Gladstone Capital (GLAD) risk factors, FY2025 10-K

Risks Related to the Economy

1. 01Market conditions could negatively impact our business, results of operations, cash flows and financial condition
2. 02Volatility in the capital markets could make it more difficult to raise capital and may adversely affect the valuations of our investments
3. 03Tariffs may adversely affect us or our portfolio companiesNew
4. 04We may experience fluctuations in our quarterly and annual results based on the impact of inflation in the U.S

Risks Related to Interest Rates

1. 05Market interest rates may have an effect on the value of our securities
2. 06Changes in interest rates may negatively impact our investments and have an adverse effect on our business, financial condition, results of operations, and cash flows
3. 07A change in interest rates may adversely affect our profitability and any hedging strategy we adopt may expose us to additional risks
4. 08As of September 30, 2025, based on the total principal balance of debt investments outstanding, our portfolio consisted of approximately 86.9% of loans at variable rates with floors and approximately 13.1% at fixed rates

Risks Related to Our Investments

1. 09We operate in a highly competitive market for investment opportunities
2. 10Our investments in lower middle market companies are extremely risky and could cause you to lose all or a part of your investment
3. 11should assume that these loans would be at rates below “investment grade” quality. Investments rated below investment grade are often referred to as high yield securities or junk bonds and may be considered high risk as compared to investment-grade debt instrumentsNew
4. 12Because the majority of the loans we make and equity securities we receive when we make loans are not publicly traded, there is uncertainty regarding the value of our privately held securities
5. 13The valuation process for certain of our portfolio holdings creates a conflict of interest
6. 14The lack of liquidity of our privately held investments may adversely affect our business
7. 15When we are a debt or minority equity investor in a portfolio company, which we expect will generally be the case, 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
8. 16We often invest in transactions involving acquisitions, buyouts and recapitalizations of companies, which will subject us to the risks associated with change in control transactions
9. 17Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies and/or we could be subject to lender liability claims
10. 18Prepayments of our investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity
11. 19Our portfolio is concentrated in a limited number of companies and industries, which subjects us to an increased risk of significant loss if any one of these companies does not repay us or if the industries experience downturns37% rewritten
12. 20Investments in securities of foreign portfolio companies, if any, may involve significant risks in addition to the risks inherent in U.S. investments
13. 21We invest in equity securities, which involves a substantial degree of risk
14. 22The disposition of our investments may result in contingent liabilities
15. 23Portfolio company litigation or other litigation or claims against us or our personnel could result in additional costs and the diversion of management time and resources
16. 24Any unrealized depreciation we experience on our investment portfolio may be an indication of future realized losses, which could reduce our income available for distribution

Risks Related to Our External Financing

1. 25Any inability to renew, extend or replace our Credit Facility on terms favorable to us, or at all, could adversely impact our liquidity and ability to fund new investments or maintain distributions to our stockholders
2. 26Our business plan is dependent upon external financing, which is constrained by the limitations of the 1940 Act
3. 27We financed certain of our investments with borrowed money and capital from the issuance of senior securities, which will magnify the potential for gain or loss on amounts invested and may increase the risk of investing in us47% rewritten

Risks Related to Our Regulation and Structure

1. 28We will be subject to corporate-level tax if we are unable to satisfy Code requirements for RIC qualification
2. 29As 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% of our total assets, exclusive of Operating Assets, are qualifying assets, as defined in Section 55(a) of the 1940 Act
3. 30We are subject to restrictions that may discourage a change of control. Certain provisions contained in our articles of incorporation and Maryland law may prohibit or restrict a change of control and adversely impact the price of our common stock
4. 31We may not be permitted to declare a dividend or make any distribution to stockholders or repurchase shares until such time as we satisfy the asset coverage tests under the provisions of the 1940 Act that apply to BDCs

Risks Related to Our External Management

1. 32We are dependent upon our key management personnel and the key management personnel of the Adviser, particularly David Gladstone and Robert L. Marcotte, and on the continued operations of the Adviser, for our future success
2. 33Our success depends on the Adviser’s ability to attract and retain qualified personnel in a competitive environment
3. 34The Adviser can resign on 60 days’ notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations
4. 35The Adviser's liability is limited under the Advisory Agreement, and we are required to indemnify our investment adviser against certain liabilities, which may lead the Adviser to act in a riskier manner on our behalf than it would when acting for its own account
5. 36Our incentive fee may induce the Adviser to make certain investments, including speculative investments
6. 37We may be obligated to pay the Adviser incentive compensation even if we incur a loss
7. 38We may be required to pay the Adviser incentive compensation on income accrued, but not yet received in cash36% rewritten
8. 39The Adviser’s failure to identify and invest in securities that meet our investment criteria or perform its responsibilities under the Advisory Agreement would likely adversely affect our ability for future growth
9. 40There are significant potential conflicts of interest, including with the Adviser, which could impact our investment returns
10. 41The Adviser is not obligated to provide a credit of the base management fee or incentive fee, which could negatively impact our earnings and our ability to maintain our current level of distributions to our stockholders
11. 42Our business model is dependent upon developing and sustaining strong referral relationships with investment bankers, business brokers and other intermediaries and any change in our referral relationships may impact our business plan
12. 43Our base management fee may induce the Adviser to incur leverage

