What changed in this filing

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Item 1A. Risk Factors

2022-05-04 compared with 2021-05-05 · 1271 added, 1172 removed, 838 unchanged (74% of the section changed)

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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.

the principal risks with respect to the Company generally and with respect to BDCs, they may not be the only risks we face.

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

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

OF RISK FACTORS

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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.

interest rates of our loans to our portfolio companies, any LIBOR-linked securities, and

other financial obligations that extended beyond 2021 might be subject to change based on

recent regulatory changes, including the decommissioning of LIBOR.

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

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business effectively.

will be subject to corporate-level U.S.

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

will be subject to U.S.

federal income tax at corporate rates if we fail to qualify as a

Related to the Current Environment

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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.

of February 28, 2022, there were $12.5 million outstanding borrowings under the Encina Credit Facility.

As of February 28, 2022, we had

issued $185.0 million in SBA-guaranteed debentures and $43.1 million, $5.0 million, $5.0 million, $10.0 million, $175.0 million and $75.0

million respectively in aggregate principal amount of the 7.25% notes due 2025 (the “7.25% 2025 Notes”

or 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),

the 6.25% notes due 2027 (the “Second 6.25% 2027 Notes”), the 4.375% Notes due 2026 (the “4.375% 2026 Notes”)

and 4.35% notes due 2027 (the “4.35% 2027 Notes”) and together with the Public Notes, the 7.75% 2025 Notes, and the 6.25%

2027 Notes and the 4.375% 2026, and the 4.35% 2027 Notes the “Notes”).

We may incur additional indebtedness in the future,

including, but not limited to, borrowings under the Encina 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.

The amount of

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

assessment of

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

a BDC, we are generally permitted to issue senior securities only in amounts such that our asset coverage ratio equals at least 150.0%

of total assets to total borrowings and other senior securities, which include all of our borrowings (other than the senior securities

of SBIC I LP’s and SBIC II LP’s under the terms of our SEC exemptive relief) and any preferred stock we may issue in the

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,

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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.

(1) Assumes $746.9 million in average total assets, $407.9 million

in average debt outstanding, $329.4 million in average net assets and an average interest rate of 4.9%.

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.

all of SIF II’s, SBIC I’s and SBIC II’s assets are subject to security interests under our Encina 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.

all of SIF II’s, SBIC I’s and SBIC II’s assets are pledged as collateral under the Encina 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 Encina Credit Facility or the SBA-guaranteed debentures, Encina Lender Finance, LLC 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.

addition, if Encina Lender Finance, LLC the lender under the Encina Credit Facility exercises its right to sell the assets pledged under

the Encina 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 Encina Credit Facility.

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

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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.

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.

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”).

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

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.

interest rates of our loans to our portfolio companies, any LIBOR-linked securities, and other financial obligations that extended beyond

2021 might be subject to change based on recent regulatory changes, including the decommissioning of LIBOR.

London Interbank Offered Rate (“LIBOR”) is an index rate that historically has been widely used in lending transactions and

remains a common reference rate for setting the floating interest rate on private loans.

LIBOR typically has been the reference rate

used in floating-rate loans extended to our portfolio companies and, to some degree, is expected to continue to be used as a reference

rate until such time that private markets have fully transitioned to using the Secured Overnight Financing Rate (“SOFR”),

or other alternative reference rates recommended by applicable market regulators.

Uncertainty relating to the LIBOR calculation process,

the valuation of LIBOR alternatives, and other economic consequences from the phasing out of LIBOR may adversely affect our results of

operations, financial condition and liquidity.

March 5, 2021, the United Kingdom’s Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that it will

not compel panel banks to contribute to the overnight 1, 3, 6 and 12 months USD LIBOR tenors after June 30, 2023 and all other tenors

after December 31, 2021.

