497 1 tv486348_497.htm 497

Filed Pursuant to Rule 497
Securities Act File No. 333-212436

PROSPECTUS SUPPLEMENT
(To Prospectus dated August 29, 2017)

$50,000,000

Newtek Business Services Corp.

6.25% Notes Due 2023



 

Newtek Business Services Corp. is an internally managed, non-diversified, closed-end management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). Along with its wholly-owned subsidiary and controlled portfolio companies, Newtek provides a wide range of business services and financial products under the Newtek® brand to the small- and medium-sized business market. Newtek’s products and services include: Business Lending, including SBA 7(a) and 504 lending, Electronic Payment Processing, Managed Technology Solutions (Cloud Computing), eCommerce, Accounts Receivable and Inventory Financing, Insurance Solutions, Web and Ecommerce Solutions, IT consulting, Data Backup, Storage and Retrieval, and Payroll and Benefit Solutions.

As a BDC, our investment objective is to generate both current income and capital appreciation primarily through loans originated by our small business finance platform and our equity investments in certain portfolio companies that we control.

We are offering for sale $50,000,000 in aggregate principal amount of 6.25% notes due 2023, which we refer to as the “Notes.” The Notes will mature on March 1, 2023. We will pay interest on the Notes on March 1, June 1, September 1, and December 1 of each year, beginning on June 1, 2018. We may redeem the Notes in whole or in part at any time, or from time to time on or after March 1, 2020, at the redemption price of par, plus accrued interest, as discussed under the caption “Description of Notes — Optional Redemption.” The Notes will be issued in minimum denominations of $25 and integral multiples of $25 in excess thereof.

The Notes will be our direct unsecured obligations and rank pari passu, or equal, with all outstanding and future unsecured unsubordinated indebtedness issued by the Company. We currently do not have any indebtedness outstanding that is subordinated to the Notes and have no intention of issuing any such subordinated indebtedness. The Notes will be effectively subordinated to our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness, and structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries.

We expect the Notes to be approved for listing on the Nasdaq Global Market and we expect trading to commence thereon within 30 days of the original issue date under the trading symbol “NEWTI.” The Notes are expected to trade “flat.” This means that purchasers will not pay, and sellers will not receive, any accrued and unpaid interest on the Notes that is not included in the trading price. Currently, there is no public market for the Notes and there can be no assurance that one will develop.

THE NOTES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.

This prospectus supplement and the accompanying prospectus contain important information about us that a prospective investor should know before investing in the Notes. Please read this prospectus supplement and the accompanying prospectus before investing and keep each for future reference. We file annual, quarterly and current reports, proxy statements and other information about us with the Securities and Exchange Commission (“SEC”). This information is available free of charge by contacting us by mail at 1981 Marcus Avenue, Suite 130, Lake Success, New York 11042, by telephone at (212) 356-9500 or on our website at http://www.NewtekOne.com. The SEC also maintains a website at http://www.sec.gov that contains such information. Information contained on our website or on the SEC’s website about us is not incorporated by reference into this prospectus supplement and the accompanying prospectus, and you should not consider information contained on our website or on the SEC’s website to be part of this prospectus supplement and the accompanying prospectus.

An investment in our Notes is subject to risks and involves a heightened risk of total loss of investment. In addition, the companies in which we invest are subject to special risks. For example, we invest in securities that are rated below investment grade by rating agencies or that would be rated below investment grade if they were rated. Below investment grade securities, which are often referred to as “high yield” or “junk,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. See “Risk Factors” beginning on page S-25 of this prospectus supplement and on page 23 of the accompanying prospectus to read about factors you should consider, including the risk of leverage, before investing in our Notes.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

   
  Per Note   Total(2)
Public Offering Price   $ 25.00     $ 50,000,000  
Sales Load (Underwriting Discounts and Commissions)   $ 0.75     $ 1,500,000  
Proceeds to us (before expenses)(1)   $ 24.25     $ 48,500,000  

(1) Before deducting expenses related to this offering, estimated at $212,500.
(2) The underwriters may also purchase up to an additional $7,500,000 total aggregate principal amount of Notes offered hereby to cover overallotments, if any, within 30 days of the date of this prospectus supplement. If the underwriters exercise this option in full, the total public offering price will be $57,500,000, the total underwriting discount (sales load) paid by us will be $1,725,000, and total proceeds, before expenses, will be $55,775,000.

Delivery of the notes in book entry form only through The Depository Trust Company will be made on or about February 21, 2018.



 

Book-Running Manager

Keefe, Bruyette & Woods
         A Stifel Company

Co-Managers

     
BB&T Capital Markets   Compass Point   D.A. Davidson & Co.   Ladenburg Thalmann

The date of this prospectus supplement is February 15, 2018.


 
 

TABLE OF CONTENTS

TABLE OF CONTENTS
 
PROSPECTUS SUPPLEMENT

 
  Page
About this Prospectus Supplement     S-1  
Prospectus Supplement Summary     S-2  
Specific Terms of the Notes and the Offering     S-17  
Selected Financial Data     S-23  
Cautionary Statement Regarding Forward-Looking Statements and Projections     S-24  
Risk Factors     S-25  
Use of Proceeds     S-32  
Capitalization     S-33  
Management’s Discussion and Analysis of Financial Condition and Results of Operations     S-34  
Quantitative and Qualitative Disclosure About Market Risk     S-65  
Senior Securities     S-66  
Ratio of Earnings to Fixed Charges     S-69  
Description of Notes     S-70  
Certain U.S. Federal Income Tax Considerations     S-80  
Underwriting     S-86  
Legal Matters     S-90  
Independent Registered Public Accounting Firm     S-90  
Available Information     S-90  
Index to Financial Statements     SF-1  

PROSPECTUS

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  Page
Certain Relationships and Transactions     224  
Sales of Common Stock Below Net Asset Value     225  
Security Ownership of Certain Beneficial Owners and Management     230  
Regulation     231  
Determination of Net Asset Value     238  
Dividend Reinvestment Plan     240  
Material U.S. Federal Income Tax Considerations     241  
Description of Our Capital Stock     249  
Description of Our Preferred Sock     256  
Description of Subscription Rights     257  
Description of Our Warrants     259  
Description of Our Debt Securities     260  
Plan of Distribution     273  
Brokerage Allocation and Other Practices     275  
Custodian Transfer and Distribution Paying Agent and Registrar     275  
Legal Matters     275  
Independent Registered Public Accounting Firm     275  
Available Information     275  
Index to Financial Statements     F-1  

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ABOUT THIS PROSPECTUS SUPPLEMENT

You should rely only on the information contained in this prospectus supplement and the accompanying prospectus. Neither we nor the underwriters have authorized any other person to provide you with different information from that contained in this prospectus supplement or the accompanying prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus supplement and the accompanying prospectus do not constitute an offer to sell, or a solicitation of an offer to buy, any of our Notes by any person in any jurisdiction where it is unlawful for that person to make such an offer or solicitation or to any person in any jurisdiction to whom it is unlawful to make such an offer or solicitation. The information contained in this prospectus supplement and the accompanying prospectus is complete and accurate only as of their respective dates, regardless of the time of their delivery or sale of our Notes. Our business, financial condition, results of operations and prospects may have changed since those dates. This prospectus supplement may add, update or change information contained in the accompanying prospectus. This prospectus supplement supersedes the accompanying prospectus to the extent it contains information different from or additional to the information in that prospectus.

This document is in two parts. The first part is this prospectus supplement, which describes the terms of this offering of Notes and also adds to and updates information contained in the accompanying prospectus. The second part is the accompanying prospectus, which gives more general information and disclosure. To the extent the information contained in this prospectus supplement differs from the information contained in the accompanying prospectus, the information in this prospectus supplement shall control. Please carefully read this prospectus supplement and the accompanying prospectus together with any exhibits and the additional information described under “Available Information” and in the “Prospectus Supplement Summary” section (including the “— Summary Risk Factors” section) of this prospectus supplement and the “Risk Factors” section of the accompanying prospectus before you make an investment decision.

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PROSPECTUS SUPPLEMENT SUMMARY

This summary highlights some of the information in this prospectus supplement and the accompanying prospectus. It is not complete and may not contain all of the information that you may want to consider before deciding to invest in the Notes. You should read carefully the more detailed information set forth under “Risk Factors” and the other information included in this prospectus supplement and the accompanying prospectus and the documents to which we have referred. Throughout this prospectus, we refer to Newtek Business Services Corp., its consolidated subsidiaries and its predecessor, Newtek Business Services, Inc., as the “Company,” “we,” “us,” “our,” and “Newtek.”

Our Business

We are an internally managed non-diversified closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act. Additionally, we have elected to be treated as a regulated investment company (a “RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”) for U.S. federal income tax purposes, beginning with our 2015 tax year. Our investment activities are managed by our executive officers and supervised by our board of directors (the “Board”).

Our investment objective is to generate both current income and capital appreciation primarily through loans originated by our business finance platform and our equity investments in certain portfolio companies that we control. We currently are the largest non-bank financial institution licensed by the U.S. Small Business Administration (“SBA”) under the federal Section 7(a) loan program (“SBA 7(a) Loans”) based on dollar lending volume. We generally structure our loans so that we can both sell the government guaranteed portions of SBA 7(a) Loans and securitize the unguaranteed portions. This structure generally allows us to recover our capital and earn excess capital on each SBA 7(a) Loan, typically within a year. We may in the future determine to retain the government guaranteed or unguaranteed portions of loans pending deployment of excess capital. Additionally, we and our controlled portfolio companies provide a wide range of business and financial solutions to small- and medium-sized business (“SMB”) accounts, including business lending, electronic payment processing, managed technology solutions (cloud computing), IT consulting, e-commerce, accounts receivable and inventory financing, personal and commercial insurance services, web services, data backup, storage and retrieval and payroll and benefits solutions and SBA lending solutions. We support the operations of our controlled portfolio companies by providing access to our proprietary and patented technology platform, including NewTracker®, our patented prospect management software.

We define SMBs as companies having revenues of $1.0 million to $100.0 million, and we estimate the SMB market to be over 27 million businesses in the U.S. While our primary investments include making loans and providing business solutions to the SMB market through our subsidiary and controlled portfolio companies, we also may make opportunistic investments in larger or smaller companies. We expect to generate returns through a combination of realized gains on the sale of the government guaranteed portions of SBA 7(a) loans, contractual interest payments on debt investments, dividends from our controlled portfolio companies, equity appreciation (through direct investment in our controlled portfolio companies), servicing income and other income. We can offer no assurance that we will achieve our investment objective.

Organizational Overview

On November 12, 2014, our predecessor, Newtek Business Services, Inc. (“Newtek NY”), merged with and into Newtek Business Services Corp. for the purpose of reincorporating the Company in the state of Maryland. On that same date, newly combined company, Newtek Business Services Corp., elected to be regulated as a BDC under the 1940 Act (the “BDC Conversion”). On October 22, 2014, prior to the BDC Conversion, we effectuated a 1 for 5 reverse stock split (the “Reverse Stock Split”) to attract institutional investors. As a result of the BDC Conversion, Newtek NY ceased to exist and the Company succeeded to Newtek NY’s operations as the sole surviving entity.

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The Company is a Maryland corporation that is an internally managed, non-diversified closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act. As a BDC, we are required to meet regulatory tests, including the requirement to invest at least 70% of our gross assets in “qualifying assets.” Qualifying assets generally include securities of private or thinly traded U.S. companies and cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. See “Regulation” in the accompanying prospectus. In addition, we have elected to be treated for U.S. federal income tax purposes, and intend to qualify annually thereafter, as a RIC under the Code. See “Material U.S. Federal Income Tax Considerations” in the accompanying prospectus.

Set forth below is a diagram of our current organizational structure:

Set forth below is a diagram of our organizational structure as of December 31, 2017:

[GRAPHIC MISSING]

(1) Consolidated subsidiary that is part of the Company’s business finance platform, and operates as a nationally licensed SBA lender under the federal Section 7(a) program with preferred lender program status.
(2) Consists of indirect and direct SBA 7(a) Loans to small businesses.
(3) Wholly-owned portfolio company that is part of the Company’s business finance platform. Provides receivables and inventory financing, management services, and managerial assistance to SMBs and originates loans under the SBA 504 loan program.
(4) Wholly-owned portfolio company that markets credit and debit card processing services, check approval services, processing equipment, and software.
(5) Wholly-owned portfolio company that provides website hosting, dedicated server hosting, cloud hosting, web design and development, internet marketing, ecommerce, data storage, backup and disaster recovery, and other related services.
(6) Wholly-owned portfolio company that is part of the Company’s business finance platform. Provides third-party loan services for SBA and non-SBA loans.
(7) Wholly-owned portfolio company that markets credit and debit card processing services, check approval services, processing equipment, and software.
(8) Includes: (i) Newtek Insurance Agency, LLC, a wholly-owned portfolio company which is a retail and wholesale brokerage insurance agency specializing in the sale of commercial and health/benefits lines insurance products to the SMB market as well as various personal lines of insurance. It is licensed in all 50 states; (ii) PMTWorks Payroll, LLC d/b/a Newtek Payroll and Benefits Solutions, a wholly-owned portfolio company which offers an array of industry standard and competitively priced payroll management, payment and tax reporting services to SMBs; (iii) ADR Partners, LLC d/b/a banc-serv Partners, LLC, a wholly-owned portfolio company, provides lending institutions with outsourced solutions for the entire SBA lending process, including credit analysis, structuring and eligibility, packaging, closing compliance and servicing; and (iv) International Professional Marketing, Inc. (“IPM”) and Sidco, LLC d/b/a Cloud Nine Services (“Cloud Nine”), wholly-owned portfolio companies which consult, strategize, design, and implement technology solutions for enterprise and commercial clients across the U.S.

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Business Finance Platform

Our portfolio consists of guaranteed and unguaranteed non-affiliate SBA loan investments that were made through our business finance platform, which includes Newtek Small Business Finance, LLC (“NSBF”), a nationally licensed SBA lender under the federal Section 7(a) loan program. SBA 7(a) loans are partially guaranteed by the SBA, an independent government agency that facilitates one of the nation’s largest sources of SMB financing. SBA guarantees typically range between 75% and 90% of the principal and interest due. NSBF has a dedicated Senior Lending Team that originates and services SBA 7(a) loans to qualifying SMBs. NSBF sells the guaranteed portions of its SBA 7(a) loans, typically within two weeks of origination, and retains the unguaranteed portion until accumulating sufficient loans for a securitization. NSBF’s securitization process is as follows. After accumulating sufficient loans, the loans are transferred to a special purpose vehicle (a “Trust”), which in turn issues notes against the Trust’s assets in a private placement. The Trust’s primary source of income for repaying the securitization notes is the cash flows generated from the unguaranteed portion of SBA 7(a) loans now owned by the Trust; principal on the securitization notes will be paid by cash flow in excess of that needed to pay various fees related to the operation of the Trust and interest on the debt. Securitization notes have an expected maturity of about five years, and the Trust is dissolved when the securitization notes are paid in full.

NSBF has received preferred lender program (“PLP”) status, a designation whereby the SBA authorizes the most experienced SBA lenders to place SBA guarantees on loans without seeking prior SBA review and approval. PLP status allows NSBF to serve its clients in an expedited manner since it is not required to present applications to the SBA for concurrent review and approval.

NSBF maintains a diversified pool of loans by focusing on making smaller loans, approximately $1.0 million or less, that are dispersed both geographically and among industries, thereby limiting NSBF’s exposure to regional and industry-specific economic downturns. NSBF supports its lending activities with lines of credit for the unguaranteed and guaranteed portions of SBA 7(a) Loans. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Resources — Capital One Facility” in the accompanying prospectus for more information.

