Lafayette Square Targets Working Class Communities with SBIC-Backed Lending

TL;DR

**Lafayette Square's government-backed, community-focused lending strategy in underserved middle markets offers a compelling, differentiated play for long-term value.**

AI Summary

Lafayette Square USA, Inc., an externally managed BDC, reported for the fiscal year ended December 31, 2025, focusing on lending to non-sponsored middle market businesses in Working Class American communities. The company aims to generate favorable risk-adjusted returns, primarily through current income from first and second lien loans. A key strategic initiative is its Goal2030, which guides capital allocation and portfolio construction, emphasizing investments in Working Class Areas. The company leverages diversified financing sources, including SBA-guaranteed debentures through its two SBIC licenses (Lafayette Square SBIC, LP and Lafayette Square SSBIC, LP, licensed February 1, 2024, and September 12, 2024, respectively), a $300 million syndicated senior secured revolving credit facility with ING Capital LLC, and $65 million in 7.00% senior unsecured notes. It also gained access to the U.S. Department of Agriculture's OneRD Guarantee Loan Program. The company's investment strategy targets businesses with annual revenues between $10 million and $1 billion and EBITDA between $10 million and $100 million, with a focus on strong free cash flow profiles.

Why It Matters

Lafayette Square's unique focus on non-sponsored middle market businesses in Working Class Areas, combined with its SBIC and RBIC licenses, positions it distinctly within the private credit market. This strategy could offer investors attractive risk-adjusted returns by tapping into underserved segments, potentially benefiting from less competitive pricing and stronger structural protections. For employees and customers in these communities, the company's Goal2030 aims to create and preserve jobs and stimulate economic growth, fostering local development. Its government-backed financing programs, like SBA debentures and OneRD, provide a stable, long-term funding advantage not widely available to competitors, enhancing balance sheet stability and potentially improving shareholder returns.

Risk Assessment

Risk Level: medium — The company's risk level is medium due to its reliance on government-licensed financing programs, which are subject to regulatory requirements and investment restrictions, as noted under 'Regulation as a Small Business Investment Company' and 'Item 1A. Risk Factors.' While these programs offer advantages, changes in government policy or failure to comply could significantly impact funding. Additionally, the focus on non-sponsored middle market businesses, while potentially offering better pricing, may also carry higher inherent risks compared to larger, sponsor-backed entities.

Analyst Insight

Investors should consider Lafayette Square USA, Inc. for its differentiated strategy in the private credit space, particularly its access to government-backed financing and focus on underserved middle markets. Monitor regulatory changes impacting SBIC and OneRD programs, as these are critical to its cost of capital and competitive advantage. Evaluate the company's progress on its Goal2030 metrics, as these are tied to its sustainability-linked credit facility and overall mission.

Financial Highlights

debt To Equity

Not Disclosed

revenue

Not Disclosed

operating Margin

Not Disclosed

total Assets

Not Disclosed

total Debt

Not Disclosed

net Income

Not Disclosed

eps

Not Disclosed

gross Margin

Not Disclosed

cash Position

Not Disclosed

revenue Growth

Not Disclosed

Key Numbers

• $300 million — Syndicated Senior Secured Revolving Credit Facility (Provides flexible financing, includes sustainability-linked pricing.)
• $65 million — 7.00% Senior Unsecured Notes (Issued in a private placement, diversifying capital sources.)
• $175 million — Maximum SBA-guaranteed debentures per SBIC (Each of the two SBIC licenses can issue up to this amount, providing long-term, fixed-rate funding.)
• 27,868,733 — Common Stock Shares Outstanding (As of March 25, 2026.)
• February 1, 2024 — Lafayette Square SBIC, LP License Date (Date SBIC license was received from the SBA.)
• September 12, 2024 — Lafayette Square SSBIC, LP License Date (Date SSBIC license was received from the SBA.)
• 51% — Minimum Invested Capital in Working Class Areas (Company's goal for deploying capital to support its mission.)
• 10% — Minimum Annual Revenue for Target Borrowers (Lower bound for middle market businesses targeted for investment.)
• 1 billion — Maximum Annual Revenue for Target Borrowers (Upper bound for middle market businesses targeted for investment.)
• 7.00% — Interest Rate on Senior Unsecured Notes (Fixed rate for the unsecured capital market financing.)

