains for preceding years that were not distributed during

such years and on which we paid no federal income tax.

Under the Code, we may satisfy certain of our RIC distributions with dividends

paid after the end of the current calendar year.

In particular, if we pay a distribution in January of the following year that was declared in October, November, or December of the current year and is payable to shareholders of record in the current

year, the dividend will be treated for all US federal tax purposes as if it were paid on December 31 of the current year.

In addition, under the Code, we may pay dividends, referred to as spillover dividends, that are paid during the

following taxable year that will allow us to maintain our qualification for taxation as a RIC and eliminate our liability for corporate-level U.S.

tax with respect to such dividends, including in respect of

all or a portion of such dividend that is payable in stock.

If a significant number of our stockholders determine to sell shares of our

stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our stock.

to the COVID-19 pandemic or other disruptions in the economy, we may reduce or defer our dividends and choose to incur US federal excise

tax in order preserve cash and maintain flexibility.

a BDC, we are not required to make any distributions to shareholders other than in connection with our election to be taxed as a RIC

under subchapter M of the Code.

In order to maintain our tax treatment as a RIC, we must distribute to shareholders for each taxable

year at least 90% of our investment company taxable income (i.e., net ordinary income plus realized net short-term capital gains in excess

of realized net long-term capital losses).

If we qualify for taxation as a RIC, we generally will not be subject to corporate-level US

federal income tax on our investment company taxable income and net capital gains (i.e., realized net long- term capital gains in excess

of realized net short-term capital losses) that we timely distribute to shareholders.

We will be subject to a nondeductible 4% U.S.

excise tax on undistributed earnings of a RIC unless we distribute each calendar year at least the sum of (i) 98.0% of our net ordinary

income for the calendar year, (ii) 98.2% of our capital gain net income for the one-year period ending on October 31 of the calendar

year, and (iii) any net ordinary income and capital gain net income that we recognized for preceding years, but were not distributed

during such years, and on which we paid no U.S.

federal income tax.

the Code, we may satisfy certain of our RIC distributions with dividends paid after the end of the current calendar year.

In particular,

if we pay a distribution in January of the following year that was declared in October, November, or December of the current year and

is payable to shareholders of record in the current year, the dividend will be treated for all US federal tax purposes as if it were

paid on December 31 of the current year.

In addition, under the Code, we may pay dividends, referred to as “spillover dividends,”

that are paid during the following taxable year that will allow us to maintain our qualification for taxation as a RIC and eliminate

our liability for corporate-level U.S.

federal income tax.

Under these spillover dividend procedures, because our taxable year ends on

February 28 or 29, we may defer distribution of income earned during the current taxable year until February of the following taxable year.

For example, we may defer distributions of income earned during the year ended February 28, 2021 until as

late as February 28, 2022.

February 28 or 29, we may defer distribution of income earned during the current taxable year until February of the following taxable

For example, we may defer distributions of income earned during the year ended February 28, 2021 until as late as February 28,

If we choose to carry-over this distribution of income in the form of a spillover dividend, we will incur the 4% U.S.

federal excise tax on some or all of the distribution.

Due to the COVID-19 pandemic or other disruptions in the economy, we anticipate that we may take certain actions with respect to the timing

and amounts of our distributions in order to preserve cash and maintain flexibility.

For example, we anticipate that we may not be able to increase our dividends.

In addition, we may reduce our dividends and/or defer our dividends to the following

taxable year.

If we defer our dividends, we may choose to utilize the spillover dividend rules discussed above and incur the 4% U.S.

federal excise

tax on some or all of the distribution.

to the COVID-19 pandemic or other disruptions in the economy, we anticipate that we may take certain actions with respect to

the timing and amounts of our distributions in order to preserve cash and maintain flexibility.

For example, we may not be able to increase

our dividends.

In addition, we may reduce our dividends and/or defer our dividends to the following taxable year.

If we defer our dividends,

we may choose to utilize the spillover dividend rules discussed above and incur the 4% U.S.

federal excise tax on such amounts.

To further preserve cash, we may combine these reductions or deferrals of

dividends with one or more distributions that are payable partially in our stock as discussed above under We may choose to pay dividends in our own stock, in which case you may be required to pay tax in excess of the cash you receive. In

addition, if any of these spillover dividends are in the form of long-term capital gains, we may elect to not distribute these gains by classifying them as deemed dividends and paying federal income tax on them.

