Fair Value Measurements

6 Months Ended

Jun. 30, 2024

12. FAIR VALUE MEASUREMENTS

GAAP requires disclosure of fair value information about financial and nonfinancial assets and liabilities, whether or not recognized in the financial statements, for which it is practical to estimate the value. In cases where quoted market prices are not available, fair values are based upon the application of discount rates to estimated future cash flows using market yields, or other valuation methodologies. Any changes to the valuation methodology will be reviewed by the Company’s management to ensure the changes are appropriate. The methods used may produce a fair value calculation that is not indicative of net realizable value or reflective of future fair values. Furthermore, while the Company anticipates that the valuation methods are appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value of certain financial and nonfinancial assets and liabilities could result in a different estimate of fair value at the reporting date. The Company uses inputs that are current as of the measurement date, which may fall within periods of market dislocation, during which price transparency may be reduced.

Recurring Fair Value Measurements

There were no financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2024. The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2023:


	As of December 31, 2023
	Level 1		Level 2		Level 3		Total
Financial assets:
Debt securities, at fair value	$	-	$	842,269	$	-	$	842,269

Financial Assets and Liabilities Not Measured at Fair Value

As of June 30, 2024 and December 31, 2023, the carrying values and fair values of the Company’s financial assets and liabilities recorded at amortized cost are as follows:


		As of June 30,				As of December 31,
		2024				2023
	Level in Fair Value Hierarchy	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:
Loans held for investment	3	$	381,862,667	$	379,968,452	$	353,640,610	$	351,952,876
Cash and cash equivalents	1		7,070,883		7,070,883		7,898,040		7,898,040
Interest receivable	2		1,169,611		1,169,611		1,004,140		1,004,140
Other receivables and assets, net	2		628,814		628,814		705,960		705,960
Related party receivables	2		838,876		838,876		107,225		107,225

Financial liabilities:
Revolving loan	2	$	76,750,000	$	76,448,963	$	66,000,000	$	65,633,408
Accounts payable and other liabilities	2		1,541,560		1,541,560		1,135,355		1,135,355
Interest reserve	2		2,491,807		2,491,807		1,074,889		1,074,889
Management and incentive fees payable	2		1,774,880		1,774,880		3,243,775		3,243,775
Related party payables	2		1,950,416		1,950,416		2,051,531		2,051,531
Dividend payable	2		9,256,736		9,256,736		13,866,656		13,866,656

Our loans are held for investment and are substantially secured by real estate, equipment, licenses and other assets of the borrowers to the extent permitted by the applicable laws and the regulations governing such borrowers. The aggregate fair value of the Company’s loan portfolio was $379,968,452 and $351,952,876, with gross unrecognized holding losses of $1,894,215 and $1,687,734 as of June 30, 2024 and December 31, 2023, respectively. The fair values, which are classified as Level 3 in the fair value hierarchy, are estimated using discounted cash flow models based on current market inputs for similar types of arrangements. The primary sensitivity in these models is based on the selection of appropriate discount rates. Fluctuations in these assumptions could result in different estimates of fair value.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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