NSBF evaluates the credit quality of its loan portfolio by employing a risk rating system that is similar to the Uniform Classification System, which is the asset classification system adopted by the Federal Financial Institution Examinations Council. NSBF’s risk rating system is granular with multiple risk ratings in both the Acceptable and Substandard categories. NSBF assigns ratings based on numerous factors, including credit risk scores, collateral type, loan to value ratios, industry, financial health of the business, payment history, other internal metrics/analysis, and qualitative assessments. NSBF refreshes risk ratings as appropriate based upon considerations such as market conditions, loan characteristics, and portfolio trends. Refer to “Business —  Ongoing Relationships with Portfolio Companies” in the accompanying prospectus for a description of our risk rating system.

The business finance platform also includes Newtek Business Credit Solutions (“NBC”), a wholly-owned portfolio company that provides financing services to businesses through receivables and inventory financing and, beginning in 2015, originates loans under the SBA 504 loan program. NBC also offers managerial assistance to SMBs, including offering back office receivables services, such as billing and cash collections.

An additional wholly-owned portfolio company, Small Business Lending, LLC (“SBL”), engages in third party loan servicing for SBA and non-SBA loans. NSBF, along with SBL, manages a portfolio of approximately $1.3 billion of loans, which as of September 30, 2017 included approximately $185.8 million of loans that SBL services on behalf of third parties.

Controlled Portfolio Companies

In addition to our debt investments in portfolio companies, we also hold controlling equity interests, either directly or through our business finance platform, in certain portfolio companies that, as of September 30, 2017, represented approximately 33% of our total investment portfolio. Specifically, we hold a controlling equity interest in SBL, NBC, ADR Partners, LLC d/b/a banc-serv Partners, LLC (“BSP”), Universal Processing Services of Wisconsin, LLC d/b/a Newtek Merchant Solutions (“NMS” or “UPSW”), Premier Payments LLC d/b/a Newtek Payment Solutions (“Premier”), Newtek Technology Solutions, Inc.

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(“NTS”), PMTWorks Payroll, LLC d/b/a Newtek Payroll and Benefits Solutions (“NPS”), Newtek Insurance Agency, LLC (“NIA”), IPM and Cloud Nine. We refer to these entities (among others), collectively, as our “controlled portfolio companies.” Our controlled portfolio companies provide us with an extensive network of business relationships that supplement our referral sources and that we believe will help us to maintain a robust pipeline of lending opportunities and expand our business finance platform.

For example, NMS has entered into agreements with two chartered banks (“bank sponsorships”), which allow NMS to access the Visa® and MasterCard® networks in order to process bankcard transactions.

Neither the controlled portfolio companies nor their operating revenues are consolidated in our financial reporting. The revenues that our controlled portfolio companies generate, after deducting operational expenses, may be distributed to us. As a BDC, our Board will determine quarterly the fair value of our controlled portfolio companies in a similar manner as our other investments. In particular, our investments in our controlled portfolio companies are valued using a valuation methodology that incorporates both the market approach (guideline public company method) and the income approach (discounted cash flow analysis). In following these approaches, factors that we may take into account in determining the fair value of our investments include, as relevant: available current market data, including relevant and applicable market trading comparables, the portfolio company’s earnings and discounted cash flows, comparisons of financial ratios of peer companies that are public, and enterprise values, among other factors. In addition, the Company has engaged third party valuation firms to provide valuation consulting services for the valuation of certain of our controlled portfolio companies for which there is not a readily available market value. Specifically, the Board has directed the Company to engage independent valuation firms to assist in valuing certain portfolio investments without a readily available market quotation, at least once during a trailing twelve-month period under a valuation policy and a consistently applied valuation process. See “Critical Accounting and Estimates — Fair Value Measurement” in the accompanying prospectus.

Certified Capital Companies (Capcos)

Certified capital companies, or “Capcos,” are companies that Newtek created pursuant to state-sponsored programs, which are designed to encourage investment in small and new businesses and to create economic activity and jobs in designated geographic areas. See “Business — Organizational Overview — Certified Capital Companies (Capcos)” in the accompanying prospectus.

Historically, our Capcos invested in SMBs and generated interest income, investment returns, non-cash income from tax credits, and non-cash expenses (i.e., interest, insurance, and cash management fees and expenses). We have de-emphasized our Capco business in favor of growing our controlled portfolio companies and do not anticipate creating any new Capcos. We continue to invest in and lend to SMBs through our existing Capcos and intend to meet the goals of the Capco programs.

As the Capcos reach 100% investment we will seek to de-certify them as Capcos and liquidate their remaining assets, which will reduce their operational costs (particularly compliance costs). Nine of our original sixteen Capcos have reached this stage. See “Risk Factors — Risks Relating to Our Capco Business” in the accompanying prospectus.

Newtek Branding

We use an integrated multi-channel marketing approach featuring direct, indirect and outbound solicitation efforts. Our original direct marketing efforts featured a line of products and services that were branded with our “go-to market” brand, The Small Business Authority®, and which was supported by a marketing campaign built around this brand. We have rolled out our new “go to market” brand, Your Business Solutions Company®, which is being supported by a new marketing campaign and our new web domain, www.NewtekOne.comTM.

We market indirectly through referrals from our strategic alliance partners, which include banks, insurance companies, credit unions, and other affinity groups, using our patented NewTracker® referral system. The NewTracker® system provides for security and transparency between referring parties, and allows us and our alliance partners to review in real time the status of any referral as well as to provide real time compliance oversight by the respective alliance partner. We own the NewTracker® patent, as well as all trademarks and other patented intellectual property used by us and our controlled portfolio companies.

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We obtain referrals from individual professionals in geographic markets that have signed up to provide referrals and earn commissions through our BizExec and TechExec Programs, which include traditional information technology professionals, CPAs, independent insurance agents and sales and/or marketing professionals. We also market our electronic payment processing services through independent sales agents, and web technology and eCommerce services through internet-based marketing and third-party resellers.

Senior Lending Team and Executive Committee

Each of the key members of our Senior Lending Team, which include Barry Sloane, Peter Downs, David Leone, Robert Hawes, Gary Golden, and Gary Taylor (our “Senior Lending Team”), has over 25 years of experience in finance-related fields. We believe that each member brings a complementary component to a team well-rounded in finance, accounting, operations, strategy, business law, and executive management.

Our executive officers include Barry Sloane, Peter Downs, Jennifer C. Eddelson, Michael A. Schwartz and John Raven (our “Executive Committee”), which manage the Company under the supervision of our Board. While our portfolio companies are independently managed, our Executive Committee oversees our controlled portfolio companies and, to the extent that we may make additional equity investments in the future, the Executive Committee will also have primary responsibility for identifying, screening, reviewing, and completing such investments. We do not expect to focus our resources on investing in additional stand-alone equity investments, but may elect to do so from time to time on an opportunistic basis, if such opportunities arise. Messrs. Sloane and Downs have been involved together in the structuring and management of equity investments for the past fourteen years.

Market Opportunity

We believe that the limited amount of capital and financial products available to SMBs, coupled with the desire of these companies for flexible and partnership-oriented sources of capital and other financial products, create an attractive investment environment for us to further expand our business finance platform and overall brand. We believe the following factors will continue to provide us with opportunities to grow and deliver attractive returns to shareholders.

The SMB market represents a large, underserved market.  We believe that the SMB market, which we estimate to be over 27 million mostly privately-held businesses, is relatively underserved by traditional capital providers such as commercial banks, finance companies, hedge funds and collateralized loan obligation funds. Further, we believe that such companies generally possess conservative capital structures with significantly less debt to equity, as compared to larger companies with more financing options. As the largest non-bank originator of SBA 7(a) Loans by dollar lending volume and the sixth largest SBA 7(a) lender in the U.S. as of December 31, 2017, we believe we and our controlled portfolio companies are well positioned to provide financing to SMBs, and have the technology and infrastructure in place to do so cost effectively, in all 50 states, and across many industries.

Future refinancing activity is expected to create additional investment opportunities.  A high volume of financings completed between 2005 and 2008 will mature in the coming years. We believe this supply of opportunities coupled with limited financing providers focused on SMBs will continue to offer investment opportunities with attractive risk-weighted returns.

The increased capital requirements and other regulations placed on banks may reduce lending by traditional large financial institutions and community banks.  We believe that debt financing through traditional large financial institutions will continue to be constrained for several years as U.S. and international regulators continue to phase in financial reforms, such as Basel III, and U.S. regulators promulgate rules and regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act. We believe that these regulations will increase capital requirements and have the effect of further limiting the capacity of traditional financial institutions to hold non-investment grade loans on their balance sheets. As a result, we believe that many of these financial institutions have de-emphasized their service and product offerings to SMBs, which we believe will make a higher volume of deal flow available to us.

Increased demand for comprehensive, business-critical SMB solutions.  Increased competition and rapid technological innovation are creating an increasingly competitive business environment that requires SMBs to fundamentally change the way they manage critical business processes. This environment is

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characterized by greater focus on increased quality, lower costs, faster turnaround and heightened regulatory scrutiny. To make necessary changes and adequately address these needs, we believe that companies are focusing on their core competencies and utilizing cost-effective outsourced solutions to improve productivity, lower costs and manage operations more efficiently. Our controlled portfolio companies provide critical business solutions such as business lending, receivables financing, including inventory financing and health care receivables, electronic payment processing, managed IT solutions (including eCommerce, webhosting and datacenters), personal and commercial insurance services and full-service payroll and benefit solutions. We believe that each of these market segments is underserved for SMBs and since we are able to provide comprehensive solutions under one platform, we are well positioned to continue to realize growth from these product offerings.

Competitive Advantages

We believe that we are well positioned to take advantage of investment opportunities in SMBs due to the following competitive advantages:

Internally Managed Structure and Significant Management Resources.  We are internally managed by our executive officers under the supervision of our Board and do not depend on an external investment advisor. As a result, we do not pay investment advisory fees and all of our income is available to pay our operating costs, which include employing investment and portfolio management professionals, and to make distributions to our shareholders. We believe that our internally managed structure provides us with a lower cost operating expense structure, when compared to other publicly traded and privately-held investment firms which are externally managed, and allows us the opportunity to leverage our non-interest operating expenses as we grow our investment portfolio.
Business Model Enables Attractive Risk-Weighted Return on Investment in SBA Lending.  Our SBA 7(a) loans are structured so as to permit rapid sale of the U.S. government guaranteed portions, often within weeks of origination, and the unguaranteed portions have been successfully securitized and sold, usually within a year of origination. The return of principal and premium may result in an advantageous risk-weighted return on our original investment in each loan. We may determine to retain the government guaranteed or unguaranteed portions of loans pending deployment of excess capital.
State of the Art Technology.  Our patented NewTracker® software enables us to board a SMB customer, process the application or inquiry, assemble necessary documents, complete the transaction and create a daily reporting system. This system enables us to identify a transaction, then process the business transaction and generate internal reports used by management and external reports for strategic referral partners. It allows our referral partners to have digital access into our back office and follow on a real time, 24/7 basis the processing of their referred customers. This technology has been made applicable to all of the service and product offerings we make directly or through our controlled portfolio companies.
Established Direct Origination Platform with Extensive Deal Sourcing Infrastructure.  We have established a direct origination pipeline for investment opportunities without the necessity for investment banks or brokers as well as broad marketing channels that allow for highly selective underwriting. Over the past fourteen years, the combination of our brand, our portal, our patented NewTracker® technology, and our web presence as The Small Business Authority® has created an extensive deal sourcing infrastructure. We anticipate that our new web presence, Your Business Solutions Company®, supported by our new web domain, NewtekOne.comTM, will continue this trend. We pay fees for loan originations that are referred to us by our alliance partners and our investment team works directly with the borrower to assemble and underwrite loans. We rarely invest in pre-assembled loans that are sold by investment banks or brokers. As a result, we believe that our unique national origination platform allows us to originate attractive credits at a low cost. We anticipate that our principal source of investment opportunities will continue to be in the same types of SMBs to which we currently provide financing. Our Executive Committee and Senior Lending Team will also seek to leverage their extensive network of additional referral sources,

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including alliance partners, law firms, accounting firms, financial, operational and strategic consultants and financial institutions, with whom we have completed investments. We believe our current infrastructure and expansive relationships should continue to enable us to review a significant amount of high quality, direct (or non-brokered) investment opportunities.
Experienced Senior Lending Team with Proven Track Record.  We believe that, under the direction of our Senior Lending Team, NSBF has become one of the leading capital providers to SMBs. Since we acquired NSBF in 2003, through September 30, 2017, NSBF has invested in excess of $1.7 billion in 2,421 transactions. Our Senior Lending Team has expertise in managing the SBA process and has managed a diverse portfolio of investments with a broad geographic and industry mix. While our primary focus is to expand the debt financing activities of NSBF in SBA 7(a) loans, we expect SBA 504 loans to be made by NBC to be a growth opportunity, although there can be no assurances that such growth will occur.
Flexible, Customized Financing Solutions for Seasoned, Smaller Businesses.  While our primary focus as a BDC is to expand NSBF’s lending by providing SBA 7(a) loans to SMBs, we also seek to offer SMBs a variety of attractive financing structures, as well as cost effective and efficient business services, to meet their capital needs through our subsidiaries and controlled portfolio companies. In particular, NBC offers larger loans, between $5.0 to $10.0 million, than available with the SBA guarantee, but with a higher interest rate to compensate for the increased risk. Unlike many of our competitors, we believe we have the platform to provide a complete package of business services and financing options for SMBs, which allows for cross-selling opportunities and improved client retention. We expect that a large portion of our capital will be loaned to companies that need growth capital, acquisition financing or funding to recapitalize or refinance existing debt facilities. Our lending will continue to focus on making loans to SMBs that:
have 3 to 10 years of operational history;
significant experience in management;
credit worthy owners who provide a personal guarantee for our investment;
show a strong balance sheet including primarily real estate to collateralize our investments; and
show sufficient cash flow to be able to service the payments on our investments comfortably.

We generally seek to avoid investing in high-risk, early-stage enterprises that are only beginning to develop their market share or build their management and operational infrastructure with limited collateral. We also believe our SBA license, combined with our PLP designation, provides us with a distinct competitive advantage over other SMB lenders that have not overcome these significant barriers-to-entry in our primary loan market.

Disciplined Underwriting Policies and Rigorous Portfolio Management.  We pursue rigorous due diligence of all prospective investments originated through our platform. Our Senior Lending Team has developed an extensive underwriting due diligence process, which includes a review of the operational, financial, legal and industry performance and outlook for the prospective investment, including quantitative and qualitative stress tests, review of industry data and consultation with outside experts regarding the creditworthiness of the borrower. These processes continue during the portfolio monitoring process, when we will conduct field examinations, review compliance certificates and covenants and regularly assess the financial and business conditions and prospects of portfolio companies. Our controlled portfolio company SBL is a servicer for commercial loans, offering servicing capabilities with a compact timeline for loan resolutions and dispositions and has attracted various third-party portfolios. banc-serv Partners, LLC, a wholly-owned portfolio company, provides lending institutions with outsourced solutions for the entire SBA lending process, including credit analysis, structuring and eligibility, packaging, closing compliance and servicing.

