<PAGE> 1
(ALLIED CAPITAL LOGO)
November 3, 2000
Dear Fellow Shareholder:
As you know, we are currently soliciting shareholders in a Special Meeting of
Shareholders to be held on November 15, 2000, at Allied Capital's headquarters
located at 1919 Pennsylvania Avenue, N.W. Washington, D.C. at 9:30 am Eastern
Time.
Since the proxy statement was delivered, on November 1, Allied Capital announced
plans to acquire BLC Financial Services Inc. in a stock for stock exchange in
which the consideration paid will be shares of Allied Capital stock. The
transaction will create a private portfolio company controlled by Allied
Capital. Following the completion of the transaction, we intend to merge our
Allied Capital Express small business lending operations into the new portfolio
company.
To effect the transaction, Allied Capital will issue approximately 4.2 million
shares of common stock, and BLC shareholders will receive a fixed exchange ratio
of 0.18 shares of Allied Capital common stock for each share of BLC stock they
own in a tax-free exchange. Allied Capital has a sufficient number of authorized
shares to complete the merger before the amendment to the Charter being voted on
at the Special Meeting takes effect.
The new portfolio company, which has not yet been named, will be a technology
leader in online small business loan origination. As was recently announced,
Allied Capital Express has developed proprietary online rules-based underwriting
technology that will be used to streamline the portfolio company's operations.
The portfolio company will have significant online loan origination
relationships as well as solid core broker relationships in the small business
community.
BLC Financial Services is a non-bank small business lender licensed as a
participant in the SBA 7(a) Guaranteed Loan Program. BLC, headquartered in New
York City, has 15 offices throughout the country and is a preferred lender in 63
SBA markets. BLC's fiscal year 2000 loan originations, including loans
originated for others, approximated $190 million. The combination of BLC with
Allied Capital Express will result in a leading small business lender with 22
offices located nationwide, 64 Preferred Lender markets, and projected annual
loan origination volume of over $450 million. Robert F. Tannenhauser, Chairman
and CEO of BLC, will be appointed CEO and President of the new portfolio
company.
Allied Capital will own approximately 95% of the portfolio company upon
completion of the transaction. Management will retain 5% ownership. Allied
Capital's investment is structured to provide a current return through interest,
dividends and fee income, and the investment will include debt, preferred stock
and common stock. In addition, Allied Capital believes there is opportunity to
significantly increase the value of the new portfolio company. The transaction
is expected to close by December 31, 2000 if all necessary approvals are
obtained.
If you have already voted your shares for the Allied Capital Special Meeting,
thank you. If you have not, we urge you to vote at this time. As you know,
historically we have issued equity when we have a clear use of proceeds for
attractive investment opportunities. This process has enabled us to issue equity
on an accretive basis for our shareholders.
For information regarding the Special Meeting and voting instructions, please
refer to the Proxy Statement dated October 5, 2000. Please feel free to contact
Allied Capital Investor Relations toll-free at 888-818-5298 if you have any
questions.
Sincerely,
/s/ WILLIAM L. WALTON
William L. Walton
Chairman and Chief Executive Officer