The market price of our common stock may fluctuate significantly.

The market price and liquidity of the market for our common stock may be significantly affected by numerous factors, some of which are beyond

preserve cash, we may combine these reductions or deferrals of dividends with one or more distributions that are payable partially in

our stock as discussed above under “We may choose to pay dividends in our own stock, in which case you may be required to pay tax

in excess of the cash you receive.”

market price of our common stock may fluctuate significantly.

market price and liquidity of the market for our common stock may be significantly affected by numerous factors, some of which are beyond

our control and may not be directly related to our operating performance.

These factors include:

significant volatility in the market price and trading volume of securities of BDCs or other companies in our

sector, which are not necessarily related to the operating performance of these companies;

changes in regulatory policies, accounting pronouncements or tax rules, particularly with respect to RICs, BDCs

loss of RIC qualification;

changes in the value of our portfolio of investments;

any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities

departure of any of Saratoga Investment Advisors key personnel;

operating performance of companies comparable to us;

general economic trends and other external factors;

loss of a major funding source.

Our business and operation could be negatively affected if we become subject to any securities litigation or shareholder activism, which could cause us

to incur significant expense, hinder execution of investment strategy and impact our stock price.

In the past, following periods

of volatility in the market price of a companys securities, securities class action litigation has often been brought against that company.

● significant

volatility in the market price and trading volume of securities of BDCs or other companies

in our sector, which are not necessarily related to the operating performance of these companies;

in regulatory policies, accounting pronouncements or tax rules, particularly with respect

to RICs, BDCs or SBICs;

of RIC qualification;

in the value of our portfolio of investments;

shortfall in revenue or net income or any increase in losses from levels expected by investors

or securities analysts;

of any of Saratoga Investment Advisors’

key personnel;

performance of companies comparable to us;

economic trends and other external factors;

of a major funding source.

business and operation could be negatively affected if we become subject to any securities litigation or shareholder activism, which

could cause us to incur significant expense, hinder execution of investment strategy and impact our stock price.

the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has

often been brought against that company.

Shareholder activism, which could take many forms or arise in a variety of situations, has been

increasing in the BDC space recently.

While we are currently not subject to any securities litigation or shareholder activism, due to the potential volatility of our stock price and for a variety of other reasons, we may in the future become the

target of securities litigation or shareholder activism.

Securities litigation and shareholder activism, including potential proxy contests, could result in substantial costs and divert managements and our board of directors attention

and resources from our business.

Additionally, such securities litigation and shareholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with service providers and make it more difficult to

attract and retain qualified personnel.

Also, we may be required to incur significant legal fees and other expenses related to any securities litigation and activist shareholder matters.

Further, our stock price could be subject to significant

fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any securities litigation and shareholder activism.

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

As a BDC for 1940 Act purposes and a RIC for U.S.

federal income tax purposes, we intend to make distributions out of assets

legally available for distribution to our stockholders once such distributions are authorized by our board of directors and declared by us.

We cannot assure you that we will achieve investment results that will allow us to make a specified level of

cash distributions or periodically increase our dividend rate.

In addition, due to the asset coverage test that is applicable to us as a BDC, and provisions contained in the agreements governing our borrowings, we may be limited in our ability to

make distributions.

Further, if we invest a greater amount of assets in equity securities that do not pay current dividends, it could reduce the amount available for distribution.

Provisions of our governing documents and the Maryland General Corporation Law could deter future takeover attempts and have an adverse impact on the

price of our common stock.

We are governed by our charter and bylaws, which we refer to as our governing documents.

Our governing documents and the Maryland General Corporation Law contain provisions that may have the effect of delaying, deferring or

preventing a future transaction or change in control of us that might involve a premium price for our stockholders or otherwise be in their best interest.

Our charter provides for the classification of our board of directors into three classes of directors, serving staggered three-year terms,

While we are currently not subject to any securities litigation or shareholder activism, due to

the potential volatility of our stock price and for a variety of other reasons, we may in the future become the target of securities

litigation or shareholder activism.