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Summary Risk Factors

The value of our assets, as well as the market price of our shares, will fluctuate. Our investments may be risky, and you may lose all or part of your investment in us. Investing in Newtek involves other risks, including the following:

Risk Related to Our Business and Structure

Throughout our 19 year history we have never operated as a BDC until we converted on November 12, 2014.
Our investment portfolio is recorded at fair value, with our Board having final responsibility for overseeing, reviewing and approving, in good faith, its estimate of fair value and, as a result, there is uncertainty as to the value of our portfolio investments.
Our financial condition and results of operations will depend on our ability to manage and deploy capital effectively.
We are dependent upon our Senior Lending Team and our Executive Committee for our future success, and if we are unable to hire and retain qualified personnel or if we lose any member of our Senior Lending Team or our Executive Committee our ability to achieve our investment objective could be significantly harmed.
We operate in a highly competitive market for investment opportunities, which could reduce returns and result in losses.
If we are unable to source investments effectively, we may be unable to achieve our investment objective.
Our business model depends to a significant extent upon strong referral relationships, and our inability to maintain or further develop these relationships, as well as the failure of these relationships to generate investment opportunities, could adversely affect our business.
Any failure on our part to maintain our status as a BDC would reduce our operating flexibility.
Regulations governing our operation as a BDC affect our ability to raise additional capital and the way in which we do so. As a BDC, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage.
Because we intend to distribute substantially all of our income to our shareholders to maintain our tax treatment as a RIC, we will continue to need additional capital to finance our growth, and regulations governing our operation as a BDC will affect our ability to, and the way in which we, raise additional capital and make distributions.
Because we borrow money, the potential for loss on amounts invested in us is magnified and may increase the risk of investing in us.
To the extent we borrow money to finance our investments, changes in interest rates will affect our cost of capital and net investment income.
We may experience fluctuations in our quarterly and annual results.
Our Board may change our investment objective, operating policies and strategies without prior notice or shareholder approval, the effects of which may be adverse.
We will be subject to corporate-level income tax if we are unable to maintain our qualification as a RIC or are unable to make the distributions required to maintain RIC tax treatment.
We may not be able to pay distributions to our shareholders, our distributions may not grow over time and a portion of our distributions may be a return of capital.
We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.

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We may in the future choose to pay dividends in our own stock, in which case investors may be required to pay tax in excess of the cash they receive.
Internal control deficiencies could impact the accuracy of our financial results or prevent the detection of fraud. As a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.
Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy.
We have specific risks associated with SBA loans.
Curtailment of the government-guaranteed loan programs could adversely affect our results of operations.
Curtailment of our ability to utilize the SBA 7(a) Loan Program by the Federal government could adversely affect our results of operations.
A government shutdown could adversely affect NSBF’s SBA 7(a) Loan origination and our results of operations.
Our loans under the Section 7(a) Loan Program involve a high risk of default and such default could adversely impact our results of operations.
The loans we make under the Section 7(a) Loan Program face competition.
NSBF, our wholly-owned subsidiary, is subject to regulation by the SBA.
There can be no assurance that NSBF will be able to maintain its status as a PLP or that NSBF can maintain its SBA 7(a) license.
If NSBF fails to comply with SBA regulations in connection with the origination, servicing, or liquidation of an SBA 7(a) loan, liability on the SBA guaranty, in whole or part, could be transferred to NSBF.
Our business is subject to increasingly complex corporate governance, public disclosure and accounting requirements that are costly and could adversely affect our business and financial results.
If we cannot obtain additional capital because of either regulatory or market price constraints, we could be forced to curtail or cease our new lending and investment activities, our net asset value could decrease and our level of distributions and liquidity could be affected adversely.
Capital markets may experience periods of disruption and instability and we cannot predict when these conditions will occur. Such market conditions could materially and adversely affect debt and equity capital markets in the United States and abroad, which could have a negative impact on our business, financial condition and results of operations.
A failure, or the perceived risk of a failure, to raise the statutory debt limit of the U.S. could have a material adverse effect on our business, financial condition and results of operations.
We are highly dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our securities and our ability to make distributions to our shareholders.
Terrorist attacks, acts of war or natural disasters may affect any market for our securities, impact the businesses in which we invest and harm our business, operating results and financial condition.
We face cyber-security risks.
We could be adversely affected by information security breaches or cyber security attacks.
The failure of our cyber-security systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning, could impair our ability to conduct business effectively.

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Risks Related to Our Investments Generally

Our investments are very risky and highly speculative.
An investment strategy focused primarily on smaller privately held companies involves a high degree of risk and presents certain challenges, including the lack of available information about these companies, a dependence on the talents and efforts of only a few key portfolio company personnel and a greater vulnerability to economic downturns.
Our investments in leveraged portfolio companies may be risky, and you could lose all or part of your investment.
Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.
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.
If we make subordinated investments, the obligors or the portfolio companies may not generate sufficient cash flow to service their debt obligations to us.
The disposition of our investments may result in contingent liabilities.
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.
Economic recessions could impair our portfolio companies and harm our operating results.
The lack of liquidity in our investments may adversely affect our business.
Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio.
Our portfolio may lack diversification among portfolio companies which may subject us to a risk of significant loss if one or more of these companies default on its obligations under any of its debt instruments.
We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we may invest a significant portion of our assets in a relatively small number of issuers, which subjects us to a risk of significant loss if any of these issuers defaults on its obligations under any of its debt instruments or as a result of a downturn in the particular industry.
Our portfolio may 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.
Because we may not hold controlling equity interests in certain of our portfolio companies, we may not be in a position to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments.
Defaults by our portfolio companies will harm our operating results.
If we and our portfolio companies are unable to protect our intellectual property rights, our business and prospects could be harmed, and if we and our portfolio companies are required to devote significant resources to protecting their intellectual property rights, the value of our investment could be reduced.
Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity.
We may not realize gains from our equity investments.
We may expose ourselves to risks if we engage in hedging transactions.

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An increase in non-performing assets would reduce our income and increase our expenses.
If the assets securing the loans that we make decrease in value, then we may lack sufficient collateral to cover losses.
We could be adversely affected by weakness in the residential housing and commercial real estate markets.

Risks Relating to Our Controlled Portfolio Companies — Newtek Merchant Solutions (NMS)

We could be adversely affected if either of NMS’ two bank sponsorships is terminated.
If NMS or its processors or bank sponsors fail to adhere to the standards of the Visa® and MasterCard® bankcard associations, its registrations with these associations could be terminated and it could be required to stop providing payment processing services for Visa® and MasterCard®.
On occasion, NMS experiences increases in interchange and sponsorship fees. If it cannot pass along these increases to its merchants, its profit margins will be reduced.
Unauthorized disclosure of merchant or cardholder data, whether through breach of our computer systems or otherwise, could expose us to liability and business losses.
NMS is liable if its processing merchants refuse or cannot reimburse charge-backs resolved in favor of their customers.
NMS has potential liability for customer or merchant fraud.
NMS payment processing systems may fail due to factors beyond its control, which could interrupt its business or cause it to lose business and likely increase costs.
The electronic payment processing business is undergoing very rapid technological changes which may make it difficult or impossible for NMS or Premier Payments to compete effectively.
NMS and others in the payment processing industry have come under increasing pressures from various regulatory agencies seeking to use the leverage of the payment processing business to limit or modify the practices of merchants which could lead to increased costs and liabilities.
Increased regulatory focus on the payments industry may result in costly new compliance burdens on NMS’ clients and on NMS itself, leading to increased costs and decreased payments volume and revenues.

Risks Related to Our Controlled Portfolio Companies — Newtek Technology Solutions (NTS)

NTS operates in a highly competitive industry in which technological change can be rapid.
NTS’ technology solutions business depends on the efficient and uninterrupted operation of its computer and communications hardware systems and infrastructure.
NTS’ inability to maintain the integrity of its infrastructure and the privacy of confidential information would materially affect its business.
NTS could be adversely affected by information security breaches or cyber security attacks.
NTS’ business depends on Microsoft Corporation and others for the licenses to use software as well as other intellectual property in the managed technology solutions business.
NTS’ managed technology business is built on technological platforms relying on the Microsoft Windows® products and other intellectual property that NTS currently licenses. As a result, if NTS is unable to continue to have the benefit of those licensing arrangements or if the products upon which its platform is built become obsolete, its business could be materially and adversely affected.

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Risks Related to Our Controlled Portfolio Companies — Newtek Insurance Agency (NIA)

NIA depends on third parties, particularly property and casualty insurance companies, to supply the products marketed by its agents.
If NIA fails to comply with government regulations, its insurance agency business would be adversely affected.
NIA does not have any control over the commissions it earns on the sale of insurance products which are based on premiums and commission rates set by insurers and the conditions prevalent in the insurance market.

Risks Related to Our Controlled Portfolio Companies — Newtek Payroll and Benefits Solutions (NPS)

Unauthorized disclosure of employee data, whether through a cyber-security breach of our computer systems or otherwise, could expose NPS to liability and business losses.
NPS is subject to risks surrounding Automated Clearing House (“ACH”) payments.
NPS’ systems may be subject to disruptions that could adversely affect its business and reputation.
If NPS fails to adapt its technology to meet client needs and preferences, the demand for its services may diminish.
NPS could incur unreimbursed costs or damages due to delays in processing inherent in the banking system.
NPS could incur unreimbursed costs or damages due to delays in processing customer payrolls or payroll taxes.

Risks Related to Our Controlled Portfolio Companies — Newtek Business Credit Solutions (NBC)

An unexpected level of defaults in NBC’s accounts receivables portfolio would reduce its income and increase its expenses.
NBC’s reserve for credit losses may not be sufficient to cover unexpected losses.
NBC depends on outside financing to support its receivables financing business.

Legal Proceedings — Portfolio Companies

Our portfolio companies may, from time to time, be involved in various legal matters, including the currently pending case — Federal Trade Commission v. WV Universal Management, LLC et al., which may have an adverse effect on their operations and/or financial condition. See “Legal Proceedings — Portfolio Companies” on page 31.

Risks Relating to Our CAPCO Business

The Capco programs and the tax credits they provide are created by state legislation and implemented through regulation, and such laws and rules are subject to possible action to repeal or retroactively revise the programs for political, economic or other reasons. Such an attempted repeal or revision would create substantial difficulty for the Capco programs and could, if ultimately successful, cause us material financial harm.
Because our Capcos are subject to requirements under state law, a failure of any of them to meet these requirements could subject the Capco and our shareholders to the loss of one or more Capcos.
We know of no other publicly-held company that sponsors and operates Capcos as a part of its business. As such, there are, to our knowledge, no other companies against which investors may compare our Capco business and its operations, results of operations and financial and accounting structures.

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Risks Relating to Our Securities

As of February 12, 2018, Barry Sloane, President and CEO, beneficially owned approximately 5.4% of our common stock, and may be able to exercise significant influence over the outcome of most shareholder actions.
Our common stock price may be volatile and may decrease substantially.
Future issuances of our common stock or other securities, including preferred shares, may dilute the per share book value of our common stock or have other adverse consequences to our common shareholders.
Our shareholders may experience dilution upon the repurchase of common shares.
The authorization and issuance of “blank check” preferred shares could have an anti-takeover effect detrimental to the interests of our shareholders.
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.
Provisions of the Maryland General Corporation Law and of our charter and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock.
Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock.
If we issue preferred stock, the net asset value and market value of our common stock will likely become more volatile.
Shareholders 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 or issue securities to subscribe to, convert to or purchase shares of our common stock.

Risk Related to Our Publicly-Traded Debt

The 7.5% notes due 2022 (the “2022 Notes”) and the 7.00% notes due 2021 (the “2021 Notes,” and together with the 2022 Notes, the “Outstanding Notes”) are unsecured and therefore are effectively subordinated to any secured indebtedness we have outstanding or may incur in the future.
The Outstanding Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.
The indenture under which the Outstanding Notes were issued contains limited protection for holders of the Notes.
If we default on our obligations to pay other indebtedness that we may incur in the future, we may not be able to make payments on the Outstanding Notes.
We may choose to redeem the Outstanding Notes when prevailing interest rates are relatively low.
The trading market or market value of our publicly traded debt securities may fluctuate.
Pending legislation may allow us to incur additional leverage.

See “Risk Factors” beginning on page S-25 of this prospectus supplement and page 23 of the accompanying prospectus, and the other information included in the accompanying prospectus, for additional discussion of factors you should carefully consider before deciding to invest in our Notes.

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Status of Our Offerings

From October 1, 2017 through December 31, 2017 the Company sold 684,181 shares of its common stock at a weighted average price of $17.83 per share under the ATM Equity Distribution Agreement. Proceeds, net of offering costs and expenses were approximately $11,955,000. As of December 31, 2017, there were 1,760,819 shares of common stock available for sale under the ATM Equity Distribution Agreement.

Operating and Regulatory Structure

The Company is a Maryland corporation that is an internally managed, non-diversified closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act. As a BDC, we are required to meet regulatory tests, including the requirement to invest at least 70% of our gross assets in “qualifying assets.” Qualifying assets generally include securities of private or thinly traded U.S. companies and cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. See “Regulation” in the accompanying prospectus. In addition, we have elected to be treated for U.S. federal income tax purposes, and intend to qualify annually, as a RIC under the Code. See “Material U.S. Federal Income Tax Considerations” in the accompanying prospectus.

Recent Developments

Securitizations

On January 18, 2018, the Company declared a first quarter 2018 cash dividend of $0.40 per share. The first quarter 2018 dividend is payable on March 30, 2018 to shareholders of record as of March 20, 2018. The Company also announced that it had increased its 2018 annual cash dividend forecast to $1.70 per share, which would represent a 3.7% increase over the Company’s 2017 annual dividend of $1.64 per share.

On December 6, 2017, the Company closed on its eighth and largest small business loan securitization, with the sale of $75,426,000 of Unguaranteed SBA 7(a) Loan-Backed Notes, Series 2017-1, consisting of $58,111,000 of Class A Notes and $17,315,000 Class B Notes (collectively, the “Eighth Securitization Notes”), rated “A” and “BBB-”, respectively, by Standard and Poor’s Financial Services LLC. The Notes had a 79.50% advance rate, and were priced at an average initial yield of 3.59% (Eighth Securitization Note interest rates will be floating rate) across both classes.

The Eighth Securitization Notes are collateralized by the right to receive payments and other recoveries attributable to the unguaranteed portions of SBA 7(a) loans made by Newtek Small Business Finance, LLC (“NSBF”) pursuant to Section 7(a) of the Small Business Act of 1953, and overcollateralized by NSBF’s participation interest in the unguaranteed portions. Deutsche Bank Securities Inc. acted as Sole Book Running Manager and Capital One Securities, Inc. acted as Co-Manager for the offering.

Portfolio Company Developments

On October 13, 2017, the Company announced that its portfolio company, BSP, was served with a search warrant by the Federal Bureau of Investigation on October 12, 2017 at BSP’s offices in Westfield, Indiana. The Company closed on its $5,400,000 investment in BSP in June 2016. During the three months ended September 30, 2017, the Company recorded a $2,000,000 unrealized loss on its investment in BSP to reflect the potential impact to the business and tradename as a result of the FBI investigation. The Company is monitoring the situation and is cooperating fully with the authorities. While the outcome of this situation cannot at this time be predicted with certainty, the Company does not expect that the matter will materially affect the Company’s financial condition or results of operations.

On October 24, 2017, the Company invested in 100% of the membership interests of a new wholly-owned, controlled portfolio company, United Capital Source, LLC (“UCS”), which is a lead generator for commercial financing companies. Total consideration paid by the Company was $3,050,000 and consisted of $500,000 in restricted shares of Newtek common stock and $1,950,000 in cash, with the $600,000 balance to be paid in cash and Newtek common stock, in two equal installments in 2019 and 2020 based on UCS attaining specific EBITDA targets for 2018 and 2019.

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Our Corporate Information

Our principal executive offices are located at 1981 Marcus Avenue, Suite 130, Lake Success, NY 11042, our telephone number is (212) 356-9500 and our website may be found at http://www.NewtekOne.com. Information contained in our website is not incorporated by reference into this prospectus supplement or the accompanying prospectus, and you should not consider that information to be part of this prospectus supplement or the accompanying prospectus.