Risks Related to an Investment in Our Securities

1. 44There is a risk that you may not receive distributions or that distributions may not grow over time
2. 45Investing in our securities may involve an above average degree of risk
3. 46Distributions to our stockholders have included and may in the future include a return of capital
4. 47Common shares of closed-end investment companies frequently trade at a discount to NAV

Risks Related to the 2027 Notes and 2030 Convertible Notes (collectively, the “Notes”)

1. 48The Notes are unsecured and therefore are effectively subordinated to any secured indebtedness we have incurred or may incur in the future and rank pari passu with, or equal to, all outstanding and future unsecured indebtedness issued by us and our general liabilities (total liabilities, less debt)
2. 49The Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries
3. 50The indentures under which the Notes were issued contain limited protection for holders of the Notes
4. 51We cannot assure you an active trading market for the Notes will develop or be maintained37% rewritten
5. 52If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes
6. 53We may choose to redeem the Notes when prevailing interest rates are relatively low71% rewritten
7. 54We may not be able to repurchase the 2027 Notes upon a Change of Control Repurchase Event
8. 55A downgrade, suspension or withdrawal of the credit rating assigned by a rating agency to us or the Notes or change in the debt markets could cause the liquidity or market value of the Notes to decline significantly
9. 56An increase in market interest rates could result in a decrease in the value of the NotesNew
10. 57We may not have the ability to raise the funds necessary to settle conversions of the 2030 Convertible Notes in cash or to repurchase the 2030 Convertible Notes upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the 2030 Convertible NotesNew
11. 58Recent and future regulatory actions and other events may adversely affect the trading price and liquidity of the 2030 Convertible NotesNew
12. 59Volatility in the market price and trading volume of our common stock could adversely impact the trading price of the 2030 Convertible NotesNew
13. 60Conversion of the 2030 Convertible Notes may dilute the ownership interest of our stockholders or may otherwise depress the price of our common stockNew
14. 61The accounting method for reflecting the 2030 Convertible Notes on our balance sheet, accruing interest expense for the 2030 Convertible Notes and reflecting the underlying shares of our common stock in our reported diluted earnings per share may adversely affect our reported earnings and financial conditionNew
15. 62In addition, we expect that the shares of common stock underlying the 2030 Convertible Notes will be reflected in our diluted earnings per share using the “if converted” method, in accordance with ASU 2020-06New
16. 63Future sales of our common stock or equity-linked securities in the public market could lower the market price for our common stock and adversely impact the trading price of the 2030 Convertible NotesNew
17. 64Holders of 2030 Convertible Notes are not entitled to any rights with respect to our common stock, but they will be subject to all changes made with respect to our common stock to the extent our conversion obligation includes shares of our common stockNew
18. 65Under the 2030 Convertible Notes, a converting holder will be exposed to fluctuations in the value of our common stock during the period from the date such holder surrenders 2030 Convertible Notes for conversion until the date we settle our conversion obligationNew
19. 66The increase in the conversion rate for 2030 Convertible Notes converted in connection with a make-whole fundamental change or a notice of redemption may not adequately compensate you for any lost value of your 2030 Convertible Notes as a result of such transaction or redemptionNew
20. 67The conversion rate of the 2030 Convertible Notes may not be adjusted for all dilutive eventsNew
21. 68Some significant restructuring transactions may not constitute a fundamental change, in which case we would not be obligated to offer to repurchase the 2030 Convertible NotesNew
22. 69Certain provisions in the indenture governing the 2030 Convertible Notes may delay or prevent an otherwise beneficial takeover attempt of usNew
23. 70You may be subject to tax if we make or fail to make certain adjustments to the conversion rate of the 2030 Convertible Notes even though you do not receive a corresponding cash distributionNew

Risks Related to our Preferred Stock

1. 71There is no public market for the Series A Preferred Stock as we do not intend to apply for listing on a national securities exchange unless the Share Repurchase Program is terminated
2. 72Dividend payments on the Series A Preferred Stock are not guaranteed
3. 73The Series A Preferred Stock will bear a risk of redemption by us
4. 74Your option to request that your shares of Series A Preferred Stock be repurchased is subject to a 5% quarterly limitation, the continuation of the share repurchase program and our availability of funds, and may also be limited by law
5. 75Our ability to pay dividends on and/or repurchase shares of Series A Preferred Stock may be limited by Maryland law, the 1940 Act and the terms of our debt facilities as well as future agreements we may enter
6. 76The cash distributions you receive may be less frequent or lower in amount than you expect
7. 77If you elect to participate in the Share Repurchase Program, the cash payment that you receive as a result of your optional repurchase request may be a substantial discount to the price that you paid for the shares of Series A Preferred Stock
8. 78Holders of the Series A Preferred Stock will be subject to inflation risk
9. 79An investment in the Series A Preferred Stock bears interest rate risk
10. 80Holders of the Series A Preferred Stock will bear reinvestment risk
11. 81We are dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay dividends
12. 82We are subject to risks associated with artificial intelligence and machine learning technology
13. 83Changes in laws or regulations governing our operations, or changes in the interpretation thereof, and any failure by us to comply with laws or regulations governing our operations may adversely affect our business
14. 84We and/or our portfolio companies may be subject to risks related to global climate change
15. 85We may experience fluctuations in our quarterly and annual operating results
16. 86Public health threats may adversely impact the businesses in which we invest and affect our business, operating results and financial condition