Securities litigation and shareholder activism, including potential proxy contests, could result

in substantial costs and divert management’s and our board of directors’

attention and resources from our business.

Additionally,

such securities litigation and shareholder activism could give rise to perceived uncertainties as to our future, adversely affect our

relationships with service providers and make it more difficult to attract and retain qualified personnel.

Also, we may be required to

incur significant legal fees and other expenses related to any securities litigation and activist shareholder matters.

Further, our stock

price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any securities

litigation and shareholder activism.

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

a BDC for 1940 Act purposes and a RIC for U.S.

federal income tax purposes, we intend to make distributions out of assets legally available

for distribution to our stockholders once such distributions are authorized by our board of directors and declared by us.

We cannot assure

you that we will achieve investment results that will allow us to make a specified level of cash distributions or periodically increase

our dividend rate.

In addition, due to the asset coverage test that is applicable to us as a BDC, and provisions contained in the agreements

governing our borrowings, we may be limited in our ability to make distributions.

Further, if we invest a greater amount of assets in

equity securities that do not pay current dividends, it could reduce the amount available for distribution.

of our governing documents and the Maryland General Corporation Law could deter future takeover attempts and have an adverse impact on

the price of our common stock.

are governed by our charter and bylaws, which we refer to as our “governing documents.”

governing documents and the Maryland General Corporation Law contain provisions that may have the effect of delaying, deferring or preventing

a future transaction or change in control of us that might involve a premium price for our stockholders or otherwise be in their best

charter provides for the classification of our board of directors into three classes of directors, serving staggered three-year terms,

which may render a change of control of us or removal of our incumbent management more difficult.

Furthermore, any and all vacancies on our board of directors will be filled generally only by the affirmative vote of a majority of the remaining

directors in office, even if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy will serve for the remainder of the full term until a successor is elected and qualifies.

Our board of directors is authorized to create and issue new series of shares, to classify or reclassify any unissued shares of stock into one

or more classes or series, including preferred stock and, without stockholder approval, to amend our charter to increase or decrease the number of shares of stock that we have authority to issue, which could have the effect of diluting a

stockholders ownership interest.

Prior to the issuance of shares of stock of each class or series, including any reclassified series, our board of directors is required by our governing documents to set the terms, preferences, conversion or

other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series of shares of stock.

Our governing documents also provide that our board of directors has the exclusive power to adopt, alter or repeal any provision of our

bylaws, and to make new bylaws.

The Maryland General Corporation Law also contains certain provisions that may limit the ability of a third party to acquire control of us, such as:

The Maryland Business Combination Act, which, subject to certain limitations, prohibits certain business

combinations between us and an interested stockholder (defined generally as any person who beneficially owns 10% or more of the voting power of the common stock or an affiliate thereof) for five years after the most recent date on which

the stockholder becomes an interested stockholder and, thereafter, imposes special minimum price provisions and special stockholder voting requirements on these combinations;

The Maryland Control Share Acquisition Act, which provides that control shares of a Maryland

corporation (defined as shares of common stock which, when aggregated with other shares of common stock controlled by the stockholder, entitles the stockholder to exercise one of three increasing ranges of voting power in electing directors)

acquired in a control share acquisition (defined as the direct or indirect acquisition of ownership or control of control shares) have no voting rights except to the extent approved by stockholders by the affirmative vote of

at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares of common stock.

In addition, the provisions of the Maryland Business Combination Act will not apply, however, if our board of directors adopts a resolution

that any business combination between us and any other person will be exempt from the provisions of the Maryland Business Combination Act.

Although our board of directors has adopted such a resolution, there can be no assurance that this resolution

will not be altered or repealed in whole or in part at any time.

If the resolution is altered or repealed, the provisions of the Maryland Business Combination Act may discourage others from trying to acquire control of us.

As permitted by Maryland law, our bylaws contain a provision exempting from the Maryland

Control Share Acquisition Act any and all acquisitions by any person of our common stock.

Although our bylaws include such a provision, such a provision may also be amended or eliminated by our board of directors at any time in the future, subject

to obtaining confirmation from the SEC that it does not object to us being subject to the Maryland Control Share Acquisition Act.

Our common stock

may trade at a discount to our net asset value per share.