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SPECIFIC TERMS OF THE NOTES AND THE OFFERING

This prospectus supplement sets forth certain terms of the Notes that we are offering pursuant to this prospectus supplement and supplements the accompanying prospectus that is attached to this prospectus supplement. This section outlines the specific legal and financial terms of the Notes. You should read this section and the “Description of Notes” section in this prospectus supplement together with the more general description of the Notes in the accompanying prospectus under the heading “Description of Our Debt Securities” before investing in the Notes. Capitalized terms used in this prospectus supplement and not otherwise defined shall have the meanings ascribed to them in the accompanying prospectus or in the indenture governing the Notes.

Issuer    
    Newtek Business Services Corp.
Title of the securities    
    6.25% Notes due 2023
Initial aggregate principal amount being offered    
    $50,000,000
Overallotment option    
    The underwriters may also purchase from us up to an additional $7,500,000 aggregate principal amount of Notes to cover overallotments, if any, within 30 days of the date of this prospectus supplement.
Initial public offering price    
    100% of the aggregate principal amount.
Principal payable at maturity    
    100% of the aggregate principal amount; the principal amount of each Note will be payable on its stated maturity date at the office of the Trustee, Paying Agent, and Security Registrar for the Notes or at such other office in New York City as may be specified in the indenture or a notice to holders.
Type of Note    
    Fixed-rate note
Listing    
    We expect the Notes to be approved for listing on the Nasdaq Global Market and we expect trading to commence thereon within 30 days of the original issue date under the symbol “NEWTI.”
Rating    
    A- from Egan-Jones Rating Company. An explanation of the significance of ratings may be obtained from the rating agency. Generally, rating agencies base their ratings on such material and information, and such of their own investigations, studies and assumptions, as they deem appropriate. The rating of the Notes should be evaluated independently from similar ratings of other securities. A credit rating of a security is not a recommendation to buy, sell or hold securities and maybe subject to review, revision, suspension, reduction or withdrawal at any time by the assigning rating agency.
Interest Rate    
    6.25% per year
Day count basis    
    360-day year of twelve 30-day months
Original issue date    
    February 21, 2018
Stated maturity date    
    March 1, 2023
Date interest starts accruing    
    February 21, 2018

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Interest payment dates    
    Each March 1, June 1, September 1 and December 1, and commencing June 1, 2018. If an interest payment date falls on a non-business day, the applicable interest payment will be made on the next business day and no additional interest will accrue as a result of such delayed payment.
Interest periods    
    The initial interest period will be the period from and including February 21, 2018, to, but excluding, the initial interest payment date, and the subsequent interest periods will be the periods from and including an interest payment date to, but excluding, the next interest payment date or the stated maturity date, as the case may be.
Regular record dates for interest    
    Each February 15, May 15, August 15 and November 15, beginning May 15, 2018
Specified currency    
    U.S. dollars
Place of payment    
    New York City and/or such other places that may be specified in the indenture or a notice to holders.
Ranking of Notes    
    The Notes will be our direct unsecured obligations and will rank:
   

•  

pari passu, or equal, with our existing and future unsecured indebtedness including the $40.3 million of 2021 Notes and $8.3 million of 2022 Notes existing; and

   

•  

senior to any of our future indebtedness that expressly provides it is subordinated to the Notes;

   

•  

effectively subordinated, or junior, to all of our existing and future secured indebtedness (including indebtedness that is initially unsecured in respect of which we subsequently grant security), to the extent of the value of the assets securing such indebtedness. Effective subordination means that any right you have to participate in any distribution of our assets upon our liquidation or insolvency will be subject to the prior claims of our secured creditors; and

   

•  

structurally subordinated, or junior, to all existing and future indebtedness and other obligations of any of our subsidiaries or financing vehicles, if any, including, without limitation, $180.8 million of debt outstanding, including $0 outstanding under our $100.0 million credit facility with Capital One, securitization notes payable of $162.4 million, and $18.4 million of notes payable to two of our controlled portfolio companies as of February 12, 2018. Structural subordination means that creditors of a parent entity are subordinate to creditors of a subsidiary entity with respect to the subsidiary’s assets.

    In the event that one of our subsidiaries becomes insolvent, liquidates, reorganizes, dissolves or otherwise winds up, its assets will be used first to satisfy the claims of its creditors. Consequently, any claim by us or our creditors, including holders of our Notes, against any subsidiary will be structurally subordinated to all of the claims of the creditors of such subsidiary. We cannot assure Notes

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    holders that they will receive any payments required to be made under the terms of the Notes.
    Except as described under the headings “Other Covenants,” “Events of Default,” and “Merger or Consolidation” in the “Description of Notes” section in this prospectus supplement, the indenture does not contain any provisions that give you protection in the event we issue a large amount of debt or we are acquired by another entity.
Denominations    
    We will issue the Notes in denominations of $25 and integral multiples of $25 in excess thereof.
Business Day    
    Each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in New York City are authorized or required by law or executive order to close.
Optional redemption    
    The Notes may be redeemed in whole or in part at any time or from time to time at our option on or after March 1, 2020, upon not less than 30 days nor more than 60 days written notice by mail prior to the date fixed for redemption thereof, at a redemption price of 100% of the outstanding principal amount thereof plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accrued to but not including the date fixed for redemption.
    You may be prevented from exchanging or transferring the Notes when they are subject to redemption. In case any Notes are to be redeemed in part only, the redemption notice will provide that, upon surrender of such Note, you will receive, without a charge, a new Note or Notes of authorized denominations representing the principal amount of your remaining unredeemed Notes.
    Any exercise of our option to redeem the Notes will be done in compliance with the 1940 Act, to the extent applicable.
    If we redeem only some of the Notes, the Trustee or, with respect to global securities, DTC will determine the method for selection of the particular Notes to be redeemed, in accordance with the indenture governing the Notes, and in accordance with the rules of any national securities exchange or quotation system on which the Notes are listed. Unless we default in payment of the redemption price, on and after the date of redemption, interest will cease to accrue on the Notes called for redemption.
Sinking Fund    
    The Notes will not be subject to any sinking fund (i.e., no amounts will be set aside by us to ensure repayment of the Notes at maturity). As a result, our ability to repay the Notes at maturity will depend on our financial condition on the date that we are required to repay the Notes.
Repayment at option of Holders    
    Holders will not have the option to have the Notes repaid prior to the stated maturity date.
Defeasance    
    The Notes are subject to defeasance by us. “Defeasance” means that, by depositing with a trustee an amount of cash and/or government securities sufficient to pay all principal and interest, if any, on the Notes when due and satisfying the additional conditions

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    required under the indenture and the Notes, we will be deemed to have been discharged from our obligations under the Notes.
Covenant defeasance    
    The Notes are subject to covenant defeasance by us. In the event of a “covenant defeasance,” upon depositing such funds and satisfying conditions similar to those for defeasance we would be released from certain covenants under the indenture relating to the Notes. The consequences to the holders of the Notes would be that, while they would no longer benefit from certain covenants under the indenture, and while the Notes could not be accelerated for any reason, the holders of Notes nonetheless would be guaranteed to receive the principal and interest owed to them.
Form of Notes    
    The Notes will be represented by global securities that will be deposited and registered in the name of The Depository Trust Company, or DTC, or its nominee. Except in limited circumstances, you will not receive certificates for the Notes. Beneficial interests in the Notes will be represented through book-entry accounts of financial institutions acting on behalf of beneficial owners as direct and indirect participants in DTC. Investors may elect to hold interests in the Notes through either DTC, if they are a participant, or indirectly through organizations that are participants in DTC.
Trustee, Paying Agent, and Security Registrar    
    U.S. Bank National Association
Other Covenants    
    In addition to any other covenants described in this prospectus supplement, the following covenants shall apply to the Notes:
   

•  

We agree that for the period of time during which the Notes are outstanding, we will not violate Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, but giving effect to any exemptive relief granted to us by the SEC. 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 200% after such borrowings. See “Risk Factors — Pending legislation may allow us to incur additional leverage,” in this prospectus supplement.

   

•  

We agree that for the period of time during which Notes are Outstanding, pursuant to Section 18(a)(1)(B) as modified by Section 61(a)(1) of the Investment Company Act or any successor provisions thereto of the Investment Company Act, the Company will not declare any dividend (except a dividend payable in stock of the issuer), or declare any other distribution, upon a class of the capital stock of the Company, or purchase any such capital stock, unless, in every such case, at the time of the declaration of any such dividend or distribution, or at the time of any such purchase, the Company has an asset coverage (as defined in the Investment Company Act) of at least the threshold specified in Section 18(a)(1)(B) as modified by Section 61(a)(1) of the Investment Company Act or any successor provisions thereto of the Investment Company Act, as such obligation may be amended or superseded,

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    after deducting the amount of such dividend, distribution or purchase price, as the case may be, and in each case giving effect to (i) any exemptive relief granted to the Company by the Commission, and (ii) any SEC no-action relief granted by the Commission to another business development company (or to the Company if it determines to seek such similar no-action or other relief) permitting the business development company to declare any cash dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) as modified by Section 61(a)(1) of the Investment Company Act, as such obligation may be amended or superseded, in order to maintain such business development company’s status as a regulated investment company under Subchapter M of the Code.
   

•  

If, at any time, we are not subject to the reporting requirements of Sections 13 or 15(d) of the Exchange Act to file any periodic reports with the SEC, we agree to furnish to holders of the Notes and the Trustee, for the period of time during which the Notes are outstanding, our audited annual consolidated financial statements, within 90 days of our fiscal year end, and unaudited interim consolidated financial statements, within 45 days of our fiscal quarter end (other than our fourth fiscal quarter). All such financial statements will be prepared, in all material respects, in accordance with applicable U.S. GAAP.

Events of Default    
    You will have rights if an Event of Default occurs with respect to the Notes and is not cured.
    The term “Event of Default” in respect of the Notes means any of the following:
   

•  

We do not pay the principal of, or premium on, any Note within five days of its due date.

   

•  

We do not pay interest on any Note when due, and such default is not cured within 30 days.

   

•  

We remain in breach of any other covenant with respect to the Notes for 60 days after we receive a written notice of default stating we are in breach. The notice must be sent by either the Trustee or holders of at least 25.0% of the principal amount of the Notes.

   

•  

We file for bankruptcy or certain other events of bankruptcy, insolvency or reorganization occur and in the case of certain orders or decrees entered against us under any bankruptcy law, such order or decree remains undischarged or unstayed for a period of 90 days.

   

•  

On the last business day of each of twenty-four consecutive calendar months, the Notes have an asset coverage, as defined in the 1940 Act, of less than 100% after giving effect to any exemptive relief granted to us by the SEC.

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Further Issuances    
    We have the ability to issue additional debt securities under the indenture with terms different from the Notes and, without consent of the holders thereof, to reopen the Notes and issue additional Notes. If we issue additional debt securities, these additional debt securities could have a lien or other security interest greater than that accorded to the holders of the Notes, which are unsecured.
Global Clearance and Settlement Procedures    
    Interests in the Notes will trade in DTC’s Same Day Funds Settlement System, and any permitted secondary market trading activity in such Notes will, therefore, be required by DTC to be settled in immediately available funds. None of the issuer, the Trustee or the paying agent will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations.
Use of Proceeds    
    We estimate that the net proceeds we will receive from the sale of the $50,000,000 aggregate principal amount of Notes in this offering will be approximately $48,287,500 (or approximately $55,562,500 if the underwriters fully exercise their over-allotment option), in each case assuming a public offering price of 100% of par, after deducting the underwriting discount of $1,500,000 (or approximately $1,725,000 if the underwriters fully exercise their over-allotment option) payable by us and estimated offering expenses of approximately $212,500 payable by us.
    We intend to use the net proceeds from this offering to partially or fully redeem the outstanding 2021 Notes, which mature on March 31, 2021 and bear interest at a rate of 7.00%. As of February 12, 2018, we had outstanding 2021 Notes with an aggregate principal amount of $40.3 million plus accrued and unpaid interest.
    To the extent that net proceeds remain after we redeem the 2021 Notes, we intend to use those net proceeds to increase our SBA 7(a) lending activity and to make direct investments in portfolio companies (including, from time to time, acquiring controlling equity interests in portfolio companies) in accordance with our investment objectives and strategies described in this prospectus supplement. We will also pay operating expenses and may pay other expenses, such as due diligence expenses of potential new investments, as well as for general working capital, from the net proceeds from the sale of our securities pursuant to this prospectus supplement. We are continuously identifying, reviewing and, to the extent consistent with our investment objective, funding new investments. We anticipate that substantially all of the net proceeds of this offering will be used for the above purposes within six to nine months from the consummation of this offering, depending on the availability of appropriate investment opportunities consistent with our investment objective and market conditions. We expect that it may take more than six months to invest all of the net proceeds of this offering, in part because investments in private companies often require substantial research and due diligence. Pending such investments, we will invest the net proceeds primarily in cash, cash equivalents, U.S. government securities and other high-quality temporary investments that mature in one year or less from the date of investment. See “Use of Proceeds” in this prospectus supplement and the accompanying prospectus.

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SELECTED FINANCIAL DATA

The selected financial data set forth below should be read in conjunction with, and is qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements, including the notes thereto, available at www.sec.gov. The following selected statements of operations and balance sheet data have been derived from the audited financial statements for each of the five years ended December 31, 2016. The Consolidated Financial Statements for the year ended December 31, 2016, the year ended December 31, 2015, the period from November 12, 2014 to December 31, 2014, the period from January 1, 2014 to November 11, 2014 and the year ended December 31, 2013 have been audited by RSM US LLP (formerly McGladrey LLP). The Consolidated Financial Statements for the years ended December 31, 2012 have been audited by an independent registered public accountant. The selected financial and other data for the nine months ended September 30, 2017 and other quarterly financial information is derived from our unaudited financial statements, but in the opinion of management, reflects all adjustments (consisting only of normal recurring adjustments) that are necessary to present fairly the results of such interim periods. Interim results as of and for the nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.

               
Statement of
Operations Data:
  Nine Months Ended September 30, 2017   Nine Months Ended September 30, 2016   As a Business Development Company   Prior to becoming a
Business Development Company
  2016   2015   November 12, 2014 to December 31, 2014   January 1, 2014 to November 11, 2104   2013   2012
Investment income   $ 28,498     $ 21,868     $ 30,965     $ 26,070     $ 1,976     $     $     $  
Operating revenues                                   131,847       143,593       131,130  
Expenses     33,463       29,454       40,225       32,255       4,305       121,036       131,319       120,570  
Net investment loss     (4,965 )      (7,586 )      (9,260 )      (6,185 )      (2,523 )                   
Net increase in net assets     20,912       21,016       27,305       35,736       681                    
Net income                                   3,208       7,151       5,557  
Net realized and unrealized gains (losses)     25,877       28,602       36,565       41,921       3,204       (3,668 )      (1,205 )      (1,121 ) 
Per Share Data:
                                                                       
Net investment loss   $ (0.29 )    $ (0.52 )    $ (0.64 )    $ (0.57 )    $ (0.33 )    $     $     $  
Net increase in net assets   $ 1.22     $ 1.45     $ 1.88     $ 3.32     $ 0.09                             
Basic earnings per share   $     $     $     $     $       0.45       1.07       0.79  
Diluted earnings per share   $     $     $     $     $       0.45       0.99       0.77  
Dividends declared   $ 1.20     $ 1.13     $ 1.53     $ 4.45     $     $     $     $  
Balance Sheet Data (at end of period):
                                                                       
Investments, at fair value   $ 418,182     $ 326,853     $ 345,224     $ 266,874     $ 233,462       N/A     $ 83,685     $ 43,951  
Total assets   $ 506,327     $ 404,849     $ 401,450     $ 352,430     $ 301,832       N/A     $ 198,612     $ 152,742  
Total debt   $ 229,005     $ 177,302     $ 171,242     $ 131,761     $ 122,543       N/A     $ 101,358     $ 61,862  
Total liabilities   $ 250,715     $ 196,677     $ 192,356     $ 148,481     $ 135,414       N/A     $ 121,603     $ 83,840  
Net assets/stockholders’ equity   $ 255,612     $ 208,172     $ 209,094     $ 203,949     $ 166,418       N/A     $ 77,009     $ 68,902  
Common shares outstanding at end of period     17,730       14,594       14,624       14,509       10,206       N/A       7,077       7,036  

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS

This prospectus supplement contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about the Company, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “will,” “may,” “continue,” “believes,” “seeks,” “estimates,” “would,” “could,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements. The forward-looking statements contained in this prospectus supplement involve risks and uncertainties, including statements as to:

our future operating results;
our business prospects and the prospects of our portfolio companies;
the impact of investments that we expect to make;
our contractual arrangements and relationships with third parties;
the dependence of our future success on the general economy and its impact on the industries in which we invest;
the ability of our portfolio companies to achieve their objectives;
our expected financings and investments;
our ability to obtain exemptive relief from the SEC to co-invest and to engage in joint restructuring transactions or joint follow-on investments;
the adequacy of our cash resources and working capital; and
the timing of cash flows, if any, from the operations of our portfolio companies.

