Due to the SBIC subsidiaries’ status as licensed SBICs, the Company has the ability to issue debentures guaranteed by the SBA at favorable interest rates. Under the regulations applicable to SBIC funds, a single licensee can have outstanding debentures guaranteed by the SBA subject to a regulatory leverage limit, up to two times the amount of “regulatory capital”, as such term is defined by the SBA. As of both September 30, 2022 and December 31, 2021, the SBIC subsidiary had $75,000,000 in regulatory capital, as such term is defined by the SBA, and $150,000,000 of SBA-guaranteed debentures outstanding.

As of September 30, 2022, and December 31, 2021, the SBIC II subsidiary had $87,500,000 both in regulatory capital, as such term is defined by the SBA and $156,000,000 and $100,000,000 of SBA-guaranteed debentures outstanding, respectively.

On August 12, 2014, the Company obtained exemptive relief from the SEC to permit it to exclude the debt of the SBIC subsidiaries guaranteed by the SBA from its asset coverage test under the 1940 Act. The exemptive relief provides the Company with increased

flexibility under the asset coverage test by permitting it to borrow up to $325,000,000 more than it would otherwise be able to absent the receipt of this exemptive relief.

On a stand-alone basis, the SBIC subsidiaries held $463,857,626 and $403,333,676 in assets at September 30, 2022 and December 31, 2021, respectively, which accounted for approximately 52.2% and 49.1% of the Company’s total consolidated assets, respectively.

Debentures guaranteed by the SBA have fixed interest rates that equal prevailing 10-year U.S. Treasury Note rates plus a market spread and have a maturity of ten years with interest payable semi-annually. The principal amount of the debentures is not required to be paid before maturity, but may be pre-paid at any time with no prepayment penalty. SBA-guaranteed debentures drawn before October 1, 2019 incur upfront fees of 3.425%, which consists of a 1.00% commitment fee and a 2.425% issuance discount, which are amortized over the life of the SBA-guaranteed debentures. SBA-guaranteed debentures drawn after October 1, 2019 incur upfront fees of 3.435%, which consists of a 1.00% commitment fee and a 2.435% issuance discount, which are amortized over the life of the SBA-guaranteed debentures. Once pooled, which occurs in March and September of each applicable year, the SBA-guaranteed debentures bear interest at a fixed rate that is set to the current 10-year treasury rate plus a spread at each pooling date.

The following table summarizes the SBIC subsidiaries’ aggregate SBA-guaranteed debentures as of September 30, 2022:

(1)	Interest rate of the SBA-guaranteed debentures will be set as determined by the SBA when pooled on March 22, 2023.

As of September 30, 2022 and December 31, 2021, the carrying amount of the SBA-guaranteed debentures approximated their fair value. The fair values of the SBA-guaranteed debentures are determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the SBA-guaranteed debentures are estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. At September 30, 2022 and December 31, 2021, the SBA-guaranteed debentures would be deemed to be Level 3, as defined in Note 6.

As of September 30, 2022, the Company has incurred $10,686,100 in financing costs related to the SBA-guaranteed debentures since receiving its licenses, which were recorded as prepaid loan fees. As of September 30, 2022 and December 31, 2021, $5,842,403 and $5,384,097 of prepaid financing costs had yet to be amortized, respectively. These prepaid loan fees are presented on the Consolidated Statements of Assets and Liabilities as a deduction from the debt liability.

The following is a summary of the SBA-guaranteed debentures, net of prepaid loan fees:


	September 30,		December 31,
	2022		2021
SBA debentures payable	$	306,000,000	$	250,000,000
Prepaid loan fees		(5,842,403)		(5,384,097)
SBA Debentures, net of prepaid loan fees	$	300,157,597	$	244,615,903

The following table summarizes the interest expense and amortized fees on the SBA-guaranteed debentures for the three and nine months ended September 30, 2022 and 2021:


	For the three months ended						For the nine months ended
	September 30,			September 30,			September 30,			September 30,
	2022			2021			2022			2021
Interest expense	$	2,076,751		$	1,661,946		$	5,743,011		$	4,644,014
Debenture fee amortization		316,274			299,373			905,294			801,258
Total interest and financing expenses	$	2,393,025		$	1,961,319		$	6,648,305		$	5,445,272
Weighted average interest rate		2.8	%		2.7	%		2.7	%		2.8	%
Effective interest rate (including fee amortization)		3.2	%		3.2	%		3.2	%		3.3	%
Average debt outstanding	$	299,556,522		$	246,173,913		$	280,681,996		$	220,354,579
Cash paid for interest	$	3,955,224		$	3,201,057		$	7,360,295		$	5,907,676