On November 16, 2021, the FCA issued a statement confirming that starting January 1, 2022, entities supervised

by the FCA will be prohibited from using LIBORs, including USD LIBOR, that will be discontinued as of December 31, 2021 as well as, except

in very limited circumstances, those tenors of USD LIBOR that will be discontinued or declared non-representative after June 30, 2023.

While LIBOR will cease to exist or be declared non-representative, there continues to be uncertainty regarding the nature of potential

changes to specific USD LIBOR tenors, the development and acceptance of alternative reference rates and other reforms.

banks and regulators in a number of major jurisdictions (for example, United States, United Kingdom, European Union, Switzerland and

Japan) have convened working groups to find, and implement the transition to, suitable replacements for LIBORs and other interbank offered

rates (“IBORs”).

To identify a successor rate for USD LIBOR, the Alternative Reference Rates Committee (“ARRC”),

U.S.-based group convened by the U.S.

Federal Reserve Board and the Federal Reserve Bank of New York, was formed.

The ARRC has identified

SOFR as its preferred alternative rate for LIBOR.

SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S.

securities, and is based on directly observable U.S.

Treasury-backed repurchase transactions.

On July 29, 2021, the ARRC formally recommended

SOFR as its preferred alternative replacement rate for LIBOR.

On July 29, 2021, the ARRC also recommended a forward-looking term rate

based on SOFR published by CME Group.

Although 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.

Alternative reference rates that may replace LIBOR, including

SOFR for USD transactions, may not yield the same or similar economic results as LIBOR over the lives of such transactions.

be no guarantee that SOFR will become the dominant alternative to USD LIBOR or that SOFR will be widely used and other alternatives may

or may not be developed and adopted with additional consequences.

April 6, 2021, legislation was signed into law in the state of New York that provides that contracts, securities and instruments governed

by New York law that reference USD LIBOR and that either lack benchmark fallback provisions or include ineffective benchmark fallback

provisions in connection with USD LIBOR no longer being published or becoming non-representative, will, by operation of law, refer to

a replacement benchmark rate based on SOFR.

Despite the adoption of the New York legislation, successful legal challenges against the

legislation may render it partially or wholly unconstitutional or unenforceable, e.g., based on other federal or state law grounds.

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

market value of and/or transferability of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit

held by or due to us, valuation measurements used by us that include LIBOR as an input, our operational processes or our overall financial

condition or results of operations.

For instance, if the LIBOR reference rate of our LIBOR-linked securities, loans, and other financial

obligations is higher than an alternative reference rate, such as SOFR, on our alternative reference rate-linked portfolio investments,

the difference between the total interest income earned on interest earning assets and the total interest expense incurred on interest

bearing liabilities may be compressed, reducing our net interest income and potentially adversely affecting our operating results.

addition, while the majority of our LIBOR-linked loans contemplate that LIBOR may cease to exist and allow for amendment to a new alternative

reference rate without the approval of 100% of the lenders, if LIBOR ceases to exist, we could be required, in such situations, to negotiate

modifications to credit agreements governing such instruments, in order to replace LIBOR with such alternative reference rate and to

incorporate any conforming changes to applicable credit spreads or margins.

Following the replacement of LIBOR, some or all of these

credit agreements may bear interest at a lower interest rate, which could have an adverse impact on the value and liquidity of our investment

in these portfolio companies and, as a result, on our results of operations.

Such adverse impacts and the uncertainty of the transition

could result in disputes and litigation with counterparties and borrowers regarding the implementation of alternative reference rates.

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

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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.

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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.

For example, the current U.S.

presidential administration could support an enhanced regulatory agenda

that imposes greater costs on all sectors and on financial services companies in particular.

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.

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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.

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.

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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

from the Republican Party and retained control of the House of Representatives.

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 prospects.

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

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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.

and our service providers continue to be impacted by government actions and actions by private businesses in response to the 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.

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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.

access to our information systems or those of our portfolio companies or third-party vendors for purposes of misappropriating assets,

stealing confidential information, corrupting data or causing operational disruption.