These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:

an economic downturn could impair our portfolio companies’ ability to continue to operate or repay their borrowings, which could lead to the loss of some or all of our investments in such portfolio companies;
a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities;
interest rate volatility could adversely affect our results, particularly if we use leverage as part of our investment strategy; and
the risks, uncertainties and other factors we identify in “Risk Factors” in the accompanying prospectus and elsewhere in this prospectus supplement and in our filings with the SEC.

Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. Important assumptions include our ability to originate new loans and investments, certain margins and levels of profitability and the availability of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this prospectus supplement should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in “Risk Factors” in the accompanying prospectus and elsewhere in this prospectus supplement. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this prospectus supplement. However, we will update this prospectus supplement to reflect any material changes to the information contained herein. The forward-looking statements in this prospectus supplement are excluded from the safe harbor protection provided by Section 27A of the Securities Act and Section 21E of the Exchange Act.

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RISK FACTORS

You should carefully consider the risk factors described below and under the caption “Risk Factors” in the accompanying prospectus, together with all of the other information included in this prospectus supplement and the accompanying prospectus, including our consolidated financial statements and the related notes thereto, before you decide whether to make an investment in our securities. The risks set out below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. If any of the following events occur, our business, financial condition and results of operations could be materially adversely affected.

Risks Related to the Notes

The Notes will be unsecured and therefore will be effectively subordinated to any secured indebtedness we have outstanding or may incur in the future.

The Notes will not be secured by any of our assets or any of the assets of our subsidiaries. As a result, the Notes are effectively subordinated to any secured indebtedness we or our subsidiaries have outstanding or may incur in the future (or any indebtedness that is initially unsecured to which we subsequently grant security). In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the existing or future 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.

The Notes will be structurally subordinated to the indebtedness and other liabilities of our subsidiaries.

The Notes are obligations exclusively of the Company 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 subsidiaries we may acquire or create in the future. Any assets of our subsidiaries will not be 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 (including trade creditors) and holders of preferred stock, if any, of our subsidiaries will have priority over our equity interests in such subsidiaries (and therefore the claims of our creditors, including holders of the Notes) with respect to the assets of such subsidiaries. Even if we are recognized as a creditor of one or more of our subsidiaries, our claims would still be effectively subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiary senior to our claims. Consequently, the Notes will be structurally subordinated to all indebtedness and other liabilities (including trade payables) of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish as financing vehicles or otherwise.

The indenture under which the Notes will be issued will contain limited protection for holders of the Notes.

The indenture under which the Notes will be 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 will not place any restrictions on our or our subsidiaries’ ability to:

issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to the Notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the Notes, (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, 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 provision, whether or not we continue to be subject to such provisions of the 1940 Act,

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but, giving effect to any exemptive relief granted to the Company 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;
pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to the Notes, including subordinated indebtedness, in each case other than dividends, purchases, redemptions or payments that would cause a violation of Section 18(a)(1)(B) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, giving effect to (i) any exemptive relief granted to us by the SEC and (ii) no-action relief granted by the SEC to another BDC (or to the Company if it determines to seek such similar no-action or other relief) permitting the BDC to declare any cash dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) as modified by Section 61(a)(1) of the 1940 Act in order to maintain the BDC’s status as a RIC under Subchapter M of the Code (these provisions generally prohibit us from declaring any cash dividend or distribution upon any class of our capital stock, or purchasing any such capital stock if our asset coverage, as defined in the 1940 Act, is below 200% at the time of the declaration of the dividend or distribution or the purchase and after deducting the amount of such dividend, distribution or purchase);
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; or
create restrictions on the payment of dividends or other amounts to us from our subsidiaries.

In addition, the indenture will not require us to offer to purchase the Notes in connection with a change of control, asset sale or any other event.

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, 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 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.

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 of default. The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of the Notes.

There is no existing trading market for the Notes and an active trading market for the Notes may not develop, which could limit your ability to sell the Notes or affect the market price of the Notes.

The Notes will be a new issue of debt securities for which there initially will not be a trading market. We expect the Notes to be approved for listing on the Nasdaq Global Market and we expect trading to commence thereon within 30 days of the original issue date under the symbol “NEWTI.” Moreover, we cannot provide any assurances that an active trading market will develop for the Notes or that you will be able to sell your Notes. If the Notes are traded after their initial issuance, they 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. The underwriters have advised us that they may make a market in the Notes, but they are not obligated to do so.

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The underwriters may discontinue any market-making in the Notes at any time at their sole discretion. Accordingly, we cannot assure you that a liquid trading market will develop for the Notes, that you will be able to sell your Notes at a particular time or that the price you receive when you sell will be favorable. To the extent an active trading market does not develop, the liquidity and trading price for the Notes may be harmed. Accordingly, you may be required to bear the financial risk of an investment in the Notes for an indefinite period of time.

If we default on our obligations to pay other indebtedness that we may incur in the future, we may not be able to make payments on the Notes.

In the future, we may enter into agreements to incur additional indebtedness, including a secured credit facility. A default under such agreements to which we may be a party that is not waived by the required lenders or holders, and the remedies sought by the holders of such indebtedness could prohibit us from paying 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 such future additional indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing such future additional indebtedness, we could be in default under the terms of the agreements governing such indebtedness. 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 of other debt we may incur in the future could elect to terminate their commitments, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If we are unable to repay debt, lenders having secured obligations could proceed against the collateral securing the debt. Because any future credit facilities will likely have customary cross-default provisions, if the indebtedness under any future credit facility is accelerated, we may be unable to repay or finance the amounts due.

We may choose to redeem the Notes when prevailing interest rates are relatively low.

On or after March 1, 2020, we may choose to redeem the Notes from time to time, especially when prevailing interests rates are lower than the interest rate on the 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 Notes being redeemed. Our redemption right also may adversely impact your ability to sell the Notes as the optional redemption date or period approaches.

Pending legislation may allow us to incur additional leverage.

As a BDC, under the 1940 Act we generally are not permitted to incur 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). The Financial CHOICE Act of 2017, which was passed by the U.S. House of Representatives in June 2017, would modify this section of the 1940 Act and increase the amount of debt that BDCs may incur by modifying the asset coverage percentage from 200% to 150%. Similar legislation was introduced in the U.S. Senate in January 2018. While the timing any prospectus for passing such legislation is unclear, if Congress passes and the President sign this or any similar legislation, we may be able to incur additional indebtedness in the future and therefore your risk of an investment in us may increase. See “Risk Factors — The indenture under which the Notes will be issued will contain limited protection for holders of the Notes,” in this prospectus supplement.

A downgrade, suspension or withdrawal of the rating assigned by a rating agency to us or the Notes, if any, could cause the liquidity or market value of the Notes to decline significantly.

A downgrade, suspension or withdrawal of the rating assigned by a rating agency to us or the Notes, if any, could cause the liquidity or market value of the Notes to decline significantly. Our credit ratings are an assessment by rating agencies of our ability to pay our debts when due. Consequently, real or anticipated changes in our credit ratings will generally affect the market value of the notes. These credit ratings may not reflect the potential impact of risks relating to the structure or marketing of the notes. Credit ratings are not a recommendation to buy, sell or hold any security, and may be revised or withdrawn at any time by the issuing

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organization in its sole discretion. Neither we nor the underwriters undertake any obligation to maintain the ratings or to advise holders of notes of any changes in ratings. The Notes have been rated by Egan-Jones Ratings Company, or Egan-Jones. There can be no assurance that their rating will remain for any given period of time or that such rating will not be lowered or withdrawn entirely by Egan-Jones if in their respective judgment future circumstances relating to the basis of the rating, such as adverse changes in our company, so warrant.

RISKS RELATING TO OUR BUSINESS AND STRUCTURE

Legislative or other actions relating to taxes could have a negative effect on us.

Legislative or other actions relating to taxes could have a negative effect on the Company. The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. The U.S. House of Representatives and U.S. Senate recently passed tax reform legislation, which the President recently signed. Such legislation makes many changes to the Internal Revenue Code, including, among other things, significant changes to the taxation of business entities, the deductibility of interest expense, and the tax treatment of capital investment. We cannot predict with certainty how any changes in the tax laws might affect the Company, investors, or the Company’s portfolio investments. New legislation and any U.S. Treasury regulations, administrative interpretations or court decisions interpreting such legislation could significantly and negatively affect the Company’s ability to qualify for tax treatment as a RIC or the U.S. federal income tax consequences to the Company and its investors of such qualification, or could have other adverse consequences. Investors are urged to consult with their tax advisor regarding tax legislative, regulatory, or administrative developments and proposals and their potential effect on an investment in the Company’s securities.

A failure or the perceived risk of a failure to raise the statutory debt limit of the U.S. could have a material adverse effect on our business, financial condition and results of operations.

Recent U.S. debt ceiling and budget deficit concerns have increased the possibility of additional credit-rating downgrades and economic slowdowns, or a recession in the U.S. In the future, the U.S. government may not be able to meet its debt payments unless the federal debt ceiling is raised. If legislation increasing the debt ceiling is not enacted, as needed, and the debt ceiling is reached, the U.S. federal government may stop or delay making payments on its obligations, which could negatively impact the U.S. economy and our portfolio companies. In addition, disagreement over the federal budget has caused the U.S. federal government to shut down for periods of time — most recently, in January 2018. Continued adverse political and economic conditions could have a material adverse effect on our business, financial condition and results of operations.

A government shutdown could adversely affect NSBF’s SBA 7(a) loan originations and our results of operations.

We are dependent upon the Federal government to maintain the SBA 7(a) Program. NSBF’s lending business could be materially and adversely affected by circumstances or events limiting the availability of funds for this program. In October 2013, Congress failed to approve a budget, which, in turn, eliminated availability of funds for the SBA 7(a) program. At the time, the government shutdown affected SBA 7(a) lenders’ ability to originate SBA 7(a) loans. More recently, the government shut down in January 2018 due to a lapse in appropriations, and the SBA closed all non-disaster related programs and activities, including the SBA 7(a) program. The government could again experience a government shutdown which would affect NSBF’s ability to originate government guaranteed loans and to sell the government guaranteed portions of those loans in the secondary market. Any government shutdown could adversely affect NSBF’s SBA 7(a) loan originations and our results of operations.

We could be adversely affected by information security breaches or cyber security attacks.

Our business operations and our portfolio companies’ business operations rely upon secure information technology systems for data processing, storage and reporting. Despite security and controls design, implementation and updating, such information technology systems could become subject to cyber-attacks.

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Network, system, application and data breaches could result in operational disruptions or information misappropriation, which could have a material adverse effect on our business, results of operations and financial condition.

In addition, our business operations and our portfolio companies’ business operations involve the storage and transmission of Newtek, portfolio company, customer and employee proprietary information. Our businesses rely on our digital technologies, computer and email systems, software, and networks to conduct operations. Our technologies, systems and networks may become the target of criminal cyber-attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of us, our portfolio companies, or third parties with whom we and our portfolio companies deal, or otherwise disrupt our or our customers’ or other third parties’ business operations. It is critical to our business strategy that our facilities and infrastructure remain secure and are perceived by the marketplace to be secure. Although we believe we employ appropriate security technologies (including data encryption processes, intrusion detection systems), and conduct comprehensive risk assessments and other internal control procedures to assure the security of our and our customers’ data, we cannot guarantee that these measures will be sufficient for this purpose. If our security measures are breached as a result of third-party action, employee error or otherwise, and as a result our or our customers’ data becomes available to unauthorized parties, we could incur liability and our reputation would be damaged, which could lead to the loss of current and potential customers. If we experience any breaches of our network security or sabotage, we might be required to expend significant capital and other resources to detect, remedy, protect against or alleviate these and related problems, and we may not be able to remedy these problems in a timely manner, or at all. Because techniques used by outsiders to obtain unauthorized network access or to sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. For example, an unauthorized third party recently misappropriated three of NTS’s domain names. NTS’s management is investigating the incident, but does not believe that the event has materially impacted any NTS customers at this time. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. Although we have insurance in place that covers such incidents, the cost of a breach or cyber-attack could well exceed any such insurance coverage.

The failure in cyber-security systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning could impair our ability to conduct business effectively.

The occurrence of a disaster such as a cyber-attack, a natural catastrophe, an industrial accident, a terrorist attack or war, events unanticipated in our disaster recovery systems, or a support failure from external providers, could have an adverse effect on our ability to conduct business and on our results of operations and financial condition, particularly if those events affect our computer-based data processing, transmission, storage, and retrieval systems or destroy data. If a significant number of our managers were unavailable in the event of a disaster, our ability to effectively conduct our business could be severely compromised.

We and our portfolio companies depend heavily upon computer systems to perform necessary business functions. Despite our portfolio companies implementation of a variety of security measures, our computer systems could be subject to cyber-attacks and unauthorized access, such as physical and electronic break-ins or unauthorized tampering. Like other companies, we and our portfolio companies may experience threats to our data and systems, including malware and computer virus attacks, unauthorized access, system failures and disruptions. If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary and other information processed and stored in, and transmitted through, our and our portfolio company computer systems and networks, or otherwise cause interruptions or malfunctions in our operations, which could result in damage to our and our portfolio companies’ reputation, financial losses, litigation, increased costs, regulatory penalties and/or customer dissatisfaction or loss.

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RISKS RELATING TO OUR INVESTMENTS GENERALLY

We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we may invest a significant portion of our assets in a relatively small number of issuers, which subjects us to a risk of significant loss if any of these issuers defaults on its obligations under any of its debt instruments or as a result of a downturn in the particular industry.

We are classified as a non-diversified investment company within the meaning of the 1940 Act, and therefore we may invest a significant portion of our assets in a relatively small number of issuers in a limited number of industries. As of September 30, 2017, our three largest investments, Newtek Merchant Solutions, Newtek Technology Solutions and Newtek Payments Solutions equaled approximately 13%, 3% and 4%, respectively, of the fair value of our total assets. Beyond the asset diversification requirements associated with our qualification as a RIC, we do not have fixed guidelines for diversification, and while we are not targeting any specific industries, relatively few industries may become significantly represented among our investments. To the extent that we assume large positions in the securities of a small number of issuers, our net asset value may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer, changes in fair value over time or a downturn in any particular industry. We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company.