Key Players & Entities

• Lafayette Square USA, Inc. (company) — registrant
• LS BDC Adviser, LLC (company) — Adviser
• Lafayette Square SBIC, LP (company) — SBIC licensee
• Lafayette Square SSBIC, LP (company) — SSBIC licensee
• U.S. Small Business Administration (regulator) — SBIC program oversight
• U.S. Department of Agriculture (regulator) — OneRD program oversight and RBIC licensing
• ING Capital LLC (company) — administrative agent for credit facility
• Worker Solutions, LLC (company) — controlled portfolio company advising on human capital
• $300 million (dollar_amount) — syndicated senior secured revolving credit facility
• $65 million (dollar_amount) — 7.00% senior unsecured notes issued

FAQ

Risk Factors

• BDC and RIC Regulatory Compliance [high — regulatory]: As a BDC and RIC, Lafayette Square USA, Inc. is subject to extensive regulations under the 1940 Act and the IRC. Failure to comply with these complex and evolving regulations could result in significant penalties, restrictions on operations, or even the loss of BDC or RIC status, impacting the company's ability to generate income and return capital to shareholders.
• Reliance on Debt Financing [medium — financial]: The company utilizes significant leverage, including a $300 million syndicated senior secured revolving credit facility and $65 million in senior unsecured notes, in addition to SBA-guaranteed debentures. Changes in interest rates or credit market conditions could increase borrowing costs or limit access to future financing, negatively impacting profitability and financial flexibility.
• Concentration in Middle Market Lending [medium — market]: The company's strategy focuses on non-sponsored middle market businesses with revenues between $10 million and $1 billion. This segment can be more susceptible to economic downturns and may have less diversified revenue streams compared to larger, more established companies, increasing credit risk.
• External Management Dependence [low — operational]: As an externally managed BDC, the company relies on its investment adviser for investment management and operational services. Any disruption in the relationship with the adviser or its ability to perform its duties could adversely affect the company's investment performance and business operations.
• SBIC Licensing and Compliance [medium — regulatory]: The company operates two SBIC licenses, which provide access to SBA-guaranteed debentures. Maintaining these licenses requires adherence to specific SBA regulations, and any non-compliance could jeopardize access to this crucial, long-term funding source.

Industry Context

The BDC sector is characterized by its focus on providing capital to middle-market companies, often filling a gap left by traditional banks. Competition exists from other BDCs, private credit funds, and institutional lenders. Key industry trends include increasing demand for flexible financing solutions, a growing emphasis on ESG (Environmental, Social, and Governance) factors, and the utilization of SBA programs to enhance leverage and reduce borrowing costs.

Regulatory Implications

As a BDC and RIC, Lafayette Square USA, Inc. faces stringent regulatory oversight from the SEC and IRS. Compliance with the 1940 Act and RIC rules is paramount. The company's focus on community investment may also align with Community Reinvestment Act (CRA) considerations for regulated depository institutions, potentially attracting certain types of investors.

What Investors Should Do

1. Monitor portfolio company performance and credit quality, particularly within the non-sponsored middle market segment.
2. Assess the impact of interest rate changes on the company's debt financing costs and net investment income.
3. Evaluate the company's progress towards its Goal2030 objectives and the deployment of capital in Working Class American communities.
4. Review the utilization and cost of the company's diversified financing sources, including SBA debentures and the syndicated credit facility.