Despite careful security and controls design, the

information technology system of our portfolio companies and our third-party vendors, may be subject to security breaches and cyber-attacks

the result of which could 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 portfolio companies’

and our third party vendor’s 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 and third-party vendors.

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.

Further, the remote working conditions resulting from COVID-19 pandemic have heightened our and our portfolio companies’

vulnerability to a cybersecurity risk or incident.

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

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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.

As a BDC, 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

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

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below net asset value.

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

April 16, 2019, our asset coverage requirement was reduced from 200% to 150%, which could increase the risk of investing in the Company.

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.

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

However, on March 23, 2018, the

Small Business Credit Availability Act was signed into law and, among other things, 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

Under the 1940 Act, 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 board of directors,

including a majority of our independent 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.

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

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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.

agreement governing our Encina 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 Encina 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 Encina Credit Facility would result, among other things,

in termination of the availability of further funds under the Encina Credit Facility and an accelerated maturity date for all amounts

outstanding under the Encina Credit Facility, which would likely disrupt our business and, potentially, the portfolio companies whose

loans we financed through the Encina Credit Facility.

This could reduce our revenues and, by delaying any cash payment allowed to us

under the Encina Credit 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.

borrow funds under the Encina Credit Facility at any particular time or at all.

will be subject to U.S.

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

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

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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.

if we are unable to obtain cash from other sources or are prohibited from making distributions, we may be subject to U.S.

federal income

tax at corporate rates.

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

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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 Notes.

Such a failure would have a material adverse

effect on our results of operations and financial condition.

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

federal income tax at regular corporate

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,

2 unchanged sentences

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

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

federal income taxes at corporate rates, 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

40 unchanged sentences

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.

distribution, we may become subject to U.S federal income tax at corporate rates.

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.

51 unchanged sentences

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.

employees will contribute beneficially 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.

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to such force majeure events, the risks and potential losses to us are enhanced.

continued threat of global terrorism and the impact of military and other action will likely continue to cause volatility in the economies

of certain countries, contribute to increased market volatility and economic uncertainties or deterioration in the United States and

worldwide and various aspects thereof, including in prices of commodities.

Our portfolio investments may involve significant strategic

assets having a national or regional profile.

The nature of these assets could expose them to a greater risk of being the subject of

a terrorist attack than other assets or businesses.

Acts of war could similarly lead to such volatility.

For example, in response to

the conflict between Russia and Ukraine, the United States and other countries have imposed sanctions or other restrictive actions against

Any of the above factors, including sanctions, export controls, tariffs, trade wars and other governmental actions, could have

a material adverse effect on our business, financial condition, cash flows, and results of operations, and could cause the market 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;

all of our portfolio investments are recorded at fair value as determined in good faith by our board of directors;

such valuations are

4 unchanged sentences

that are not publicly traded may not be readily determinable.

We value these investments quarterly at fair value as approved in good

We value these investments quarterly at fair value as determined in good

faith by our board of directors.

47 unchanged sentences

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.

current worldwide financial markets situation, as well as various social and political tensions in the United States and around the world

(including wars and other forms of conflict, terrorist acts, security operations and catastrophic events such as fires, floods, earthquakes,

tornadoes, hurricanes and global health epidemics), may contribute to increased market volatility, may have long term effects on the

United States and worldwide financial markets, and may cause economic uncertainties or deterioration in the United States and worldwide.

For example, the COVID-19 pandemic continues to adversely impact global commercial activity and has contributed to significant volatility

in financial markets.

We 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.

See “—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.”

January 31, 2020, the United Kingdom ended its membership in the European Union (“Brexit”).

Under the terms of the withdrawal

agreement negotiated and agreed between the United Kingdom (the “UK”) and the European Union, the UK’s departure from

the European Union was followed by a 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 United Kingdom governments signed a trade deal that became provisionally effective on January 1, 2021 and that

now governs the relationship between the United Kingdom and the European Union (the “Trade Agreement”).