RISK RELATED TO OUR CONTROLLED PORTFOLIO COMPANIES — NEWTEK TECHNOLOGY SOLUTIONS (NTS)

NTS could be adversely affected by information security breaches or cyber security attacks.

NTS’ web and cloud services involve the storage and transmission of our customers’, employees’, and portfolio companies’ proprietary information. NTS’ business relies on its digital technologies, computer and email systems, software, and networks to conduct its operations. NTS’ technologies, systems and networks may become the target of criminal cyber-attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of NTS or third parties with whom NTS deals, or otherwise disrupt our or our customers’ or other third parties’ business operations. It is critical to NTS’ business strategy that its facilities and infrastructure remain secure and are perceived by the marketplace to be secure. Although NTS believes it employs appropriate security technologies (including data encryption processes, intrusion detection systems), and conduct comprehensive risk assessments and other internal control procedures to assure the security of our customers’ data, we cannot guarantee that these measures will be sufficient for this purpose. If NTS’ security measures are breached as a result of third-party action, employee error or otherwise, and as a result its customers’ data becomes available to unauthorized parties, NTS and our other portfolio companies could incur liability and its reputation would be damaged, which could lead to the loss of current and potential customers. If NTS experiences any breaches of its network security or sabotage, NTS might be required to expend significant capital and other resources to detect, remedy, protect against or alleviate these and related problems, and it may not be able to remedy these problems in a timely manner, or at all. Because techniques used by outsiders to obtain unauthorized network access or to sabotage systems change frequently and generally are not recognized until launched against a target, NTS may be unable to anticipate these techniques or implement adequate preventative measures. For example, an unauthorized third party recently misappropriated three of NTS’s domain names. NTS’s management is investigating the incident, but does not believe that the event has materially impacted any NTS customers at this time. As cyber threats continue to evolve, NTS may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. Although NTS has insurance in place that covers such incidents, the cost of a breach or cyber-attack could well exceed any such insurance coverage.

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LEGAL PROCEEDINGS — PORTFOLIO COMPANIES

Our portfolio companies may, from time to time, be involved in various legal matters, including the currently pending case — Federal Trade Commission v. WV Universal Management, LLC et al., which may have an adverse effect on their operations and/or financial condition.

During the quarter ended June 30, 2013, the Federal Trade Commission (the “FTC”) amended an existing complaint in the matter Federal Trade Commission v. WV Universal Management, LLC et al., in the United States District Court for the Middle District of Florida (the “Court”), to add UPSW as an additional defendant on one count of providing substantial assistance in violation of the Telemarketing Sales Rule. On November 18, 2014, the Court issued an Order granting the FTC’s motion for summary judgment against UPSW on the single count. Subsequently, the FTC filed motions for a permanent injunction and equitable monetary relief against UPSW and the other remaining defendants. Prior to the Court hearing on the motions, UPSW and the FTC reached a settlement on the FTC’s motion for a permanent injunction. On May 19, 2015, the Court entered an equitable monetary judgment against UPSW for $1,735,000. The $1,735,000 was fully expensed in 2014 by UPSW.

On June 14, 2016, the United States Court of Appeals for the Eleventh Circuit vacated the Court’s order awarding joint and several liability for equitable monetary relief in the amount of $1,735,000 against UPSW, and remanded the case to the Court for findings of fact and conclusions of law as to whether and why UPSW should be jointly and severally liable for restitution, and in what amount, if any. On October 26, 2016, the Court entered an equitable monetary judgment against UPSW for $1,735,000. On December 13, 2017, the United States Court of Appeals for the Eleventh Circuit affirmed the Court’s order awarding joint and several liability for equitable monetary relief against UPSW. UPSW intends to file a petition for a writ of certiorari requesting that the United States Supreme Court review the judgment.

UPSW instituted an action against a former independent sales agent in Wisconsin state court for, among other things, breach of contract. The former sales agent answered the complaint and filed counterclaims against UPSW. Following UPSW’s successful appeal of several of the court’s rulings, the action has been assigned to a new judge for further proceedings. UPSW intends to vigorously pursue its claims against the former sales agent and defend the counterclaims asserted.

On October 13, 2017, the Company announced that its portfolio company, BSP, was served with a search warrant by the Federal Bureau of Investigation on October 12, 2017 at BSP offices in Westfield, Indiana. The Company closed on its $5.4 million investment in BSP in June 2016. During the three months ended September 30, 2017, the Company recorded a $2,000,000 unrealized loss on its investment in BSP to reflect the potential impact to the business and tradename as a result of the FBI investigation. The Company is monitoring the situation and is cooperating fully with the authorities.

RISKS RELATING TO OUR SECURITIES

Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock.

All of the common stock held by our executive officers and directors, represents approximately 1,138,000 shares, or approximately 6.2% of our total outstanding shares as of February 12, 2018. Such shares are generally freely tradable in the public market. Sales of substantial amounts of our common stock, or the availability of such common stock for sale, could adversely affect the prevailing market prices for our common stock. If this occurs and continues, it could impair our ability to raise additional capital through the sale of securities should we desire to do so.

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USE OF PROCEEDS

We estimate that the net proceeds we will receive from the sale of the $50,000,000 aggregate principal amount of Notes in this offering will be approximately $48,287,500 (or approximately $55,562,500 if the underwriters fully exercise their overallotment option), in each case assuming a public offering price of 100% of par, after deducting the underwriting discount of $1,500,000 (or approximately $1,725,000 if the underwriters fully exercise their overallotment option) payable by us and estimated offering expenses of approximately $212,500 payable by us.

We intend to use the net proceeds from this offering to partially or fully redeem the outstanding 2021 Notes. As of February 12, 2018, we had approximately $40.3 million of aggregate principal amount outstanding, plus accrued interest, of our 2021 Notes, which mature on March 31, 2021 and bear interest at a rate of 7.00%.

To the extent that net proceeds remain after we redeem the 2021 Notes, we intend to use those net proceeds to increase our SBA 7(a) lending activity and to make direct investments in portfolio companies (including, from time to time, acquiring controlling equity interests in portfolio companies) in accordance with our investment objectives and strategies described in this prospectus supplement. We will also pay operating expenses and may pay other expenses, such as due diligence expenses of potential new investments, as well as for general working capital, from the net proceeds from the sale of our securities pursuant to this prospectus supplement. We are continuously identifying, reviewing and, to the extent consistent with our investment objective, funding new investments. As a result, we typically raise capital as we deem appropriate to fund such new investments.

We anticipate that substantially all of the net proceeds of any offering of our securities will be used for the above purposes within six to nine months from the consummation of the offering, depending on the availability of appropriate investment opportunities consistent with our investment objective and market conditions. We cannot assure you we will achieve our targeted investment pace. We expect that it may take more than six months to invest all of the net proceeds of an offering of our securities, in part because investments in private companies often require substantial research and due diligence.

Pending such investments, we will invest the net proceeds primarily in cash, cash equivalents, U.S. government securities and other high-quality temporary investments that mature in one year or less from the date of investment. These securities may have lower yields than the types of investments we would typically make in accordance with our investment objective and, accordingly, may result in lower distributions, if any, during such period. See “Regulation — Temporary Investments” in the accompanying prospectus for additional information about temporary investments we may make while waiting to make longer-term investments in pursuit of our investment objective.

We may also use the net proceeds for investment in portfolio companies in accordance with our investment objective and strategies and for working capital and general corporate purposes.

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CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2017:

on an actual basis; and
on an as adjusted basis giving effect to this offering of $50,000,000 aggregate principal amount of Notes (assuming no exercise of the overalloment option) at an assumed public offering price of 100% of par, after deducting the underwriting discounts and commissions of $1,500,000 and estimated offering expenses of approximately $212,500 payable by us, and to reflect the use of proceeds from this offering.

You should read this table together with “Use of Proceeds” and our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and financial statements and related notes thereto included in this prospectus supplement.

   
  As of September 30, 2017
     Actual   As Adjusted for this Offering(1)
     (amounts in thousands, except share and per share data)
Assets:
                 
Cash and cash equivalents   $ 3,915     $ 11,953  
Investments, at fair value     418,182       418,182  
Other assets     84,230       84,230  
Total assets   $ 506,327     $ 514,365  
Liabilities:
                 
Credit Facilities payable(2)     66,146       66,146  
Note payable – related party     20,541       20,541  
Notes due 2022     7,915       7,915  
Notes due 2021     39,027        
Notes offered hereby           48,288  
Securitization notes payable     95,376       95,376  
Other liabilities     21,710       21,710  
Total liabilities   $ 250,715     $ 259,976  
Net assets   $ 255,612     $ 254,389  
Stockholders’ equity:
                 
Common stock, par value $0.02 per share; 200,000,000 shares authorized, 17,730,000 shares issued and outstanding     355       355  
Additional Paid-in Capital     234,955       234,955  
(Distributions in excess of)/Undistributed net investment income     (3,069 )      (4,292 ) 
Net Unrealized appreciation, net of deferred taxes     11,347       11,347  
Net Realized Gain     12,024       12,024  
Total stockholders’ equity   $ 255,612     $ 254,389  

(1) Excludes up to $7,500,000 in aggregate principal amount of Notes issuable by us upon exercise of the underwriters’ overallotment option.
(2) Certain of the Company’s controlled investments have entered into credit agreements. The Company has agreed to guarantee the repayment of the facilities and is a party to the agreements as guarantor thereunder. The outstanding balances of those facilities are not liabilities of the Company and are not included in the table above.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations is intended to assist in the understanding and assessment of significant changes and trends related to the results of operations and financial position of the Company together with its subsidiaries. This discussion and analysis should be read in conjunction with the consolidated financial statements and the accompanying notes.

The statements in this prospectus supplement may contain forward-looking statements relating to such matters as anticipated future financial performance, business prospects, legislative developments and similar matters. We note that a variety of factors could cause our actual results to differ materially from the anticipated results expressed in the forward looking statements such as intensified competition and/or operating problems in its operating business projects and their impact on revenues and profit margins or additional factors as described under “Risk Factors” above.

Executive Overview

We are a leading national non-bank lender and own and control certain portfolio companies under the Newtek® brand (our “controlled portfolio companies,” as defined below) that provide a wide range of business and financial products to SMBs. Newtek’s products and services include: Business Lending, including the SBA’s 7(a) and 504 lending, Electronic Payment Processing, Managed Technology Solutions (Cloud Computing), Technology Consulting, eCommerce, Accounts Receivable and Inventory Financing, The Secure Gateway, The Newtek Advantage®, personal and commercial Insurance Services, Web Services, Data Backup, Store and Retrieval and Payroll and Benefits Solutions to SMB accounts nationwide across all industries. We have an established and reliable platform that is not limited by client size, industry type, or location. As a result, we believe we have a strong and diversified client base across every state in the U.S and across a variety of different industries. In addition, we have developed a financial and technology based business model that enables us and our controlled portfolio companies to acquire and process our SMB clients in a very cost effective manner. This capability is supported in large part by NewTracker®, our patented prospect management technology software, which is similar to but we believe better than the system popularized by Salesforce.com. We believe that this technology and business model distinguishes us from our competitors.

We consolidate the following wholly-owned subsidiaries:

Newtek Small Business Finance, LLC
Newtek Asset Backed Securities, LLC
The Whitestone Group, LLC
Wilshire Colorado Partners, LLC
Wilshire DC Partners, LLC
Wilshire Holdings I, Inc.
Wilshire Louisiana Bidco, LLC
Wilshire Louisiana Partners II, LLC
Wilshire Louisiana Partners III, LLC
Wilshire Louisiana Partners IV, LLC
Wilshire New York Advisers II, LLC
Wilshire New York Partners III, LLC
Wilshire New York Partners IV, LLC
Wilshire New York Partners V, LLC
Wilshire Partners, LLC
CCC Real Estate Holdings, LLC

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Newtek Business Services Holdco 5, Inc.
Exponential Business Development Co., Inc.
Newtek LSP Holdco, LLC
Newtek Business Services Holdco 1, Inc.
Newtek Business Services Holdco 2, Inc.
Newtek Business Services Holdco 3, Inc.

We are an internally-managed, closed-end, non-diversified investment company that has elected to be regulated as a BDC under the 1940 Act. In addition, for U.S. federal income tax purposes, we have elected to be treated as a RIC under the Code beginning in our 2015 tax year ended December 31, 2015. As a BDC and a RIC, we are also subject to certain constraints, including limitations imposed by the 1940 Act and the Code. We converted to a BDC in November 2014. As a result, previously consolidated subsidiaries are now recorded as investments in controlled portfolio companies, at fair value. NSBF is a consolidated subsidiary and originates loans under the SBA’s 7(a) program.

Our common shares are currently listed on the Nasdaq Global Market under the symbol “NEWT”.

NSBF has been granted PLP status and originates, sells and services SBA 7(a) small business loans and is authorized to place SBA guarantees on loans without seeking prior SBA review and approval. Being a national lender, PLP status allows NSBF to expedite the origination of loans since NSBF is not required to present applications to the SBA for concurrent review and approval. The loss of PLP status could adversely impact our marketing efforts and ultimately our loan origination volume which could negatively impact our results of operations.

As a BDC, our investment objective is to generate both current income and capital appreciation primarily through loans originated by our small business finance platform and our equity investments in certain portfolio companies that we control.

We target our debt investments, which are principally made through our small business finance platform under the SBA 7(a) program, to produce a coupon rate of prime plus 2.75% which enables us to generate rapid sales of loans in the secondary market. We typically structure our debt investments with the maximum seniority and collateral along with personal guarantees from portfolio company owners, in many cases collateralized by other assets including real estate. In most cases, our debt investment will be collateralized by a first lien on the assets of the portfolio company and a first or second lien on assets of guarantors, in both cases primarily real estate. All SBA loans are made with personal guarantees from any owner(s) of 20% or more of the portfolio company’s equity.

We typically structure our debt investments to include non-financial covenants that seek to minimize our risk of capital loss such as lien protection and prohibitions against change of control. Our debt investments have strong protections, including default penalties, information rights and, in some cases, board observation rights and affirmative, negative and financial covenants. Debt investments in portfolio companies, including the controlled portfolio companies, have historically and are expected to continue to comprise the majority of our overall investments in number and dollar volume.

While the vast majority of our investments have been structured as debt, we have in the past and expect in the future to make selective equity investments primarily as either strategic investments to enhance the integrated operating platform or, to a lesser degree, under the Capco programs. For investments in our controlled portfolio companies, we focus more on tailoring them to the long term growth needs of the companies than to immediate return. Our objectives with these companies is to foster the development of the businesses as a part of the integrated operational platform of serving the SMB market, so we may reduce the burden on these companies to enable them to grow faster than they would otherwise and as another means of supporting their development.

We regularly engage in discussions with third parties with respect to various potential transactions. We may acquire an investment or a portfolio of investments or an entire company or sell a portion of our

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portfolio on an opportunistic basis. We, our subsidiaries, or our affiliates may also agree to manage certain other funds that invest in debt, equity or provide other financing or services to companies in a variety of industries for which we may earn management or other fees for our services. We may also invest in the equity of these funds, along with other third parties, from which we would seek to earn a return and/or future incentive allocations. Some of these transactions could be material to our business. Consummation of any such transaction will be subject to completion of due diligence, finalization of key business and financial terms (including price) and negotiation of final definitive documentation as well as a number of other factors and conditions including, without limitation, the approval of our board of directors and required regulatory or third party consents and, in certain cases, the approval of our shareholders. Accordingly, there can be no assurance that any such transaction would be consummated. Any of these transactions or funds may require significant management resources either during the transaction phase or on an ongoing basis depending on the terms of the transaction.