Key Dates

• 2025-12-31: Fiscal Year End — Marks the end of the reporting period for the 10-K filing, encompassing financial performance and operational activities.
• 2024-02-01: Lafayette Square SBIC, LP License Date — Indicates the establishment of one of the company's Small Business Investment Company (SBIC) licenses, enabling access to SBA-guaranteed debentures for funding.
• 2024-09-12: Lafayette Square SSBIC, LP License Date — Marks the establishment of the second SBIC license, further enhancing the company's ability to leverage SBA funding for its investment activities.
• 2026-03-25: Common Stock Shares Outstanding — Provides a snapshot of the company's equity structure as of a recent date, relevant for per-share calculations and ownership analysis.

Glossary

Business Development Company (BDC)

A type of closed-end investment company created by Congress to make venture capital and other investments in small and medium-sized businesses. (Lafayette Square USA, Inc. is registered and regulated as a BDC, which dictates its investment strategies and regulatory compliance requirements.)

Regulated Investment Company (RIC)

A U.S. tax term for a company that qualifies to be taxed as a mutual fund, allowing it to pass income and capital gains through to shareholders without being taxed at the corporate level. (Lafayette Square USA, Inc. has elected RIC status to avoid corporate income tax, enhancing its ability to distribute earnings to investors.)

Small Business Investment Company (SBIC)

A privately owned and managed investment company licensed and regulated by the Small Business Administration (SBA) to provide capital to small businesses. (The company's two SBIC licenses allow it to issue SBA-guaranteed debentures, a key source of long-term, fixed-rate debt financing.)

Goal2030

The company's strategic initiative guiding capital allocation and portfolio construction, emphasizing investments in Working Class American communities. (This objective shapes the company's investment focus and commitment to social and economic impact alongside financial returns.)

Non-sponsored Middle Market Businesses

Companies in the middle market (typically $10 million to $1 billion in revenue) that are not backed by private equity sponsors. (This is the primary target segment for Lafayette Square's lending activities, believed to offer attractive risk-adjusted returns and lender influence.)

Working Class American Communities

Geographic areas or communities characterized by a significant proportion of working-class residents, often targeted for economic development initiatives. (The company's investment strategy is specifically focused on deploying capital into these communities to foster job creation and economic growth.)

Year-Over-Year Comparison

As this is the first detailed 10-K filing for Lafayette Square USA, Inc. under its current structure and strategy, a direct year-over-year comparison of key financial metrics like revenue, net income, and margins is not possible. However, the filing highlights the establishment of two SBIC licenses in 2024 and the securing of a $300 million credit facility, indicating significant progress in building out its financing infrastructure and operational capacity compared to prior periods.

Key Financial Figures

• $0.001 — e Act of 1934: Common Stock, par value $0.001 per share (Title of class) Indicate
• $10 million — ompanies having annual revenues between $10 million and $1 billion and annual earnings bef
• $1 billion — annual revenues between $10 million and $1 billion and annual earnings before interest, t
• $100 m — n ("EBITDA") of between $10 million and $100 million, although we may invest in larger
• $175 million — sed SBIC may be eligible to issue up to $175 million of SBA-guaranteed debentures, subject
• $300 million — As discussed above, we are party to a $300 million syndicated senior secured revolving cre
• $65 million — apital markets through the issuance of $65 million of 7.00% senior unsecured notes in a pr
• $100 m — lion and EBITDA between $10 million and $100 million, operate across a variety of ind
• $50 million — nerally have principal amounts of up to $50 million. While these instruments are typically

Filing Documents

• ls-20251231.htm (10-K) — 8627KB
• lsusa-investmentadvisoryag.htm (EX-10.1) — 87KB
• lsusa-administrationagreem.htm (EX-10.2) — 254KB
• lsbdcadviser-insidertradin.htm (EX-10.7) — 29KB
• lsusacodeofbusinessconduct.htm (EX-14.1) — 166KB
• exhibit-listofsubsidiaries.htm (EX-21.1) — 7KB
• exhibit311-lsusaform10xk20.htm (EX-31.1) — 10KB
• exhibit312-lsusaform10xk20.htm (EX-31.2) — 10KB
• exhibit321-lsusaform10xk20.htm (EX-32.1) — 6KB
• exhibit322-lsusaform10xk20.htm (EX-32.2) — 5KB
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• 0001628280-26-020991.txt ( ) — 29150KB
• ls-20251231.xsd (EX-101.SCH) — 83KB
• ls-20251231_cal.xml (EX-101.CAL) — 81KB
• ls-20251231_def.xml (EX-101.DEF) — 504KB
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Business

Business 3 Item 1A.

