GladStone Capital

Gladstone Capital Corporation

Quarterly Overview

for the period ended June 30, 2012

Legal Disclaimer

This presentation may include forward-looking statements. These forward-looking

statements include comments with respect to our objectives and strategies, and the results

of our operations and our business.

However, by their nature, these forward-looking statements involve numerous assumptions,

uncertainties and opportunities, both general and specific. The risk exists that these

statements may not be fulfilled. We caution readers of this presentation not to place undue

reliance on these forward-looking statements as a number of factors could cause future

company results to differ materially from these statements.

Forward-looking statements may be influenced in particular by factors such as fluctuations

in interest rates and stock indices, the effects of competition in the areas in which we

operate, and changes in economic, political, regulatory and technological conditions. We

caution that the foregoing list is not exhaustive.

When relying on forward-looking statements to make decisions, investors should carefully

consider the aforementioned factors as well as other uncertainties and events.

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Overview

• Gladstone Capital Corporation

• Business Development Company (BDC) with publicly traded common and preferred stock

• Common stock (NASDAQ: GLAD)

• Preferred stock (NASDAQ: GLADP)

• Managed by Gladstone Management Corporation, an investment adviser registered with the SEC that manages more than a billion dollars

• One of a family of funds known as The Gladstone Companies (www.gladstone.com)

• Focused on investing in senior and junior debt of private U.S. businesses

• Went public in 2001 and has never missed paying a dividend

• Current common stock dividend is $0.84 per share (per year); paid monthly at $0.07 per share

• First preferred stock dividend was paid in December 2011; annual rate is 7.125% or $0.1484 per month per share

• Current Portfolio

• Over $299 million at fair value in total investments as of June 30, 2012

• Invested in 55 companies, 28 states, 21 industries as of June 30, 2012

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Disclaimer: Past performance is not an indication of future performance

http://www.gladstone.com/

What is Gladstone Capital?

• Gladstone Capital Corporation is a publicly traded business

development company (BDC) that primarily invests in debt

securities generally consisting of senior term loans, second lien

term loans, and senior subordinate term loans in small and

medium-sized U.S. businesses

• The company seeks to:

• Lend to companies with proven cash flow and successful

track records led by great managers

• Pay monthly dividends to common and preferred

stockholders

• A company operated by an experienced management team, as

discussed in the following slides

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Experienced Management Team

David Gladstone, Chairman & CEO

• Over 25 years of experience investing in mid-sized and small private

businesses

• Current Chairman and CEO of all three Gladstone public funds; these

are public companies #7, #8 and #9 in his career

• Past Chairman of Allied Capital and American Capital

• MBA from Harvard Business School; MA from American University;

BA from University of Virginia

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• Over 25 years experience in managing businesses

• Currently Vice Chairman and COO at Gladstone Commercial and Gladstone Investment

• Previously on the acquisition team that helped James River Corp. grow from $200 million to $7 billion in revenue

• Was group VP of two operating divisions inside James River with 2,300 employees, $440 million in revenue and 14 locations

• After James River, CEO of two businesses with 800 employees, $250 million in revenue and 4 locations

• Former consultant with McKinsey & Company

• MBA from Harvard Business School; BSE in Aeronautical Engineering from Princeton University

• Over 25 years experience, currently also Vice Chairman and CIO of Gladstone Commercial and Gladstone Investment

• Supervises all investing and due diligence, reviewing hundreds of opportunities and supervising extensive due diligence on each new investment

• Past EVP at Allied Capital, making loans to middle market companies with and without real estate

• Past partner of Camden Partners, a fund investing in communications, healthcare and business services

• Past partner of Columbia Capital, a fund investing in communications and information technology

• MBA from University of Virginia Business School; BA in Economics from Vanderbilt University

Terry Brubaker, Vice Chairman & COO Chip Stelljes, President & CIO

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David Gladstone Terry Brubaker Chip Stelljes David Dullum Bob Cutlip

Chairman & CEO Chief Operating Officer Chief Investment Officer Sr. Managing Director Sr. Managing Director

25+ Years Experience 25+ Years Experience 25+ Years Experience 25+ Years Experience 25+ Years Experience

Over 20 professionals concentrating on sourcing, due diligence and portfolio management and 15 professionals in reporting

*Directors noted here are not members of the funds’ boards of directors, rather, these are junior Managing Director positions of the Adviser

Managing Directors and Directors*

Buzz Cooper

25+ Years Experience

Chris Massey

19 Years Experience

Bob Pierce


Lud Kimbrough


John Freal


David Meier


Laura Gladstone

12 Years Experience

John Sateri

23 Years Experience

Jennifer Simpson

12 Years Experience

Chris Daniel

20 Years Experience

Matt Tucker

13 Years Experience

Greg Bowie

10 Years Experience

M. Kipp Kranbuhl

14 Years Experience

Chris Lee

11 Years Experience

Michael Beckett

17 Years Experience

Blair Gertmenian

10 Years Experience

Erika Highland

11 Years Experience

Kyle Largent

10 Years Experience

Target Market

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Why we target companies in the lower middle market

Smaller companies typically offer a more compelling investment

profile than larger ones because of:

Lower purchase price multiples

Lower debt multiples

More protective covenants for lenders

Meaningful equity co-investment and likely multiple expansion

upon exit

Small businesses are often less complicated

Examples of Loans Made in Private Businesses

• Small manufacturer of a product or a service business

needs money to grow

• Banks will make short-term loans if the business has

collateral and solid cash flow

• The business gets from us a long-term loan that is the

amount of money they need, but at a higher interest rate

• We typically get an attractive long-term loan that pays

monthly interest that we can pass on as monthly dividends

to our shareholders

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Examples of Area Where We Invest