Revenues

We generate revenue in the form of interest, dividend, servicing and other fee income on debt and equity investments. Our debt investments typically have terms of 10 to 25 years and bear interest at prime plus a margin. In some instances, we receive payments on our debt investments based on scheduled amortization of the outstanding balances. In addition, we receive repayments of some of our debt investments prior to their scheduled maturity date. The frequency or volume of these repayments fluctuates significantly from period to period. Our portfolio activity also reflects the proceeds of sales of securities. We receive servicing income related to the guaranteed portions of SBA investments which we sell into the secondary market. These recurring fees are earned daily and recorded when earned. In addition, we may generate revenue in the form of packaging, prepayment, legal and late fees. We record such fees related to loans as other income. Dividends are recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income is recorded at the time dividends are declared. Distributions of earnings from portfolio companies are evaluated to determine if the distribution is income, return of capital or realized gain.

We recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the cost basis of the investment without regard to unrealized gains or losses previously recognized. We record current period changes in fair value of investments and assets that are measured at fair value as a component of the net change in unrealized appreciation (depreciation) on investments or servicing assets, as appropriate, in the condensed consolidated statements of operations.

Expenses

Our primary operating expenses are salaries and benefits, interest expense and other general and administrative costs, such as professional fees, marketing, loan related costs and rent. Since we are an internally-managed BDC with no outside adviser or management company, the BDC incurs all the related costs to operate the Company.

Guarantees

The Company is a guarantor on the Sterling Receivable and Inventory Facility at NBCS. Maximum borrowings under the Sterling Receivable and Inventory Facility are $15,000,000. The Sterling Receivable and Inventory Facility matures in February 2018. At September 30, 2017, total principal owed by NBCS was $10,041,000. In addition, the Company deposited $750,000 to collateralize the guarantee. At September 30, 2017, the Company determined that it is not probable that payments would be required to be made under the guarantee.

The Company is also a guarantor on the Sterling 504 Facility at NBCS. Maximum borrowings under the 504 Facility are $35,000,000, depending upon syndication. The Sterling 504 Facility matures in August 2018. At September 30, 2017, total principal owed by NBCS was $2,609,000. At September 30, 2017, the Company determined that it is not probable that payments would be required to be made under the guarantee.

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The Company is a guarantor on the Goldman Facility, a term loan facility between UPSW, NTS, Premier, BSP and SBL with Goldman Sachs with an aggregate principal amount up to $50,000,000. The Goldman Facility matures in June 2021. At September 30, 2017, total principal outstanding was $40,000,000. At September 30, 2017, the Company determined that it is not probable that payments would be required to be made under the guarantee.

Loan Portfolio Asset Quality and Composition

The following tables set forth distribution by business type of the Company’s SBA 7(a) loan portfolio at September 30, 2017 and December 31, 2016, respectively (in thousands):

As of September 30, 2017

Distribution by Business Type

       
Business Type   # of Loans   Balance   Average
Balance
  % of Balance
Existing Business     1,139     $ 216,247     $ 190       81.6 % 
Business Acquisition     182       35,237       194       13.3 % 
Start-Up Business     134       13,648       102       5.1 % 
Total     1,455     $ 265,132     $ 182       100.0 % 

As of December 31, 2016

Distribution by Business Type

       
Business Type   # of Loans   Balance   Average
Balance
  % of Balance
Existing Business     921     $ 177,430     $ 193       80.7 % 
Business Acquisition     169       30,454       180       13.9 % 
Start-Up Business     138       11,900       86       5.4 % 
Total     1,228     $ 219,784     $ 179       100.0 % 

The following tables set forth distribution by borrower’s credit score of the Company’s SBA 7(a) loan portfolio at September 30, 2017 and December 31, 2016, respectively (in thousands):

As of September 30, 2017

Distribution by Borrower Credit Score

       
Credit Score   # of Loans   Balance   Average
Balance
  % of Balance
500 to 550     17     $ 2,657     $ 156       1.0 % 
551 to 600     45       10,021       223       3.8 % 
601 to 650     209       41,938       201       15.8 % 
651 to 700     429       82,185       192       31.0 % 
701 to 750     433       78,979       182       29.8 % 
751 to 800     271       43,835       162       16.5 % 
801 to 850     41       3,740       91       1.4 % 
Not available     10       1,777       178       0.7 % 
Total     1,455     $ 265,132     $ 182       100.0 % 

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As of December 31, 2016

Distribution by Borrower Credit Score

       
Credit Score   # of Loans   Balance   Average
Balance
  % of Balance
500 to 550     17     $ 2,036     $ 120       0.9 % 
551 to 600     38       6,748       178       3.1 % 
601 to 650     160       32,912       206       15.0 % 
651 to 700     344       64,923       189       29.5 % 
701 to 750     372       67,006       180       30.5 % 
751 to 800     250       39,600       158       18.0 % 
801 to 850     40       4,124       103       1.9 % 
Not available     7       2,435       348       1.1 % 
Total     1,228     $ 219,784     $ 179       100.0 % 

The following tables set forth distribution by primary collateral type of the Company’s SBA 7(a) loan portfolio at September 30, 2017 and December 31, 2016, respectively (in thousands):

As of September 30, 2017

Distribution by Primary Collateral Type

       
Collateral Type   # of Loans   Balance   Average
Balance
  % of Balance
Commercial Real Estate     704     $ 157,940     $ 224       59.6 % 
Machinery and Equipment     227       43,374       191       16.4 % 
Residential Real Estate     307       25,255       82       9.5 % 
Other     60       21,693       362       8.2 % 
Accounts Receivable and Inventory     103       13,359       130       5.0 % 
Liquid Assets     13       645       50       0.2 % 
Furniture and Fixtures     12       1,822       152       0.7 % 
Unsecured     29       1,044       36       0.4 % 
Total     1,455     $ 265,132     $ 182       100.0 % 

As of December 31, 2016

Distribution by Primary Collateral Type

       
Collateral Type   # of Loans   Balance   Average
Balance
  % of Balance
Commercial Real Estate     589     $ 133,263     $ 226       60.6 % 
Machinery and Equipment     201       37,426       186       17.0 % 
Residential Real Estate     264       21,211       80       9.7 % 
Other     45       13,822       307       6.3 % 
Accounts Receivable and Inventory     80       12,075       151       5.5 % 
Liquid Assets     15       667       44       0.3 % 
Unsecured     23       883       38       0.4 % 
Furniture and Fixtures     11       437       40       0.2 % 
Total     1,228     $ 219,784     $ 179       100.0 % 

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The following tables set forth distribution by days delinquent of the Company’s SBA 7(a) loan portfolio at September 30, 2017 and December 31, 2016, respectively (in thousands):

As of September 30, 2017

Distribution by Days Delinquent

       
Delinquency Status   # of Loans   Balance   Average
Balance
  % of Balance
Current     1,289     $ 226,704     $ 176       85.5 % 
1 to 30 days     54       13,126       243       5.0 % 
31 to 60 days     23       5,058       220       1.9 % 
61 to 90 days                       % 
91 days or greater     89       20,244       227       7.6 % 
Total     1,455     $ 265,132     $ 182       100.0 % 

As of December 31, 2016

Distribution by Days Delinquent

       
Delinquency Status   # of Loans   Balance   Average
Balance
  % of Balance
Current     1,119     $ 199,170     $ 178       90.6 % 
1 to 30 days     35       3,680       105       1.7 % 
31 to 60 days     7       1,570       224       0.7 % 
61 to 90 days                       % 
91 days or greater     67       15,364       229       7.0 % 
Total     1,228     $ 219,784     $ 179       100.0 % 

Consolidated Results of Operations

As a BDC and a RIC, we are subject to certain constraints on our operations, including limitations imposed by the 1940 Act and the Code.

Comparison of the three months ended September 30, 2017 and 2016

Investment Income

     
(in thousands)   Three Months
Ended
September 30,
2017
  Three Months
Ended
September 30,
2016
  Change
Investment income:
                          
Interest income   $ 4,551     $ 2,675     $ 1,876  
Dividend income     2,551       2,933       (382 ) 
Servicing income     1,794       1,551       243  
Other income     705       692       13  
Total investment income   $ 9,601     $ 7,851     $ 1,750  

Interest Income

The increase in interest income was attributable to the average outstanding performing portfolio of SBA non-affiliate investments increasing to $233,535,000 from $196,481,000 for the three months ended September 30, 2017 and 2016, respectively, combined with an increase in the Prime Rate from 3.50% to 4.25%. The increase in the average outstanding performing portfolio resulted from the origination of new SBA non-affiliate investments period over period.

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Dividend Income

     
(in thousands)   Three Months
Ended
September 30,
2017
  Three Months
Ended
September 30,
2016
  Change
Universal Processing Services of Wisconsin, LLC   $ 1,750     $ 1,700     $ 50  
Premier Payments LLC     375       450       (75 ) 
Newtek Technology Solutions, Inc.           330       (330 ) 
International Professional Marketing, Inc.     200             200  
Small Business Lending, LLC           200       (200 ) 
banc-serv Partners, LLC           240       (240 ) 
CDS Business Services, Inc.     200             200  
The Secure CyberGateway, LLC     26       13       13  
Total dividend income   $ 2,551     $ 2,933     $ (382 ) 

Dividend income decreased $382,000 period over period. During the three months ended September 30, 2017, we earned $200,000 of dividend income from NBCS, as compared to zero during the three months ended September 30, 2016. We also earned $200,000 of dividend income from IPM, a new wholly-owned controlled portfolio company that we invested in on April 6, 2017. These increases were offset by decreases in dividend income earned from NTS, SBL and BSP. Dividend income is dependent on portfolio company earnings. Current quarter dividend income may not be indicative of future period dividend income.

NSBF Servicing Portfolio and Related Servicing Income

The following table represents the NSBF originated servicing portfolio and servicing income earned for the three months ended September 30, 2017 and 2016:

     
(in thousands)   Three Months
Ended
September 30,
2017
  Three Months
Ended
September 30,
2016
  Change
Total NSBF originated servicing portfolio(1)   $ 1,127,760     $ 902,604     $ 225,156  
Total servicing income earned   $ 1,794     $ 1,551     $ 243  

(1) Of this amount, the total average NSBF originated portfolio earning servicing income was $791,536,000 and $645,906,000 for the three months ended September 30, 2017 and 2016, respectively.

The increase in servicing income was attributable to the increase in total portfolio investments for which we earn servicing income. The portfolio earning servicing income increased $145,630,000 period over period. The increase was a direct result of increased investments in SBA non-affiliate investments from September 30, 2017 to September 30, 2016.

Other Income

Other income relates primarily to legal, packaging, and late fees earned from the origination of SBA 7(a) loans. The $13,000 increase period over period was related to an increase in legal and packaging fees earned.

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Expenses:

     
(in thousands)   Three Months
Ended
September 30,
2017
  Three Months
Ended
September 30,
2016
  Change
Expenses:
                          
Salaries and benefits   $ 4,776     $ 3,665     $ 1,111  
Interest     2,986       2,341       645  
Depreciation and amortization     107       84       23  
Professional fees     605       807       (202 ) 
Origination and servicing     1,433       1,537       (104 ) 
Change in fair value of contingent consideration liabilities     (748 )            (748 ) 
Other general and administrative costs     1,634       1,542       92  
Total expenses   $ 10,793     $ 9,976     $ 817  

Salaries and Benefits

Salaries and benefits increased $1,111,000 primarily due to an increase in headcount at NSBF. The additional headcount relates primarily to employees performing loan processing, loan closing or loan servicing functions as a result of the increase in loan originations.

Interest Expense

The following is a summary of interest expense by facility for the three months ended September 30, 2017 and 2016:

     
(in thousands)   Three Months
Ended
September 30,
2017
  Three Months
Ended
September 30,
2016
  Change
Notes payable – Securitization trusts   $ 1,294     $ 929     $ 365  
Bank notes payable     341       393       (52 ) 
Notes due 2022     177       177        
Notes due 2021     792       810       (18 ) 
Notes payable – related parties     378       19       359  
Other     4       13       (9 ) 
Total interest expense   $ 2,986     $ 2,341     $ 645  

The increase in interest expense period over period is primarily related to interest from the Notes payable — Securitization trusts and Notes payable — related parties. The increase from Notes payable — Securitization trusts was the result of an additional securitization transaction completed in November 2016. The increase from Notes payable — related parties was related to the increase in the average outstanding balance during each period.

Change in Fair Value of Contingent Consideration

A portion of our investment in IPM consisted of contingent consideration based on IPM attaining specific EBITDA levels for 2017 and 2018. During the three months ended September 30, 2017, we reduced the contingent consideration liability by $748,000 based on the probability of IPM attaining specific EBITDA levels for 2017 and 2018.

Net Realized Gains and Net Unrealized Appreciation and Depreciation

Net realized gains or losses on investments are measured by the difference between the net proceeds from the repayment or sale and the cost basis of our investments without regard to unrealized appreciation or depreciation previously recognized and includes investments charged off during the period, net of recoveries. Net realized gains for the three months ended September 30, 2017 and 2016 were $9,938,000 and $8,716,000, respectively. Realized losses were $87,000 and $777,000 during the three months ended September 30, 2017

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and 2016, respectively. The net change in unrealized appreciation or depreciation on investments primarily reflects the change in portfolio investment fair values during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

Net Realized Gains on SBA Non-Affiliate Investments

       
  Three Months Ended
     September 30, 2017   September 30, 2016
(in thousands)   # of Debt
Investments
  $ Amount   # of Debt
Investments
  $ Amount
SBA non-affiliate investments originated during the quarter     122     $ 103,635       96     $ 85,895  
SBA guaranteed non-affiliate investments sold during the quarter     117     $ 68,461       98     $ 66,453  
Realized gains recognized on sale of SBA guaranteed non-affiliate investments         $ 10,025           $ 9,489  
Average sale price as a percent of principal balance(1)           112.31 %            111.84 % 

(1) Realized gains greater than 110.00% must be split 50/50 with the SBA in accordance with SBA regulations. The realized gains recognized above reflects amounts net of split with the SBA.

Net Unrealized Appreciation (Depreciation) on Investments

     
(in thousands)   Three Months
Ended
September 30,
2017
  Three Months
Ended
September 30,
2016
  Change
Net unrealized appreciation (depreciation) on SBA guaranteed non-affiliate investments   $ 1,151     $ (78 )    $ 1,229  
Net unrealized (depreciation) appreciation on SBA unguaranteed non-affiliate investments     (1,023 )      1,418       (2,441 ) 
Net unrealized (depreciation) appreciation on controlled investments     (500 )      4,638       (5,138 ) 
Change in benefit (provision) for deferred taxes on unrealized (depreciation) appreciation on investments     335       (2,028 )      2,363  
Net unrealized loss in credits in lieu of cash and notes payable in credits in lieu of cash           (1 )      1  
Total net unrealized (depreciation) appreciation on investments   $ (37 )    $ 3,949     $ (3,986 ) 

Net unrealized appreciation (depreciation) on SBA guaranteed non-affiliate investments relates to guaranteed portions of SBA debt investments made which the Company sells into a secondary market. Unrealized appreciation of SBA guaranteed investments represents the fair value adjustment of guaranteed portions of loans which have not yet been sold. Unrealized depreciation represents the reversal of unrealized appreciation when the loans are sold.

For the three months ended September 30, 2017, net unrealized depreciation on SBA unguaranteed non-affiliate investments consisted of $303,000 and $720,000 of unrealized depreciation on performing and non-performing SBA unguaranteed non-affiliate investments, respectively.

For the three months ended September 30, 2016, net unrealized appreciation on SBA unguaranteed non-affiliate investments consisted of $1,852,000 of unrealized appreciation and $434,000 of unrealized depreciation on performing and non-performing SBA unguaranteed non-affiliate investments, respectively.