The Trade Agreement

implements significant regulation around trade, transport of goods and travel restrictions between the United Kingdom and the European

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 United Kingdom 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 United Kingdom’s sovereign credit rating, could also have an impact on the performance of certain investments

made in the United Kingdom or Europe.

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

Such market conditions may materially and

adversely affect debt and equity capital markets, which may have a negative impact on our business, financial condition and results of

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

capital markets have experienced extreme

volatility and disruption following the global outbreak of COVID-19 that began in December 2019 and the conflict between Russia and Ukraine

that began in late February 2022 (see “Terrorist 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”

for more information).

Disruptions 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.

The COVID-19 pandemic and new variants of COVID, such as the Delta and Omicron variants,

has led to, and for an unknown period of time will continue to lead to, disruptions in local, regional, national and global markets and

economies affected thereby.

These 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’

COVID-19 outbreak, including new variants of COVID-19, such as the Delta and Omicron variants, continues to have, and any future outbreaks

could have, an adverse impact on the ability of lenders to originate loans, the volume and type of loans originated, the ability of borrowers

to make payments 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 the Company and returns

to the Company, among other things.

With respect to the U.S.

credit markets (in particular for middle market loans), the COVID-19 pandemic

has resulted in, and until fully resolved is likely to continue to result in, the following among other things:

(i) increased draws

by borrowers on revolving lines of credit and other financing instruments;

(ii) 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 their loans;

(iii) 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 (iv) rapidly evolving

proposals and/or actions by state and federal governments to address problems being experienced in the markets and by businesses and

the economy in general which may not necessarily adequately address the problems facing the loan market and middle market businesses.

COVID-19 pandemic is having, and any future outbreaks of COVID-19 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 the COVID-19 pandemic,

or any future outbreaks of COVID-19, 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

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.

and future market disruptions and/or illiquidity could 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 limit our investment originations and our ability to grow and

could also have a material negative impact on our operating results and the fair values of our debt and equity investments.

to access, if available, alternative markets for debt and equity capital, and a severe disruption in the global financial markets, deterioration

in credit and financing conditions or uncertainty regarding U.S.

government spending and deficit levels or other global economic conditions

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

economic downturns or recessions have had a significant negative impact on the operating performance and fair value of middle market

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

and 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.

cannot be certain as to the duration or magnitude of the economic impact of the COVID-19 pandemic on the markets in which we and our

portfolio companies operate, including with respect to travel restrictions, business operating restrictions, mitigation efforts (whether

voluntary, suggested, or mandated by law) and corresponding declines in economic activity that may negatively impact the U.S.

and the markets for the various types of goods and services provided by U.S.

middle market companies.

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.

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 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

outside of our control, such as the COVID-19 pandemic, could negatively affect our portfolio companies and our results of our operations

and financial condition.

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

For example, the COVID-19 pandemic has led to, and for an unknown period of time will continue to lead to, disruptions in

local, regional, national and global markets and the economies affected thereby, including the United States.

With respect to U.S.

global credit markets and the economy in general, the COVID-19 pandemic and preventative measures taken to contain or mitigate its spread

have caused, and are continuing to cause, business shutdowns, cancellations of events and restrictions on travel, significant reductions

in demand for certain goods and services, reductions in business activity and financial transactions, supply chain disruptions, labor

difficulties and shortages, commodity inflation and elements of economic and financial market instability in the United States and globally.

Such effects will likely continue for the duration of the pandemic, for some period thereafter, and may be reinstated in the future.

COVID-19 and the resulting economic dislocations have had adverse consequences for the business operations and financial performance

of some of our portfolio companies, which may, in turn impact the valuation of our investments and have adversely affected, and threaten

to continue to adversely affect, our operations.

We cannot predict the full impact of COVID-19, including the duration of the restrictions

described above.

As a result, we are unable to predict the duration of these business and supply chain disruptions, the extent to which

COVID-19 will negatively affect our portfolio companies’

operating results or the impact that such disruptions may have on our

results of operations and financial condition.