Common stock of BDCs, as closed-end investment companies, frequently

trade at a discount to net asset value.

Our common stock has traded at a discount to our net asset value since shortly after our initial public offering.

The risk that our common stock may continue to trade at a discount to our net asset value is

separate and distinct from the risk that our net asset value per share may decline.

Stockholders may incur dilution if we sell shares of our common

stock in one or more offerings at prices below the then current net asset value per share of our common stock.

prohibits us from selling shares of our common stock at a price below the current net asset value per share of such stock, with certain exceptions.

One such exception is prior stockholder approval of issuances below net asset value provided that our

board of directors makes certain determinations.

Furthermore, any and all vacancies

on our board of directors will be filled generally only by the affirmative vote of a majority of the remaining directors in office, even

if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy will serve for the remainder of the

full term until a successor is elected and qualifies.

board of directors is authorized to create and issue new series of shares, to classify or reclassify any unissued shares of stock into

one or more classes or series, including preferred stock and, without stockholder approval, to amend our charter to increase or decrease

the number of shares of stock that we have authority to issue, which could have the effect of diluting a stockholder’s ownership

Prior to the issuance of shares of stock of each class or series, including any reclassified series, our board of directors

is required by our governing documents to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations

as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series of shares of stock.

governing documents also provide that our board of directors has the exclusive power to adopt, alter or repeal any provision of our bylaws,

and to make new bylaws.

The Maryland General Corporation Law also contains certain provisions that may limit the ability of a third party

to acquire control of us, such as:

Maryland Business Combination Act, which, subject to certain limitations, prohibits certain

business combinations between us and an “interested stockholder”

(defined generally

as any person who beneficially owns 10% or more of the voting power of the common stock or

an affiliate thereof) for five years after the most recent date on which the stockholder

becomes an interested stockholder and, thereafter, imposes special minimum price provisions

and special stockholder voting requirements on these combinations;

Maryland Control Share Acquisition Act, which provides that “control shares”

of a Maryland corporation (defined as shares of common stock which, when aggregated with

other shares of common stock controlled by the stockholder, entitles the stockholder to exercise

one of three increasing ranges of voting power in electing directors) acquired in a “control

share acquisition”

(defined as the direct or indirect acquisition of ownership or control

of “control shares”) have no voting rights except to the extent approved by stockholders

by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the

matter, excluding all interested shares of common stock.

addition, the provisions of the Maryland Business Combination Act will not apply, however, if our board of directors adopts a resolution

that any business combination between us and any other person will be exempt from the provisions of the Maryland Business Combination

Although our board of directors has adopted such a resolution, there can be no assurance that this resolution will not be altered

or repealed in whole or in part at any time.

If the resolution is altered or repealed, the provisions of the Maryland Business Combination

Act may discourage others from trying to acquire control of us.

permitted by Maryland law, our bylaws contain a provision exempting from the Maryland Control Share Acquisition Act any and all acquisitions

by any person of our common stock.

Although our bylaws include such a provision, such a provision may also be amended or eliminated by

our board of directors at any time in the future, subject to obtaining confirmation from the SEC that it does not object to us being

subject to the Maryland Control Share Acquisition Act.

common stock may trade at a discount to our net asset value per share.

stock of BDCs, as closed-end investment companies, frequently trade at a discount to net asset value.

Our common stock has traded at

a discount to our net asset value since shortly after our initial public offering.

The risk that our common stock may continue to trade

at a discount to our net asset value is separate and distinct from the risk that our net asset value per share may decline.

may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then current net asset value per

share of our common stock.

1940 Act prohibits us from selling shares of our common stock at a price below the current net asset value per share of such stock, with

certain exceptions.

One such exception is prior stockholder approval of issuances below net asset value provided that our board of directors

makes certain determinations.

We do not currently have stockholder approval of issuances below net asset value.

were to sell shares of our common stock below net asset value per share, such sales would result in an immediate dilution to the net asset value per share.

This dilution would occur as a result of the sale of shares at a price below the then current

net asset value per share of our common stock and a proportionately greater decrease in a stockholders interest in our earnings and assets and voting interest in us than the increase in our assets resulting from such issuance.

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 cannot be predicted.