The change in unrealized appreciation (depreciation) on performing SBA unguaranteed non-affiliate investments related to an increase in the discount rate from 5.05% to 5.50% period over period.

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Net Unrealized Appreciation (Depreciation) on Controlled Investments

     
(in thousands)   Three Months
Ended
September 30,
2017
  Three Months
Ended
September 30,
2016
  Change
Universal Processing Services of Wisconsin, LLC   $ 2,000     $ 5,852     $ (3,852 ) 
Newtek Technology Solutions, Inc.     (1,500 )      (1,305 )      (195 ) 
Premier Payments LLC           750       (750 ) 
CDS Business Services, Inc.     2,000       (700 )      2,700  
PMTWorks Payroll, LLC     (1,000 )      (25 )      (975 ) 
banc-serv Partners, LLC     (2,000 )            (2,000 ) 
Titanium Asset Management LLC           66       (66 ) 
Total net unrealized (depreciation) appreciation on controlled investments   $ (500 )    $ 4,638     $ (5,138 ) 

Unrealized appreciation related to our investment in UPSW was primarily related to a decrease in the weighted average cost of capital during the three months ended September 30, 2017. Unrealized appreciation related to our investment in NBCS was the result of continued growth in EBITDA.

Unrealized depreciation related to our investment in NTS was related to continued weak financial performance. During the three months ended September 30, 2017, we made a $1,000,000 debt investment in NPS. Due to NPS’ continued negative cash flows, we recorded an unrealized loss of $1,000,000 on our debt investment in NPS due to the unlikelihood of collection. During the three months ended September 30, 2017, the Company recorded a $2,000,000 unrealized loss on its investment in BSP to reflect the potential impact to the business and tradename as a result of the FBI investigation discussed above in “Prospectus Supplement Summary — Recent Developments” and in “Risk Factors” and in Note 8 to our Condensed Consolidated Financial Statements.

Provision for Deferred Taxes on Unrealized Appreciation of Investments

Certain consolidated subsidiaries are subject to U.S. federal and state income taxes. These taxable subsidiaries are not consolidated with the Company for income tax purposes, but are consolidated for GAAP purposes, and may generate income tax liabilities or assets from temporary differences in the recognition of items for financial reporting and income tax purposes at the subsidiaries. During the three months ended September 30, 2017, we recognized a benefit from deferred taxes of $335,000 related to unrealized depreciation of certain controlled portfolio company investments. During the three months ended September 30, 2016, we recognized a provision for deferred taxes of $2,028,000 related to unrealized appreciation of certain controlled portfolio company investments.

Comparison of the nine months ended September 30, 2017 and 2016

Investment Income

     
(in thousands)   Nine Months
Ended
September 30,
2017
  Nine Months
Ended
September 30,
2016
  Change
Investment income:
                          
Interest income   $ 13,689     $ 7,655     $ 6,034  
Dividend income     7,326       7,719       (393 ) 
Servicing income     5,163       4,581       582  
Other income     2,320       1,913       407  
Total investment income   $ 28,498     $ 21,868     $ 6,630  

Interest Income

The increase in interest income was attributable to the average outstanding performing portfolio of SBA non-affiliate investments increasing to $220,367,000 from $182,637,000 for the nine months ended September 30, 2017 and 2016, respectively combined with an increase in the Prime Rate from 3.50% to

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4.25%. The increase in the average outstanding performing portfolio resulted from the origination of new SBA non-affiliate investments period over period. In addition, during the nine months ended September 30, 2017, we recognized $1,493,000 of interest income related to accrued non-performing interest owed by two borrowers who paid their accrued interest balance in full.

Dividend Income

     
(in thousands)   Nine Months
Ended
September 30,
2017
  Nine Months
Ended
September 30,
2016
  Change
Universal Processing Services of Wisconsin, LLC   $ 5,250     $ 4,500     $ 750  
Premier Payments LLC     1,200       1,350       (150 ) 
Newtek Technology Solutions, Inc.           990       (990 ) 
International Professional Marketing, Inc.     550             550  
Small Business Lending, LLC     100       600       (500 ) 
banc-serv Partners, LLC           240       (240 ) 
CDS Business Services, Inc.     200             200  
The Secure CyberGateway, LLC     26       39       (13 ) 
Total dividend income   $ 7,326     $ 7,719     $ (393 ) 

Dividend income decreased $393,000 period over period. During the nine months ended September 30, 2017, we earned $200,000 of dividend income from NBCS and $550,000 of dividend income from IPM, a new wholly-owned controlled portfolio company that we invested in on April 6, 2017. Dividend income earned from UPSW increased $750,000 period over period. These increases were offset by decreases in dividend income earned from NTS, SBL and BSP. Dividend income is dependent on portfolio company earnings. Current period dividend income may not be indicative of future period dividend income.

NSBF Servicing Portfolio and Related Servicing Income

The following table represents NSBF originated servicing portfolio and servicing income earned for the nine months ended September 30, 2017 and 2016:

     
(in thousands)   Nine Months
Ended
September 30,
2017
  Nine Months
Ended
September 30,
2016
  Change
Total NSBF originated servicing portfolio(1)   $ 1,127,760     $ 902,604     $ 225,156  
Total servicing income earned   $ 5,163     $ 4,581     $ 582  

(1) Of this amount, the total average NSBF originated portfolio earning servicing income was $758,700,000 and $613,817,000 for the nine months ended September 30, 2017 and 2016, respectively.

The increase in servicing income was attributable to the increase in total portfolio investments for which we earn servicing income. The portfolio earning servicing income increased $144,883,000 period over period. The increase was a direct result of increased investments in SBA non-affiliate investments from September 30, 2017 to September 30, 2016.

Other Income

Other income relates primarily to legal, packaging, prepayment, and late fees earned from SBA loans. The increase was related to an increase in legal and packaging fees earned as a result of the larger dollar volume of loans funded.

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Expenses:

     
(in thousands)   Nine Months
Ended
September 30,
2017
  Nine Months
Ended
September 30,
2016
  Change
Expenses:
                          
Salaries and benefits   $ 14,407     $ 10,638     $ 3,769  
Interest     8,133       5,804       2,329  
Depreciation and amortization     292       209       83  
Professional fees     2,054       2,519       (465 ) 
Origination and servicing     4,086       4,190       (104 ) 
Change in fair value of contingent consideration liabilities     (748 )            (748 ) 
Other general and administrative costs     5,239       6,094       (855 ) 
Total expenses   $ 33,463     $ 29,454     $ 4,009  

Salaries and Benefits

Salaries and benefits increased $3,769,000 primarily due to an increase in headcount at NSBF. The additional headcount relates primarily to employees performing loan processing, loan closing or loan servicing functions as a result of the increase in loan originations. The increase in salaries and benefits was also related to a $678,000 increase in stock-based compensation expense period over period.

Interest Expense

The following is a summary of interest expense by facility for the nine months ended September 30, 2017 and 2016:

     
(in thousands)   Nine Months
Ended
September 30,
2017
  Nine Months
Ended
September 30,
2016
  Change
Notes payable – Securitization trusts   $ 4,096     $ 2,808     $ 1,288  
Bank notes payable     700       840       (140 ) 
Notes due 2022     530       531       (1 ) 
Notes due 2021     2,372       1,389       983  
Notes payable – related parties     418       196       222  
Other     17       40       (23 ) 
Total interest expense   $ 8,133     $ 5,804     $ 2,329  

The increase in interest expense period over period is primarily related to interest from the Notes payable — Securitization trusts, 2021 Notes and Notes payable — related parties. The increase from Notes payable — Securitization trusts was the result of an additional securitization transaction completed in November 2016.

In April 2016, we issued $40,250,000 of 2021 Notes. During the nine months ended September 30, 2017, we incurred $2,372,000 of interest expense. During the nine months ended September 30, 2016, we incurred only a partial period worth of interest expense.

The increase from Notes payable — related parties was related to the increase in the average outstanding balance during each period.

Change in Fair Value of Contingent Consideration

A portion of our investment in IPM consisted of contingent consideration based on IPM attaining specific EBITDA levels for 2017 and 2018. During the nine months ended September 30, 2017, we reduced the contingent consideration liability by $748,000 based on the probability of IPM attaining specific EBITDA levels for 2017 and 2018.

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Other General and Administrative Costs

Other general and administrative costs include managed IT services, marketing, rent and other costs. In April 2016, we moved our headquarters to Lake Success, New York and vacated our space in West Hempstead, New York. During the nine months ended September 30, 2016, we incurred a loss of $1,487,000 related to the remaining liabilities under the lease. No such expense was incurred during the nine months ended September 30, 2017. This was offset by $979,000 of bad debt expense related to amounts owed from a related party.

Net Realized Gains and Net Unrealized Appreciation and Depreciation

Net realized gains or losses on investments are measured by the difference between the net proceeds from the repayment or sale and the cost basis of our investments without regard to unrealized appreciation or depreciation previously recognized and includes investments charged off during the period, net of recoveries. Net realized gains for the nine months ended September 30, 2017 and 2016 were $27,537,000 and $22,536,000, respectively. Realized losses were $131,000 and $763,000 during the nine months ended September 30, 2017 and 2016, respectively. The net change in unrealized appreciation or depreciation on investments primarily reflects the change in portfolio investment fair values during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

Net Realized Gains on SBA Non-Affiliate Investments

       
  Nine Months Ended
     September 30, 2017   September 30, 2016
(in thousands)   # of Debt
Investments
  $
Amount
  # of Debt
Investments
  $
Amount
SBA non-affiliate investments originated during the period     324     $ 262,804       295     $ 217,779  
SBA guaranteed non-affiliate investments sold during the period     322     $ 189,349       287     $ 160,171  
Realized gains recognized on sale of SBA guaranteed non-affiliate investments         $ 27,668           $ 23,280  
Average sale price as a percent of principal balance(1)              112.21 %               112.09 % 

(1) Realized gains greater than 110.00% must be split 50/50 with the SBA in accordance with SBA regulations. The realized gains recognized above reflects amounts net of split with the SBA.

Net Unrealized Appreciation (Depreciation) on Investments

     
(in thousands)   Nine Months
Ended
September 30,
2017
  Nine Months
Ended
September 30,
2016
  Change
Net unrealized appreciation on SBA guaranteed non-affiliate investments   $ 1,201     $ 690     $ 511  
Net unrealized appreciation on SBA unguaranteed non-affiliate investments     238       869       (631 ) 
Net unrealized (depreciation) appreciation on controlled investments     (2,243 )      10,362       (12,605 ) 
Change in benefit (provision) for deferred taxes on unrealized (depreciation) appreciation on investments     745       (4,469 )      5,214  
Net unrealized depreciation on non-control/non-affiliate investments           (43 )      43  
Net unrealized depreciation in credits in lieu of cash and notes payable in credits in lieu of cash           (2 )      2  
Total net unrealized (depreciation) appreciation on investments   $ (59 )    $ 7,407     $ (7,466 ) 

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Net unrealized appreciation (depreciation) on SBA guaranteed non-affiliate investments relates to guaranteed portions of SBA debt investments made which the Company sells into a secondary market. Unrealized appreciation of SBA guaranteed investments represents the fair value adjustment of guaranteed portions of loans which have not yet been sold. Unrealized depreciation represents the reversal of unrealized appreciation when the SBA 7(a) loans are sold.

Net Unrealized Appreciation (Depreciation) on Controlled Investments

     
(in thousands)   Nine Months
Ended
September 30,
2017
  Nine Months
Ended
September 30,
2016
  Change
Universal Processing Services of Wisconsin, LLC   $ 3,000     $ 9,552     $ (6,552 ) 
Newtek Technology Solutions, Inc.     (4,059 )      (1,305 )      (2,754 ) 
Premier Payments LLC           3,997       (3,997 ) 
CDS Business Services, Inc.     4,750       (925 )      5,675  
PMTWorks Payroll, LLC     (3,045 )      (25 )      (3,020 ) 
banc-serv Partners, LLC     (2,000 )            (2,000 ) 
Small Business Lending, LLC     (800 )      (1,000 )      200  
The Secure CyberGateway, LLC           2       (2 ) 
Titanium Asset Management LLC     (42 )      66       (108 ) 
Excel WebSolutions, LLC     (47 )            (47 ) 
Total net unrealized (depreciation) appreciation on controlled investments   $ (2,243 )    $ 10,362     $ (12,605 ) 

Unrealized appreciation related to our investment in UPSW was related to an increase in EBITDA projections combined with a decrease in the discount rate during the nine months ended September 30, 2017. Unrealized appreciation related to our investment in NBCS was related to continued growth in its SBA 504 lending program and growth in its accounts receivable and inventory financing programs.

Unrealized depreciation related to our investment in NTS was related to weaker than projected financial performance. During the nine months ended September 30, 2017, we made an additional $1,000,000 debt investment in NPS. Due to NPS’ continued negative cash flows, we recorded an unrealized loss of $3,045,000 on our total investment in NPS. During the nine months ended September 30, 2017, the Company recorded a $2,000,000 unrealized loss on its investment in BSP to reflect the potential impact to the business and tradename as a result of the FBI investigation discussed in Note 8.

Provision for Deferred Taxes on Unrealized Appreciation of Investments

Certain consolidated subsidiaries of ours are subject to U.S. federal and state income taxes. These taxable subsidiaries are not consolidated with the Company for income tax purposes, but are consolidated for GAAP purposes, and may generate income tax liabilities or assets from temporary differences in the recognition of items for financial reporting and income tax purposes at the subsidiaries. During the nine months ended September 30, 2017, we recognized a benefit from deferred taxes of $745,000 related to unrealized depreciation of certain controlled portfolio company investments. During the nine months ended September 30, 2016, we recognized a provision for deferred taxes of $4,469,000 related to unrealized appreciation of certain controlled portfolio company investments.

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Comparison of the year ended December 31, 2016 and 2015

Investment Income

     
(in thousands)   December 31,
2016
  December 31,
2015
  Change
Investment income:
                          
Interest income   $ 11,518     $ 9,201     $ 2,317  
Dividend income     10,573       10,218       355  
Servicing income     6,160       4,611       1,549  
Other income     2,714       2,040       674  
Total investment income   $ 30,965     $ 26,070     $ 4,895  

Interest Income

The increase in interest income was attributable to the average outstanding performing portfolio of SBA non-affiliate investments increasing to $176,210,000 from $136,964,000 for the years ended December 31, 2016 and 2015, respectively, as well as the increase in the Prime Rate from 3.25% to 3.50% in December 2015. The increase in the average outstanding performing portfolio resulted from the origination of new SBA non-affiliate investments year over year.

Dividend Income

Dividend income is dependent on portfolio company earnings. Current year dividend income may not be indicative of future year dividend income.

The increase in dividend income is primarily related to an increase of dividends generated from Premier of $1,135,000, an increase of $682,000 in dividends generated from NTS, an increase of $348,000 in dividends generated from SBL, an increase of $210,000 in dividends generated from UPSW, and $300,000 of dividends generated from BSP, a new wholly owned controlled portfolio company investment we made in June 2016. These increases were offset by one-time dividends of $1,080,000 and $1,162,000 received from Exponential Business Development Co., Inc. and Summit Systems and Designs, LLC, respectively in 2015, both of which are no longer operating portfolio company businesses.

NSBF Servicing Portfolio and Related Servicing Income

The following table represents NSBF originated servicing portfolio and servicing income earned for the years ended December 31, 2016 and 2015:

     
(in thousands)   December 31,
2016
  December 31,
2015
  Change
Total NSBF originated servicing portfolio(1)   $ 960,517     $ 768,588     $ 191,929  
Total servicing income earned   $ 6,160     $ 4,611