Note Important Disclosures on pages 4-5 Note Analyst Certification on page 4

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1 COMPANY UPDATE / ESTIMATE CHANGE Key Metrics GLAD - NASDAQ (as of 03/15/18) $8.85 Price Target NA 52-Week Range $7.80-$10.12 Shares Outstanding (mm) 26.6 Market Cap. ($mm) $236 3-Mo. Average Daily Volume (000) Institutional Ow nership 16.9% Total Debt/Equity 65.1% TTM ROE 10.8% Net Asset Value Per Share $8.48 Price/Net Asset Value 104.4% Dividend Yield 9.5% Price/LTM Net Investment Income 9.8x Net Investment Income Per Share FY 9/30 Prior Curr. Prior Curr. 2017A 2018E 2018E 2019E 2019E 1Q $0.21 $0.21 $0.21 A $0.23 $0.23 2Q $0.21 $0.21 $0.21 $0.23 $0.22 3Q $0.21 $0.22 $0.22 $0.23 $0.23 4Q $0.21 $0.23 $0.22 $0.24 $0.23 Year $0.84 $0.86 $0.87 $0.93 $0.92 P/NII 10.5x 10.2x 9.7x Numbers may not add due to to rounding Net Asset Value Per Share FY 9/30 Prior Curr. Prior Curr. 2017A 2018E 2018E 2019E 2019E 1Q $8.36 $8.40 $8.48 A $8.52 $8.55 2Q $8.33 $8.46 $8.51 $8.55 $8.55 3Q $8.38 $8.47 $8.52 $8.57 $8.57 4Q $8.40 $8.50 $8.54 $8.60 $8.58 Company Description: Headquartered in McLean, Virginia, Gladstone Capital Corporation operates as a business development company which requires the company to pay out at least 90% of earnings to shareholders. GLAD provides cash flow-based loans to privately held lower middle market businesses based in the U.S. Specialty Finance Analyst: Andrew W. Stapp / astapp@hilliard.com Institutional Sales Desk: George Moorin / gmoorin@hilliard.com J.J.B. Hilliard, W.L. Lyons, LLC March 16, 2018 Gladstone Capital Corp. GLAD -- NASDAQ Neutral 3 Increases Credit Facility & Lowers Pricing Reaffirming Neutral Rating GLAD announced certain amendments to its revolving line of credit, including a reduction in pricing, an increase in the commitment and an extension of the maturity date. The interest rate has been reduced to 1 month Libor % from 1 month Libor % through April 15, Thereafter, it reverts to 1 month Libor %. The maturity has been extended to April 15, 2022 from May 1, The revolving period has been lengthened to January 15, 2021 from January 19, The commitment amount has been increased by $20 million to $190 million, with the ability to further expand the amount to $265 million through additional commitments from existing lenders. The unused commitment fee has been revised from 0.50% of the unused commitment amount to 0.50% if the unused commitment amount is less than or equal to 50%, 0.65% if the unused commitment amount is greater than 50% but less than or equal to 65% and 1.00% if the unused commitment amount is greater than 65%. In addition to adjusting our model to reflect the foregoing, we made other revisions as deemed appropriate. These adjustments are largely offsetting as we are marginally revising our FY2018 and FY2019 net investment income per share estimates to $0.87 and $0.92 from $0.86 and $0.93, respectively. We reaffirm our Neutral rating. Note Important Disclosures on pages 4-5 Note Analyst Certification on page 4