The issuance of subscription rights, warrants or convertible debt that are exchangeable for our common stock,

will cause your economic interest and voting power in us to be diluted as a result of our offering of any such securities.

Stockholders who do not fully exercise rights, warrants or convertible debt issued to them in any offering of subscription rights, warrants or

convertible debt to purchase our common stock should expect that they will, at the completion of the offering, own a smaller proportional economic interest and have diminished voting power in us than would otherwise be the case if they fully

exercised their rights, warrants or convertible debt.

We cannot state precisely the amount of any such dilution in share ownership or voting power because we do not know what proportion of the common stock would be purchased as a result of any such

In addition, if the subscription price, warrant price or convertible debt price is less than our net asset value per share of

common stock at the time of such offering, then our stockholders would experience an immediate dilution of the aggregate net asset value of their shares as a result of the offering.

The amount of any such decrease in net asset value is not

predictable because it is not known at this time what the subscription price, warrant price, convertible debt price or net asset value per share will be on the expiration date of such offering or what proportion of our common stock will be purchased

as a result of any such offering.

The risk of dilution is greater if there are multiple rights offerings.

However, our board of directors will make a good faith determination that any offering of subscription rights, warrants or convertible debt

would result in a net benefit to existing stockholders.

Finally, our common stockholders will bear all costs and expenses incurred by us

in connection with any proposed offering of subscription rights, warrants or convertible debt that are exchangeable for our common stock, whether or not such offering is actually completed by us.

Risks Related to Our 2025 Notes

The 2025 Notes are

unsecured and therefore are effectively subordinated to any secured indebtedness we have incurred or may incur in the future.

we were to sell shares of our common stock below net asset value per share, such sales would result in an immediate dilution to the net

asset value per share.

This dilution would occur as a result of the sale of shares at a price below the then current net asset value

per share of our common stock and a proportionately greater decrease in a stockholder’s interest in our earnings and assets and

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

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 cannot be predicted.

issuance of subscription rights, warrants or convertible debt that are exchangeable for our common stock, will cause your economic interest

and voting power in us to be diluted as a result of our offering of any such securities.

who do not fully exercise rights, warrants or convertible debt issued to them in any offering of subscription rights, warrants or convertible

debt to purchase our common stock should expect that they will, at the completion of the offering, own a smaller proportional economic

interest and have diminished voting power in us than would otherwise be the case if they fully exercised their rights, warrants or convertible

We cannot state precisely the amount of any such dilution in share ownership or voting power because we do not know what proportion

of the common stock would be purchased as a result of any such offering.

addition, if the subscription price, warrant price or convertible debt price is less than our net asset value per share of common stock

at the time of such offering, then our stockholders would experience an immediate dilution of the aggregate net asset value of their

shares as a result of the offering.

The amount of any such decrease in net asset value is not predictable because it is not known at

this time what the subscription price, warrant price, convertible debt price or net asset value per share will be on the expiration date

of such offering or what proportion of our common stock will be purchased as a result of any such offering.

The risk of dilution is greater

if there are multiple rights offerings.

However, our board of directors will make a good faith determination that any offering of subscription

rights, warrants or convertible debt would result in a net benefit to existing stockholders.

our common stockholders will bear all costs and expenses incurred by us in connection with any proposed offering of subscription rights,

warrants or convertible debt that are exchangeable for our common stock, whether or not such offering is actually completed by us.

RELATED TO OUR NOTES

Notes are unsecured and therefore are effectively subordinated to any secured indebtedness we have incurred or may incur in the future.

Notes are not secured by any of our assets or any of the assets of our subsidiaries, including our wholly- owned subsidiaries.

As a result, the 2025 Notes are effectively subordinated to all of our existing and future secured indebtedness

(including 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 may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the

the Notes are effectively subordinated to all of our existing and future secured indebtedness (including 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 may assert rights

against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be

used to pay other creditors, including the holders of the Notes.

Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.

Notes are obligations exclusively of Saratoga Investment Corp., and not of any of our subsidiaries.

None of our subsidiaries is a guarantor

of the Notes and the Notes are not required to be guaranteed by any subsidiary we may acquire or create in the future, including indebtedness

under the Credit Facility.