Risk Factors

Risk Factors 20 Item 1B. Unresolved Staff Comments 54 Item 1C. Cybersecurity 55 Item 2.

Properties

Properties 56 Item 3.

Legal Proceedings

Legal Proceedings 56 Item 4. Mine Safety Disclosures 57 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 57 Item 6. Reserved 59 Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 59 Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 82 Item 8. Consolidated Financial Statements and Supplementary Data 84 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 140 Item 9A.

Controls and Procedures

Controls and Procedures 140 Item 9B. Other Information 140 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 140 PART III Item 10. Directors, Executive Officers and Corporate Governance 141 Item 11.

Executive Compensation

Executive Compensation 141 Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 141 Item 13. Certain Relationships and Related Transactions, and Director Independence 141 Item 14. Principal Accountant Fees and Services 141 PART IV Item 15. Exhibits and Financial Statement Schedules 141 Item 16. Form 10-K Summary 143

Signatures

Signatures 144 1 Lafayette Square USA, Inc. Cautionary Statement Regarding Forward-Looking Statements This report contains forward-looking statements that involve substantial risks and uncertainties. Such statements involve known and unknown risks, uncertainties and other factors and undue reliance should not be placed thereon. These forward- looking statements are not historical facts, but rather are based on current expectations, estimates and projections about Lafayette Square USA, Inc., together with its consolidated subsidiaries ("we," "us," "our," or the "Company"), our prospective portfolio investments, our industry, our beliefs and opinions, and our assumptions. Words such as "anticipates," "expects," "intends," "plans," "will," "may," "continue," "believes," "seeks," "estimates," "would," "could," "should," "targets," "projects," "outlook," "potential," "predicts" and variations of these words and similar expressions are intended to identify forward-looking statements. 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: our business prospects and the prospects of the companies in which we may invest; our ability to raise sufficient capital to execute our investment strategy; heightened global political and economic uncertainty caused by war, social unrest and political tension; the impact of economic recessions or downturns could harm our operating results; U.S. trade policy developments, tariffs and other trade restrictions; price inflation and changes in the general interest rate environment, which could adversely affect the operating results of our portfolio companies and impact their ability to pay interest and principal on our loans; changes in the gene

BUSINESS

ITEM 1. BUSINESS OVERVIEW Lafayette Square USA, Inc. (together with its subsidiaries, where applicable, the "Company," which may also be referred to as "we," "us" or "our") is an externally managed, non-diversified, closed-end 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") and that has elected to be treated as a regulated investment company ("RIC") under Subchapter M of the U.S. Internal Revenue Code of 1986, as amended (the "IRC") for the tax year ended December 31, 2025. We focus on lending to middle market businesses located in, or employing working class ("Working Class" 1 ) American communities, with the goal of helping those businesses to enhance their returns while creating and preserving jobs and stimulating economic growth across the United States. Our investment strategy is informed by longstanding federal regulatory frameworks, most notably the Small Business Investment Act of 1958 (the "Investment Act"), which was designed to mobilize private capital in support of small business and job creation; the Community Reinvestment Act of 1977 (the "CRA"), which was designed to encourage investment and lending in low- and moderate-income neighborhoods and the Small Business Investment Incentive Act of 1980 (the "Incentive Act"), which created the BDC regulatory framework to expand access to capital for small and developing businesses, low-and moderate-income neighborhoods. Drawing on these regulatory frameworks, we have established a set of measurable, time-bound objectives we refer to as our "Goal2030 ," which guide our capital allocation, portfolio construction, and engagement with portfolio companies. We believe our regional focus and disciplined approach to underwriting, portfolio construction and risk management enable us to achieve favorable risk-adjusted returns while reducing the risk of loss of shareholder capital and su

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