With respect to loans to portfolio companies, the Company will be impacted if, among other

things, (i) amendments and waivers are granted (or are required to be granted) to borrowers permitting deferral of loan payments or allowing

for PIK interest payments, (ii) borrowers default on their loans, are unable to refinance their loans at maturity, or go out of business,

or (iii) the value of loans held by the Company decreases as a result of such events and the uncertainty they cause.

Portfolio companies

may also be more likely to seek to draw on unfunded commitments we have made, and the risk of being unable to fund such commitments is

heightened during such periods.

on the duration and extent of the disruption to the business operations of our portfolio companies, we expect some portfolio companies,

particularly those in vulnerable industries, to experience financial distress and possibly to default on their financial obligations

to us and/or their other capital providers.

In addition, if such portfolio companies are subjected to prolonged and severe financial

distress, we expect some of them to substantially curtail their operations, defer capital expenditures, and lay off workers.

These developments

would be likely to permanently impair their businesses and result in a reduction in the value of our investments in them.

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 the COVID-19 pandemic and the actions taken by authorities and other entities to contain the spread 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 and financial condition.

may adversely affect the business, results of operations and financial condition of our portfolio companies, which may, in turn, impact

the valuation of such portfolio companies.

of our portfolio companies may be impacted by inflation, which may, in turn, impact the valuation of such portfolio companies.

portfolio companies are unable to pass any increases in their costs along to their customers, it could adversely affect their results

and their ability to pay interest and principal on our loans, particularly if interest rates rise in response to inflation.

2022, the Federal Reserve raised interest rates by 0.25%, the first increase since December 2018, and indicated that it would raise rates

at each of the remaining six meeting in 2022.

(See “We are exposed to risks associated with changes in interest rates including

potential effects on our cost of capital and net investment income”

for a discussion of the risks associated with a rising interest

rate environment).

In addition, any projected future decreases in our portfolio companies’

operating results due to inflation could

adversely impact the fair value of those investments.

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

losses and therefore reduce our net assets resulting from operations.

downgrades of the U.S.

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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

including a suspension of the federal debt ceiling in August 2019 and December 2021, ratings agencies have lowered or threatened to lower

the long-term sovereign credit rating on the United States.

The December 2021 legislation suspends the debt ceiling through 2023, unless

Congress takes legislative action to further extend or defer it.

impact of this or any further downgrades to the U.S.

government’s sovereign credit rating or its perceived creditworthiness could

adversely affect the U.S.

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

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 terms.

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.

federal government to shut down for

periods of time.

Continued 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.

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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.

The global outbreak of COVID-19 has disrupted, and continues to disrupt, 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.

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.

In addition, 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

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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:

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 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 loans.

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.

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.

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 liens:

the ability to cause the commencement of enforcement proceedings against the collateral;

to control the conduct of such proceedings;

the ability to control the conduct of such proceedings;

the approval of amendments to collateral documents;

releases of liens on the collateral;

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

and waivers of past defaults under collateral

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 28, 2022, 87.3%

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.

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.

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 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 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.

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.

● 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.

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 28, 2022, 12.9% 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 26.3% of such investments elected to pay

a portion of interest due in PIK.

As of February 28, 2022, 3.4% of the Company’s 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.

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.

We may not have the funds to make additional

investments in our portfolio companies which could impair the value of our portfolio.

After 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

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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.

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 they were 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 instrument’s stated

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.

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 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.

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.

At February 28, 2022, our investment

in the subordinated notes of Saratoga CLO, a collateralized loan obligation fund, had a fair value of $28.7 million and constituted 3.5%

of our portfolio.

This investment constitutes a first loss position in a portfolio that, as of February 28, 2022, was composed of $660.2

million in aggregate principal amount of primarily senior secured first lien term loans and $6.2 million in uninvested cash.

as of February 28, 2022, we also own $9.4 million in aggregate principal of the F-2-R-3 Notes with a fair value of $9.4 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.