2 SUITABILITY Our suitability rating on GLAD is 3 on our scale of 1 to 4 (1 = most conservative, 4 = most aggressive). Factors contributing to our suitability rating include the company s market capitalization, liquidity and trading volume, diversity of revenues and the geographic diversification of its footprint. RISKS AND CONSIDERATIONS Gladstone Capital is exposed to various risks including: Economic Risk A widespread economic downturn could weaken the credit quality of GLAD s portfolio companies which could lead to higher than expected write downs and limit future growth opportunities in the small and medium sized companies GLAD invests in. Interest Rate Risk - A rise in interest rates could place stress on GLAD s portfolio companies and eventually affect their ability to pay. Additionally, as interest rates rise, GLAD s high dividend may lose appeal and lead to lower demand for the stock. Investment Criteria Risk - Failure to invest in securities that will support the dividend and future growth of GLAD could eventually lead to dividend cuts. Sector Rotation The share price of the company s common stock may be vulnerable to any sector rotation that might occur. GLOSSARY Regulated Investment Company (RIC): As regarded by the Internal Revenue Service. By following a few requirements, the most important of which is paying out at least 90% of taxable income (ordinary income plus short-term capital gains), the company does not pay federal income tax. This avoids double taxation. A typical company distributes common dividends out of net income (after-tax). Taxes are paid again by the shareholder upon receipt of a dividend. Sometimes a RIC will report income taxes paid. Any amount of taxable income greater than 90% but less than 98% not paid to shareholders is subject to a 4% excise tax and a 35% rate on any taxable income retained. There may be some instances where it is in the RIC s best interest to retain income in spite of paying the taxes. Business Development Company (BDC): Structure provided in the Investment Company Act of Basic requirements: 1) Qualifying assets 70% of total assets must be small private U.S. companies. 2) Asset coverage assets must cover the company s borrowings by at least 200% or debt to equity cannot exceed 1. 3) Significant managerial assistance BDCs must offer to provide guidance to its portfolio companies. Non-Diversified Company: May have investments exceeding 5% of total assets or an equity interest in a company exceeding 10%. Hilliard Lyons Equity Research 2 Specialty Finance

3 GLADSTONE CAPITAL CORPORATION GLAD:NEUTRAL 12/31/16 3/31/17 6/30/17 9/30/17 12/31/17 3/31/18 6/30/18 9/30/18 9/30/16 9/30/17 9/30/18 9/30/19 9/30/17 9/30/18 9/30/19 $ Thousands, Except for Per Share Data 1Q17A 2Q17A 3Q17A 4Q17A 1Q18A 2Q18E 3Q18E 4Q18E FY 2016 A FY 2017 A FY 2018 E FY 2019 E FY 2017 A FY 2018 E FY 2019 E Income Statement Analysis YOY Change Investment Income: Total Interest Income 8,633 8,588 9,629 10,223 10,670 11,217 11,689 11,965 35,216 37,073 45,541 50, % 22.8% 10.0% Total Other Income 1, ,893 2,160 2,189 3, % 1.3% 48.5% Total Investment Income 9,974 8,793 9,632 10,834 10,859 11,717 12,439 12,715 39,109 39,233 47,730 53, % 21.7% 11.8% Expenses: Base Management Fee 1,378 1,359 1,480 1,564 1,676 1,760 1,780 1,804 5,685 5,781 7,020 7, % 21.4% 5.7% Incentive Fee 1,293 1,070 1,116 1,300 1,373 1,351 1,477 1,512 4,514 4,779 5,713 6, % 19.6% 10.3% Administration Fee ,182 1,102 1,286 1, % 16.7% 14.1% Interest Expense ,026 1,231 1,629 1,633 1,686 2,899 3,073 6,180 7, % 101.1% 22.2% Dividends on Preferred Stock 1,029 1,029 1,029 1, ,117 4,152 3,104 3, % -25.2% 0.0% Other General and Administrative ,531 3,039 3,468 3, % 14.1% 11.5% Expenses Before Credits from Advisor 5,466 4,954 5,528 5,977 6,123 6,688 6,910 7,050 21,928 21,926 26,771 29, % 22.1% 11.0% Portfolio Company Fee Credit (649) (434) (261) (244) (664) (284) (287) (291) (783) (1,588) (1,526) (1,196) 102.8% -3.9% -21.6% Senior Syndicated Loan Fee Waiver (13) (9) (100) (99) (92) (92) (92) (92) (92) (221) (368) (368) 140.2% 66.5% 0.0% Incentive Fee Waiver (37) (1,077) (914) (289) (85) (187) - - (1,429) (2,317) (272) % -88.2% % Total Expenses 4,767 3,434 4,253 5,345 5,282 6,125 6,531 6,667 19,624 17,800 24,605 28, % 38.2% 14.4% Net Investment Income 5,207 5,359 5,379 5,489 5,577 5,593 5,909 6,047 19,485 21,433 23,126 25, % 7.9% 9.0% Realized & Unrealized Gain (Loss): Total Net Realized Gain/(Loss) (3,448) 45 (23) (1,337) ,154 (4,763) % % % Net Unrealized Gain/Loss (843) (748) 807 1,294 1, (15,271) 510 1, % 123.9% % Net Dec./Inc. in Net Assets from Operations 916 4,656 6,163 5,446 7,160 5,593 5,909 6,047 11,368 17,180 24,709 25, % 43.8% 2.0% Balance Sheet Assets: Total Investments At Cost 348, , , , , , , , , , , , % 12.9% 3.2% Unrealized Gain/(Loss) (60,742) (61,389) (60,400) (59,062) (57,702) (57,702) (57,702) (57,702) (59,687) (59,062) (57,702) (57,702) -1.0% -2.3% 0.0% Total Investments At Fair Value 288, , , , , , , , , , , , % 15.4% 3.6% Cash & Cash Equivilents 5,780 5,014 7,002 5,012 4,503 4,503 4,503 4,503 6,152 5,012 4,503 4, % -10.2% 0.0% Other Assets 10,626 10,106 8,840 8,475 12,789 12,789 12,789 12,789 8,912 8,475 12,789 12, % 50.9% 0.0% Total Assets 304, , , , , , , , , , , , % 15.9% 3.5% Liabilities & Shareholders Equity: Borrowings At Fair Value ($170M Line) 27,987 53,989 59,624 93, , , , ,499 71,300 93, , , % 50.9% 4.1% Mandatorily Redeemable Preferred Stock 59,448 59,536 59,536 49,849 49,870 49,870 49,870 49,870 61,000 49,849 49,870 49, % 0.0% 0.0% Total Borrowings 87, , , , , , , , , , , , % 33.2% 3.0% Other Liabilities 3,832 2,442 25,202 3,246 3,302 2,501 2,502 2,503 3,671 3,246 2,503 2, % -22.9% 0.0% Total Liabilities 91, , , , , , , , , , , , % 31.9% 3.0% Shareholders' Equity (Net Assets) 213, , , , , , , , , , , , % 5.2% 3.9% Total Liabilities & Shareholders' Equity 304, , , , , , , , , , , , % 15.9% 3.5% Share & Per Share Data: Common Shares Outstanding (000) 25,518 25,518 25,880 26,161 26,632 26,632 26,857 27,082 23,344 26,161 27,082 27, % 3.5% 3.3% Average Diluted Shares (000) 24,431 25,576 25,699 26,021 26,523 26,632 26,745 26,970 23,202 25,432 26,717 27, % 5.1% 3.0% Net Investment Income Per Share % 2.7% 5.8% Dividends % 0.0% 4.8% Net Investment Income Payout Ratio 98.5% 100.2% 100.3% 99.6% 99.9% 100.0% 95.1% 93.7% 100.0% 99.7% 97.1% 96.1% -0.4% -2.6% -1.0% Earnings Per Share % 36.9% -1.0% Net Asset Value Per Share % 1.7% 0.6% Performance Ratios: % YOY Change - BPS Interest Income / Avg. Investments at Cost 9.37% 9.62% 9.89% 9.92% 9.83% 10.07% 10.28% 10.28% 9.22% 9.70% 10.11% 10.59% Interest Expense / Avg. Borrowings 2.01% 2.37% 3.12% 3.11% 3.02% 3.63% 3.53% 3.54% 2.18% 2.65% 3.43% 3.88% Total Expenses / Total Investment Income 47.79% 39.06% 44.16% 49.34% 48.64% 52.27% 52.50% 52.44% 50.18% 45.37% 51.55% 52.75% Annualized Total Expenses / Avg. Assets -0.74% -0.46% -0.26% -0.24% -0.59% -0.25% -0.25% -0.25% 5.82% 5.23% 5.91% 6.47% Return on Avg. Assets 0.30% 1.42% 1.71% 1.49% 1.75% 1.36% 1.41% 1.43% 3.37% 4.70% 5.83% 5.74% Return on Avg. Equity 0.43% 2.19% 2.84% 2.48% 3.17% 2.47% 2.58% 2.62% 5.65% 7.82% 10.69% 10.49% Balance Sheet Ratios Assets/Equity 1.43x 1.55x 1.67x 1.67x 1.82x 1.82x 1.83x 1.83x 1.68x 1.67x 1.83x 1.83x Total Debt to Equity 0.43x 0.55x 0.67x 0.67x 0.82x 0.82x 0.83x 0.83x 0.68x 0.67x 0.83x 0.83x Source: Company reports and Hilliard Lyons estimates. Hilliard Lyons Equity Research 3 Specialty Finance