• Electronics

o Specialty connectors and cables

• Light manufacturing

o Manufacturing of small products

• Specialty manufacturing

o Custom and precision manufacturing

• Business services

o Service companies with logistic services

• Communications

o Broadcast, publishing, advertising

• Education

o Schools and training facilities

• Health Care

o Treatment centers

• Distribution

o Parts and metals

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Industries We Avoid

• Housing or Home Mortgage

– However, we have invested in one company that makes

kitchen cabinets

• Banks & Financial Institutions

• High-tech Companies or Early Stage Start-ups

Typical Investment Structure

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Preferred stock

Dividend paid or accrued at 6% to

8% per year

5 year term

A small additional investment in common

stock

Options to own common stock

Usually accompanied by a “Put” option

that provide an exit from common stock

Expected gross return is 25% to 30%

Preferred & Common Stock

(5%)

Senior-variable rates with current pay of 8-

10%

Subordinated-variable with a floor and

fixed rates with current pay of 12-15%

5-year term with interest only paid

1st and 2nd Lien: some collateral and

reasonable cash flow coverage

Strong inter-creditor agreement that avoids

blockage of interest payments

Reasonable leverage ratios and attractive

terms

Success fees to enhance the return

Expected gross return is 14% to 18%,

depending on risk profile

Senior & Junior Debt

(95%)


Track Record

• Common Stock traded on NASDAQ (GLAD) – Paying $0.07 per share per month, or $0.84 per share per year

• Preferred stock traded on NASDAQ (GLADP) – Paying $0.1484 per share per month, or $1.7813 per share per year

• Conservative balance sheet: – Debt to equity ratio of 0.7 to 1.0 as of June 30, 2012

– $87.3 million borrowed on $137 million line of credit as of June 30, 2012

• Invested in 55 companies as of June 30, 2012

• At June 30, 2012, had eight loans in default, representing 1.9% of our investment portfolio at fair value


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Portfolio Diversification as of June 30, 2012

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Gladstone Capital: By Industry at fair value

Electronics - 18%

Healthcare, education & childcare - 11%

Mining, steel & non-precious metals - 10%

Broadcast (TV & Radio) - 9%

Automobile - 8%

Retail Stores - 7%

Oil and gas - 6%

Aerospace and defense - 5%

Printing and publishing - 4%

Textiles and leather - 3%

Personal & non-durable consumer products - 3%

Machiney - 3%

Beverage, food and tobacco - 2%

Personal, food and miscellaneous services - 2%

Diversified/conglomerate manufacturing - 2%

Buildings and real estate - 2%

Leisure, amusement, movies & entertainment - 2%

Home & office furnishings - 1%

Telecommunications - 1%

Other - 1%

Geographic Diversification as of June 30, 2012

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We have outstanding investments in businesses in states highlighted in blue

Historical Net Investment Income

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Net Investment Income

FYE September 30

Total Amount

(in millions)

Amount Per

Common Share

2005 $17.3 $1.53

2006 $19.4 $1.70

2007 $22.3 $1.69

2008 $26.6 $1.35

2009 $21.0 $1.00

2010 $17.8 $0.84

2011 $18.4 $0.88

2012* $19.3 $0.92

*Annualized based on 9 months operating results


Gladstone Capital Statistics vs. Public Market BDCs

GLAD BDC Median

Price/NAV per common share 0.94x 0.99x

Debt/Common Equity 69.7% 53.6%

Common Dividend Yield 10.0% 9.7%

Market Cap (common shares) $176 $305

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Source: Raymond James BDC Industry Weekly Newsletter, August 3, 2012

We are a Shareholder Focused Company

• Maintain the monthly distribution and grow that distribution when earnings increase

• Emphasis on stability of income first and growth in income second

• Maintain stock liquidity so shareholder may easily buy or sell the stock

• Quarterly published reports and quarterly calls to shareholders

• Robust informational website (www.gladstonecapital.com) and notifications by e-mail to those who sign up

• Shareholder dividend reinvestment plan for common stock

• Audited by PricewaterhouseCoopers LLP

• Investor Relations Hotline: (866) 366-5745

• Adviser with strong reputation (www.gladstone.com)

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http://www.gladstonecapital.com/


Highlights

• Experienced Management Team: Operating team with a successful track record underwriting private businesses

• Successful CEO: Has a “brand name” reputation demonstrated by the success of nine public companies

• Business Model: Emphasis on deal flow from a proprietary originations network and strategic relationships with banks and LBO funds

• Market Opportunity: Right time in the business cycle to take advantage of the lack of funding for businesses

• Conservative Underwriting: Focused on the cash flow of the small value-oriented businesses

• Focused on Interest Income: Interest payments on our loans allow us to pay dividends to our shareholders

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Why Own GLAD Stock

• Common Stock current yield of 9.7% at August 15, 2012

• Preferred Stock current yield of 6.9% at August 15, 2012

• 105 consecutive monthly common stock distributions as of August 1,

2012 and prior to monthly distributions, the company paid eight

consecutive quarterly distributions

• Diversification of borrowers in various states and various industries

• Investing in small and mid-sized U.S. businesses with steady cash

flows

• Liquidity for investors – common and preferred stocks are listed on

NASDAQ (GLAD & GLADP)

• Management has ownership of the common stock

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Other Information

• Website for Gladstone Capital

• www.gladstonecapital.com

• Contains much more information about our company and the companies in our portfolio

• Website for the investment adviser

• www.gladstonemanagement.com

• Information on all funds managed by the company’s investment adviser

• www.gladstone.com

• Common Stock traded on NASDAQ (GLAD)

• Preferred Stock traded on NASDAQ (GLADP)

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http://www.gladstonecapital.com/

http://www.gladstonemanagement.com/


GladStone Capital

Investor Relations

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