Any assets of our subsidiaries are not directly available to satisfy the claims of our creditors, including

holders of the Notes.

The 2025 Notes are structurally subordinated to the indebtedness and other liabilities of our

subsidiaries.

The 2025 Notes are obligations exclusively of Saratoga Investment Corp., and not of any of our subsidiaries.

our subsidiaries is a guarantor of the 2025 Notes and the 2025 Notes are not required to be guaranteed by any subsidiary we may acquire or create in the future, including indebtedness under the Credit Facility.

Any assets of our subsidiaries are not

directly available to satisfy the claims of our creditors, including holders of the 2025 Notes.

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 entities (and therefore the claims of our creditors, including holders of the 2025 Notes) with respect to the assets of such entities.

Even if we are recognized as a creditor of one or more of these entities, our

claims would still be effectively subordinated to any security interests in the assets of any such entity and to any indebtedness or other liabilities of any such entity senior to our claims.

Consequently, the 2025 Notes are structurally

subordinated to all indebtedness and other liabilities of any of our subsidiaries and portfolio companies with respect to which we hold equity investments.

In addition, our subsidiaries and these entities may incur substantial indebtedness in the

future, all of which would be structurally senior to the 2025 Notes.

As of February 29, 2020, there were no outstanding borrowings under the Credit Facility and we had the ability to borrow up to $45.0 million under the Credit Facility, subject

to certain conditions.

As of February 29, 2020, we had $150.0 million in SBA-guaranteed debentures outstanding.

The indebtedness under the Credit Facility and to SBA-guaranteed debentures is structurally

senior to the 2025 Notes.

The indenture under which the 2025 Notes are issued contains limited protection for holders of the 2025 Notes.

The indenture under which the 2025 Notes are issued offers limited protection to holders of the 2025 Notes.

The terms of the

indenture and the 2025 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 a material adverse impact on your

investment in the 2025 Notes.

In particular, the terms of the indenture and the 2025 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 2025 Notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the 2025 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 2025 Notes and (4) securities, indebtedness or

obligations issued or incurred by our subsidiaries or the portfolio companies with respect to which we hold an equity investment that would be senior to our equity interests in those entities and therefore rank structurally senior to the 2025 Notes

with respect to the assets of these entities, 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)(1) of the 1940 Act or any successor

provisions (whether or not we are subject thereto), but giving effect, in each case, to any exemptive relief granted to us by the SEC.

Currently, these provisions generally prohibit us from making additional borrowings, including through the

issuance of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 200% after such borrowings, or, once the approval we received from our independent directors becomes

effective on April 16, 2019, 150% (after deducting the amount of such dividend, distribution or purchase price, as the case may be);

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 does not require us to offer to purchase the 2025 Notes in connection with a change of

control or any other event.

Furthermore, the terms of the indenture and the 2025 Notes do not protect holders of the 2025 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 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 and take a number of other actions that

are not limited by the terms of the 2025 Notes may have important consequences for you as a holder of the 2025 Notes, including making it more difficult for us to satisfy our obligations with respect to the 2025 Notes or negatively affecting the

trading value of the 2025 Notes.

Other debt we issue or incur in the future could contain more protections for its holders than the

indenture and the 2025 Notes, including additional covenants and events of default.

For example, the indenture under which the 2025 Notes are issued does not contain cross-default provisions that are contained

in the Credit Facility.

The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of the 2025 Notes.

An active trading market for the 2025 Notes may not develop or be sustained, which could limit the market price of the 2025 Notes or the ability to sell

Although the 2025 Notes are listed on the NYSE under the symbol SAF, we cannot provide any assurances that an

active trading market will develop or be maintained for the 2025 Notes or that the 2025 Notes will be able to be sold.

At various times, the 2025 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.

Accordingly, we cannot provide any assurance that a liquid trading market will develop

for the 2025 Notes, or that the 2025 Notes will be able to be sold at a particular time or at a favorable price.

To the extent an active trading market does not develop, the liquidity and trading price for the 2025 Notes may be harmed.

At the same time, the trading market for the 2025 Notes may also be very volatile, and many of the risk factors related to our common stock

and outlined in Risks related to common stock could also be applicable to the 2025 Notes.