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.

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

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 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.

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 $660.2 million aggregate principal

amount of debt, as of February 28, 2022 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

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 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 company’s 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

according to 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 Company’s 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.

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 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.

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.

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.

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 28, 2022, Saratoga CLO’s investments in the banking, finance,

insurance & real estate industry represented approximately 19.3% of the fair value of Saratoga CLO’s portfolio.

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 10.9% 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.

Failure 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 in the future.

Ratings 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

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 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.

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:

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

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.

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.

We may invest through joint ventures, partnerships

or other special purpose vehicles and our investments through these vehicles may entail greater risks, or risks that we otherwise would

not incur, if we otherwise made such investments directly.

We may make indirect investments in

portfolio companies through joint ventures, partnerships or other special purpose vehicles, including SLF JV.

In general, the risks associated

with indirect investments in portfolio companies through a joint venture, partnership or other special purpose vehicle are similar to

those associated with a direct investment in a portfolio company.

While we intend to analyze the credit and business of a potential portfolio

company in determining whether to make an investment in an investment vehicle, we will nonetheless be exposed to the creditworthiness

of the investment vehicle.

In the event of a bankruptcy proceeding against the portfolio company, the assets of the portfolio company

may be used to satisfy its obligations prior to the satisfaction of our investment in the investment vehicle (i.e., our investment in

the investment vehicle could be structurally subordinated to the other obligations of the portfolio company).

In addition, if we are to

invest in an investment vehicle, we may be required to rely on our partners in the investment vehicle when making decisions regarding

such investment vehicle’s investments, accordingly, the value of the investment could be adversely affected if our interests diverge

from those of our partners in the investment vehicle.

Available information about privately held companies

We invest primarily in privately-held

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.

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 interests.

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

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 claims.

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 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.

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 company’s success.

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 process;

● 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.

is likely to take a significant amount of time before a liquidity event occurs or we can

sell our equity investments.

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

are special risks associated with investing in preferred securities, including:

securities may include provisions that permit the issuer, at its discretion, to defer distributions

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.

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

● preferred 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

● preferred securities may be substantially less liquid than many other securities, such as common securities

government securities;

security holders generally have no voting rights with respect to the issuing company, subject

● preferred 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.

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.

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.

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.

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.

reaction to developments in one

country can have effects on the debt of issuers in other countries.

Although most of our investments

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.

As a result, a change in currency exchange rates may adversely affect our profitability.

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 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”

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 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 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

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

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.

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 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.

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:

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,

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.

In 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;

on the management talents and efforts of a small group of persons;

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;

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.

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 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

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.

A downturn in any particular industry in which we are invested could significantly

impact the aggregate returns we realize.

As of February 28, 2022, our

investments in the Healthcare Software industry represented approximately 11.0% of the fair value of our portfolio and our investments

in the IT Services industry represented approximately 9.9% 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.

A 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.

A 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 their

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.

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 28, 2022, our current total investments in SAAS companies were $510.0 million, or 62.4% of total investments.

If 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.

In 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

12 unchanged sentences

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.

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

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.

If too many 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

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 sale.

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

Furthermore, with respect to

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.

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.

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 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

If we qualify for taxation as a RIC, we generally will not be subject to US federal income tax at corporate rates 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 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

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.

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

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

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.

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.

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 U.S.

federal income

tax at corporate rates.

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, 2022 until as late as February 28, 2023.

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 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.

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

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.”

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 our control and may not

be directly related to our operating performance.

These factors include, but are not limited to:

● 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

● changes in regulatory policies, accounting pronouncements or tax guidelines, 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’

● failure to qualify for RIC tax treatments;

● 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 analysts;

● departure 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 management’s and our board of directors’

● 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 company’s securities, securities class action litigation has often been brought against that

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.

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.

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

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 time.

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.

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, 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 stockholder’s 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

● 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.

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.

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

(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

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.

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.

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.

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.

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.

