Allied Capital Announces an Investment in Network Hardware Resale, Inc.

WASHINGTON -- Allied Capital Corporation (NYSE:ALD) announced today that it has provided $50.5 million in financing to support a minority recapitalization of Network Hardware Resale, Inc. ("NHR"), the leading provider of pre-owned networking equipment in the U.S. Allied Capital's investment took the form of senior secured notes and junior convertible debt. Existing management rolled over a portion of its equity as part of the transaction and will maintain voting control of the business.

NHR is the largest secondary-market provider of Cisco routers, switches and related accessories. The company sells pre-owned networking equipment from Cisco and other manufacturers to more than 10,000 businesses worldwide, including over 80 of the Fortune 1,000. The company's value proposition to its customers is selling "like-new" equipment at a fraction of the cost of new equipment, and offering expedited delivery, extended warranties and ongoing technical support and services.

"We are pleased to be partnering with the management team of NHR in this transaction," said Jeri Harman, Managing Director of Allied Capital. "The team, led by Chuck Sheldon and his sons, John and Mike, have built a successful business with significant size and scale, giving it a sustainable advantage in its market. They have also differentiated themselves in a competitive and highly fragmented market with their sophisticated inventory management system, effective and educated sales force and high quality products and services."

In conjunction with Allied Capital's investment, Chuck Sheldon will retire as NHR's CEO and assume the role of Chairman of the company's board of directors. Mike Sheldon has been named CEO of Network Hardware Resale. John Sheldon has been appointed to the company's Board of Directors and will transition from his previous post as Vice President of Sales. The company's remaining management structure will remain unchanged.

"We are pleased to have Allied Capital as our financial partner going forward," said Mike Sheldon, who will become CEO effective January 1, 2006. "Allied Capital's responsiveness, structural flexibility, and long-term investment horizon make them the ideal partner for our company as we position ourselves for future expansion into additional global markets and new industry segments. We look forward to building on NHR's market leading position with Allied Capital's financial and strategic support."

About Allied Capital

Allied Capital Corporation, a leading business development company with total assets of more than $3 billion, has paid regular, quarterly cash dividends to shareholders since 1963. Allied Capital invests in the American entrepreneurial economy by providing capital to companies seeking a long-term financial partner and access to managerial resources often unavailable to smaller companies. Since its IPO in 1960, the Company has provided long-term debt and equity financing to thousands of middle market companies. In serving its shareholders, Allied Capital helps build middle market businesses and support American jobs. The Company's private finance portfolio includes investments in over 100 companies that generate aggregate revenues of more than $10 billion and employ more than 90,000 people.

Headquartered in Washington, DC, Allied Capital offers shareholders the opportunity to participate in the private equity industry through an investment in the Company's New York Stock Exchange-listed stock, which is traded under the symbol ALD. For more information, please visit www.alliedcapital.com, call Allied Capital investor relations toll-free at [phone], or e-mail us at [e-mail]. All media inquiries should be directed to Stan Collender of Financial Dynamics at [phone].

About Network Hardware Resale, Inc.

Headquartered in Santa Barbara, California, Network Hardware Resale was started in 1996 by Chuck and John Sheldon to purchase pre-owned networking equipment in the secondary market and resell it primarily to end-users and systems integrators at substantial discounts to the cost of new equipment. Today, NHR is the leading worldwide provider of pre-owned Cisco, Juniper and Extreme networking equipment. Recognized by Inc. magazine as one of America's fastest-growing private companies for four consecutive years, NHR has an international presence, offering global sales and technical support through its offices in California, New Jersey, and The Netherlands. More than 10,000 organizations worldwide, including Fortune 1000, small and medium enterprises, service providers and government entities, turn to NHR for high-quality, reliable networking equipment. NHR employs more than 130 people in the United States and Europe. For more information, please visit www.networkhardware.com.

Forward-Looking Statements

The information contained in this press release contains forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results and conditions to differ materially from those projected in these forward-looking statements, and some of these factors are enumerated in Allied Capital's periodic filings with the Securities and Exchange Commission.