Public health threats may affect the market

for the 2025 Notes, 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 instability.

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.

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 adversely impact our business, financial condition or results of operations.

Additionally, as a result of the volatile market conditions that

may result from public health threats, such as COVID-19 or any other illness, we cannot provide any assurance that the 2025 Notes will trade at a favorable price.

We may choose to redeem the 2025 Notes when prevailing interest rates are relatively low.

On or after August 31, 2021, we may choose to redeem the 2025 Notes, from time to time, especially when prevailing interest rates are

lower than the rate borne by the 2025 Notes.

If prevailing rates are lower at the time of redemption, you 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 2025 Notes being redeemed.

Our redemption right also may adversely impact your ability to sell the 2025 Notes as the optional redemption date or period approaches.

If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the 2025 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, and the remedies sought by the holders of such indebtedness could make us unable to pay principal, premium, if any, and interest on the 2025 Notes and substantially decrease the market value

of the 2025 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 2025 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 lender under the Credit Facility or other debt we may incur in the future could

elect to terminate its commitment, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation.

In addition, any such default may constitute a default under the 2025

Notes, which could further limit our ability to repay our debt, including the 2025 Notes.

If our operating performance declines, we may in the future need to seek to obtain waivers from the lender under the Credit Facility or other debt that we may

incur in the future to avoid being in default.

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.

If this occurs, we would be in default under the

Credit Facility or other debt, the lender could exercise its rights as described above, and we could be forced into bankruptcy or liquidation.

If we are unable to repay debt, lenders having secured obligations 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 2025 Notes, the Credit Facility or under any future credit facility is accelerated, we may be unable to repay or finance the amounts due.

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 entities (and therefore the claims of our creditors, including

holders of the Notes) with respect to the assets of such entities.

Even if we are recognized as a creditor of one or more of these entities,

our claims would still be effectively subordinated to any security interests in the assets of any such entity and to any indebtedness

or other liabilities of any such entity senior to our claims.

Consequently, the Notes are structurally subordinated to all indebtedness

and other liabilities of any of our subsidiaries and portfolio companies with respect to which we hold equity investments.

our subsidiaries and these entities may incur substantial indebtedness in the future, all of which would be structurally senior to the

As of February 28, 2021, there were no outstanding borrowings under the Credit Facility and we had the ability to borrow up to

$45.0 million under the Credit Facility, subject to certain conditions.

As of February 28, 2021, we had $158.0 million in SBA-guaranteed

debentures outstanding.

The indebtedness under the Credit Facility and to SBA-guaranteed debentures is structurally senior to the Notes.

indenture under which the Notes are issued contains limited protection for holders of the Notes.

indenture under which the Notes are issued offers limited protection to holders of the Notes.

terms of the indenture and the 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 a material adverse impact on your investment in the

In particular, the terms of the indenture and the Notes do not place any restrictions on our or our subsidiaries’

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 Notes,

(2) any indebtedness or other obligations that would be secured and therefore rank effectively

senior in right of payment to the 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 Notes and (4) securities, indebtedness

or obligations issued or incurred by our subsidiaries or the portfolio companies with respect

to which we hold an equity investment that would be senior to our equity interests in those

entities and therefore rank structurally senior to the Notes with respect to the assets of

these entities, 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)(1) of the

1940 Act or any successor provisions (whether or not we are subject thereto), but giving

effect, in each case, to any exemptive relief granted to us by the SEC.

Currently, these

provisions generally prohibit us from making additional borrowings, including through the

issuance of additional debt or the sale of additional debt securities, unless our asset coverage,

as defined in the 1940 Act, equals at least 200% after such borrowings, or, once the approval

we received from our independent directors becomes effective on April 16, 2019, 150% (after

deducting the amount of such dividend, distribution or purchase price, as the case may be);

assets (other than certain limited restrictions on our ability to consolidate, merge or sell

all or substantially all of our assets);

into transactions with affiliates;

liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback

transactions;

restrictions on the payment of dividends or other amounts to us from our subsidiaries.

addition, the indenture does not require us to offer to purchase the Notes in connection with a change of control or any other event.

the terms of the indenture and the Notes do not protect holders of the 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 adhere to

any financial tests or ratios or specified levels of net worth, revenues, income, cash flow, or liquidity.

ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the Notes may

have important consequences for you as a holder of the Notes, including making it more difficult for us to satisfy our obligations with

respect to the Notes or negatively affecting the trading value of the Notes.

debt we issue or incur in the future could contain more protections for its holders than the indenture and the Notes, including additional

covenants and events of default.

For example, the indenture under which the Notes is issued do not contain cross-default provisions that

are contained in the Credit Facility.

The issuance or incurrence of any such debt with incremental protections could affect the market

for and trading levels and prices of the Notes.

active trading market for the Public Notes may not develop or be sustained, which could limit the market price of the Public Notes or

the ability to sell them.

the 6.25% 2025 Notes are listed on the NYSE under the symbol “SAF”

and the 7.25% 2025 Notes are listed on the NYSE under

the symbol “SAK”, we cannot provide any assurances that an active trading market will develop or be maintained for the Public

Notes or that the Public Notes will be able to be sold.

At various times, the Public 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.

Accordingly, we cannot provide any assurance that a

liquid trading market will develop for the Public Notes, or that the Public Notes will be able to be sold at a particular time or at

a favorable price.

To the extent an active trading market does not develop, the liquidity and trading price for the Public Notes may

At the same time, the trading market for the Public Notes may also be very volatile, and many of the risk factors related

to our common stock and outlined above in “Risks Related to Our Common Stock”

could also be applicable to the Public Notes.

health threats may affect the market for the Public Notes, impact the businesses in which we invest and affect our business, operating

results and financial condition.

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

can create economic and political uncertainties and can contribute to global economic instability.

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.

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 adversely impact our business, financial condition or results of operations.

Additionally, as a result of the volatile market conditions that may result from public health threats, such as COVID-19 or any other

illness, we cannot provide any assurance that the Public Notes will trade at a favorable price.

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

or after August 31, 2021 and June 24, 2022, we may choose to redeem the 6.25% 2025 Notes and 7.25% 2025 Notes, respectively, from time

to time, especially when prevailing interest rates are lower than the rate borne by the Public Notes.

If prevailing rates are lower at

the time of redemption, you 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 Public Notes being redeemed.

Our redemption right also may adversely impact your ability to sell

the Public Notes as the optional redemption date or period approaches.

we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes.

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, and the remedies sought by the holders of such indebtedness could make

us unable to pay principal, premium, if any, and interest on the Notes and substantially decrease the market value of the Public 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 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 lender under the Credit Facility or other

debt we may incur in the future could elect to terminate its commitment, cease making further loans and institute foreclosure proceedings

against our assets, and we could be forced into bankruptcy or liquidation.

In addition, any such default may constitute a default under

the Notes, which could further limit our ability to repay our debt, including the Notes.

If our operating performance declines, we may

in the future need to seek to obtain waivers from the lender under the Credit Facility or other debt that we may incur in the future

to avoid being in default.

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.

If this occurs, we would be in default under the Credit Facility or other debt, the lender

could exercise its rights as described above, and we could be forced into bankruptcy or liquidation.

If we are unable to repay debt,

lenders having secured obligations could proceed against the collateral securing the debt.

the Credit Facility has, and any future credit facilities will likely have, customary cross-default provisions, if the indebtedness under

the Notes, the Credit Facility or under any future credit facility is accelerated, we may be unable to repay or finance the amounts due.

UNRESOLVED STAFF COMMENTS

We do not own any real estate or other physical properties important to our operations, however, an affiliate of our

Investment Adviser leases office space for our executive offices at 535 Madison Avenue, New York, New York 10022.

do not own any real estate or other physical properties important to our operations, however, an affiliate of our Investment Adviser

leases office space for our executive offices at 535 Madison Avenue, New York, New York 10022.

LEGAL PROCEEDINGS

Neither we nor our wholly-owned subsidiaries, Saratoga Investment Funding LLC and Saratoga Investment Corp.

SBIC LP and Saratoga Investment

we nor our wholly-owned subsidiaries, Saratoga Investment Funding LLC and Saratoga Investment Corp.

SBIC LP and Saratoga Investment Corp.

SBIC II LP, are currently subject to any material legal proceedings.

1 unchanged sentence

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