The 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.

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.

If 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.

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.

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.

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.

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 NOTES

The Notes are unsecured and therefore are effectively

subordinated to any secured indebtedness to any existing and future secured indebtedness, including indebtedness under our Encina Credit

The Notes are not secured by

any of our assets or any of the assets of any of our subsidiaries, including our wholly owned subsidiaries.

As a result, the Notes are

effectively subordinated to any existing and future secured indebtedness (including our Encina Credit Facility) or that we or our subsidiaries

may incur in the future (or any indebtedness that is initially unsecured as to which we have granted or subsequently grant a security

interest) to the extent of the value of the assets securing such indebtedness, including, without limitation, borrowings under our Encina

Credit Facility.

In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our indebtedness or secured

indebtedness of our subsidiaries 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.

As of February 28, 2022,

there was $12.5 million outstanding borrowings under the Credit Facility and we had the ability to borrow up to $50.0 million under the

Encina Credit Facility, subject to certain conditions.

The Encina Credit Facility is secured by substantially all of the assets of SIF

II, our wholly owned subsidiary.

The Notes are structurally subordinated to the indebtedness

and other liabilities of our subsidiaries.

The 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.

Any assets of our subsidiaries are not directly

available to satisfy the claims of our creditors, including holders of the 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 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, including trade payables, of any of our existing or future.

These entities may incur substantial indebtedness in the future, all of which would be structurally senior to the Notes.

As of February

28, 2022, we had $185.0 million in SBA-guaranteed debentures outstanding.

The indebtedness under the SBA-guaranteed debentures is structurally

senior to the Notes.

The indenture under which the Notes are issued contains

limited protection for holders of the Notes.

The indenture under which the

Notes are issued offers limited protection to holders of the Notes.

The 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 Notes.

In particular, the terms

of the indenture and the Notes do not place any restrictions on our or our subsidiaries’

● 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 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 that would be senior to our equity interests

in our subsidiaries 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)(2) of the 1940 Act or any successor provisions, whether or not we continue

to be subject to such provisions of the 1940 Act), but giving effect, in each case, to any exemptive relief granted to us by the

Currently, these provisions generally prohibit us from incurring additional borrowings,

including through the issuance of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 150%

after such borrowings;

● 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.

Furthermore, 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 or our subsidiaries adhere

to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow, or liquidity.

Our ability to recapitalize,

incur additional debt (including additional debt that matures prior to the maturity of the Notes), 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 market value of the Notes.

Other 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

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, trading levels

and prices of the Notes.

We may not be able to repurchase the 4.375%

2026 Notes and the 4.35% Notes 2027 upon a Change of Control Repurchase Event.

Upon a Change of Control Repurchase

Event (as defined in the relevant indenture), holders of the 4.375% 2026 Notes and the 4.35% Notes 2027 may require us to repurchase for

cash some or all of the 4.375% 2026 Notes and the 4.35% Notes 2027, respectively, at a repurchase price equal to 100% of the aggregate

principal amount of the 4.375% 2026 Notes and the 4.35% Notes 2027, respectively, being repurchased, plus their respective accrued and

unpaid interest to, but not including, the repurchase date.

We may not be able to repurchase the 4.375% 2026 Notes and the 4.35% Notes

2027 upon a Change of Control Repurchase Event because we may not have sufficient funds.

Our and our subsidiaries’

future financing facilities

may contain similar restrictions and provisions.

Our failure to purchase such tendered .375% 2026 Notes and the 4.35% Notes 2027 upon

the occurrence of such Change of Control Repurchase Event would cause an event of default under the respective indenture governing the

4.375% 2026 Notes and the 4.35% Notes 2027, respectively, which may result in the acceleration of such indebtedness requiring us to repay

that indebtedness immediately.

If the holders of the October 2024 Notes or the January 2026 Notes exercise their respective right to require

us to repurchase the 4.375% 2026 Notes and the 4.35% Notes 2027, respectively, upon a Change of Control Repurchase Event, the financial

effect of any such repurchase could cause a default under our current and future debt instruments, even if the Change of Control Repurchase

Event itself would not cause a default.