4 Additional information is available upon request. Analyst Certification I, Andrew W. Stapp, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject company(ies) and its (their) securities. I also certify that I have not been, am not, and will not be receiving direct or indirect compensation in exchange for expressing the specific recommendation(s) in this report. Important Disclosures Hilliard Lyons analysts receive bonus compensation based on Hilliard Lyons profitability. They do not receive direct payments from investment banking activity. Gladstone Commercial Corp. (GOOD-$17.83), Gladstone Investment Corp. (GAIN-$10.31), and Gladstone Land Corp. (LAND-$12.96) share the same management and board as Gladstone Capital Corp. Hilliard Lyons acted as a manager or co-manager of an offering of securities of Gladstone Capital Corp. in the past 12 months. Hilliard Lyons has received investment banking compensation from Gladstone Capital Corp. in the past 12 months. Investment Ratings Buy - We believe the stock has significant total return potential in the coming 12 months. Long-term Buy - We believe the stock is an above average holding in its sector, and expect solid returns to be realized over a longer time frame than our Buy rated issues, typically 2-3 years. Neutral - We believe the stock is an average holding in its sector, is currently fully valued, and may be used as a source of funds if better opportunities arise. Underperform - We believe the stock is vulnerable to a price set back in the next 12 months. Suitability Ratings 1 - A large cap, core holding with a solid history 2 - A historically secure company which could be cyclical, has a shorter history than a "1" or is subject to event driven setbacks 3 - An above average risk/reward ratio could be due to small size, lack of product diversity, sporadic earnings or high leverage 4 - Speculative, due to small size, inconsistent profitability, erratic revenue, volatility, low trading volume or a narrow customer or product base Hilliard Lyons Equity Research 4 Specialty Finance

5 Hilliard Lyons Investment Banking Recommended Issues Provided in Past 12 Mo. # of % of Rating Stocks Covered Stocks Covered Banking No Banking Buy 37 33% 11% 89% Hold/Neutral 69 62% 9% 91% Sell 5 5% 0% 100% As of 8 March 2018 Other Disclosures Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation or needs of individual investors. Employees of J.J.B. Hilliard, W.L. Lyons, LLC or its affiliates may, at times, release written or oral commentary, technical analysis or trading strategies that differ from the opinions expressed here. J.J.B. Hilliard, W.L. Lyons, LLC is a multi-disciplined financial services firm that regularly seeks investment banking assignments and compensation from issuers for services including, but not limited to, acting as an underwriter in an offering or financial advisor in a merger or acquisition, or serving as placement agent in private transactions. The information herein has been obtained from sources we believe to be reliable but is not guaranteed and does not purport to be a complete statement of all material factors. This is for informational purposes and is not a solicitation of orders to purchase or sell securities. Reproduction is forbidden unless authorized. All rights reserved. Hilliard Lyons Equity Research 5 Specialty Finance