If a Change of Control Repurchase Event were to occur, we may not have sufficient funds to repay

any such accelerated indebtedness.

An active trading market for the 7.25% 2025 Notes

may not develop or be sustained, which could limit the market price of the Public Notes or the ability to sell them.

Although 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 7.25% 2025 Notes or that the 7.25% 2025 Notes will be able to be sold.

At various times, the 7.25% 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.

we cannot provide any assurance that a liquid trading market will develop for the 7.25% 2025 Notes, or that the 7.25% 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 7.25% 2025 Notes may be harmed.

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”

be applicable to the Public Notes.

Public 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.

Public health threats, such as

the COVID-19 pandemic 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 Public Notes will trade at a favorable price.

Terms relating to redemption may materially adversely

affect the return on our debt securities.

On or after June 24, 2022, we

may choose to redeem the 7.25% 2025 Notes 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.

The 4.375% Notes 2026 are redeemable,

in whole or in part, at any time at our option prior to November 28.

2025, at par plus a “make-whole”

premium, and thereafter

The 4.35% Notes 2027 are redeemable, in whole or in part, at any time at our option prior to November 28, 2026, at par plus a

“make-whole”

premium, and thereafter at par.

We may choose to redeem the 4.375% Notes 2026 or 4.35% Notes 2027 at times when

prevailing interest rates are lower than the interest rate paid on the 4.375% Notes 2026 or 4.35% Notes 2027.

If we default on our obligations to pay our other

indebtedness, we may not be able to make payments on the Notes.

Any default under the agreements

governing our indebtedness, including a default under the Encina Credit Facility, the Notes or other indebtedness to which we may be a

party that is not waived by the required lenders or holders, and the remedies sought by the lenders or 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 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.

premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and

operating covenants, as applicable, 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 lenders under the Encina Credit

Facility or other debt we may incur in the future could elect to terminate their 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 Encina Credit Facility and the Notes.

Our ability to generate sufficient

cash flow in the future is, to some extent, subject to general economic, financial, competitive, legislative and regulatory factors as

well as other factors that are beyond our control.

We cannot assure you that our business will generate cash flow from operations, or

that future borrowings will be available to us under the Encina Credit Facility or otherwise, in an amount sufficient to enable us to

meet our payment obligations under the Notes and the Encina Credit Facility, and to fund other liquidity needs.

If our operating performance

declines and we are not able to generate sufficient cash flow to service our debt obligations, we may, in the future, need to refinance

or restructure our debt, including any Notes sold, sell assets, reduce or delay capital investments, seek to raise additional capital

or seek to obtain waivers from the required lenders under the Encina Credit Facility, the holders of the respective Notes, or other debt

that we may incur in the future to avoid being in default.

If we are unable to implement one or more of these alternatives, we may not

be able to meet our payment obligations under the Notes and our other debt.

If we breach our covenants under the Encina Credit Facility,

the Notes or other debt and seek a waiver, we may not be able to obtain a waiver from the required lenders or holders thereof.

occurs, we would be in default under the Encina Credit Facility or other debt, the lenders or holders could exercise their rights as described

above, and we could be forced into bankruptcy or liquidation.

If we are unable to repay debt, lenders having secured obligations could

proceed against the collateral securing the debt.

UNRESOLVED STAFF COMMENTS

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.

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.

LEGAL PROCEEDINGS

we nor our wholly-owned subsidiaries, Saratoga Investment Funding LLC and Saratoga Investment Corp.

Neither we nor our wholly-owned subsidiaries,

Saratoga Investment Funding LLC, Saratoga Investment Funding II, LLC, Saratoga Investment Corp.

SBIC LP and Saratoga Investment Corp.

1 unchanged sentence

MINE SAFETY DISCLOSURES

Not applicable.

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