Patriot Capital Funding (PCAP) DEF 14A Definitive proxy

SCHEDULE 14A

(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934 (AMENDMENT NO.      )

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þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant toSection 240.14a-12

PATRIOT CAPITAL FUNDING, INC.

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement if other than the Registrant)

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TABLE OF CONTENTS

Notice of Annual Meeting of Stockholders

To the Stockholders:

The 2007 Annual Meeting of Stockholders of Patriot Capital Funding, Inc. (the “Company” or “Patriot Capital Funding”) will be held at the offices of Edwards Angell Palmer & Dodge LLP, Three Stamford Plaza, 301 Tresser Boulevard, Stamford, Connecticut 06901, on June 14, 2007, at 10:00 a.m. (Eastern Daylight Time) for the following purposes:

1. To elect one (1) Class II director of the Company who will serve for three (3) years, or until his successor is duly elected and qualified;

2. To ratify the selection of Grant Thornton LLP to serve as the independent registered public accounting firm for the Company for the year ending December 31, 2007;

3. To approve the issuance of 1,213,000 shares of the Company’s common stock upon the exercise of options to be granted pursuant to the Company’s Stock Option Plan; and

4. To transact such other business as may properly come before the meeting and any adjournments or postponements.

You have the right to receive notice of and to vote at the meeting if you were a stockholder of record at the close of business on May 11, 2007. Whether or not you expect to be present in person at the meeting, please sign the enclosed proxy and return it promptly in the envelope provided. Instructions are shown on the proxy card. In the event there are not sufficient votes for a quorum or to approve or ratify any of the foregoing proposals at the time of the meeting, the meeting may be adjourned in order to permit further solicitation of the proxies by the Company.

By order of the board of directors,

William E. Alvarez, Jr.

Secretary

Westport, CT

May 15, 2007

This is an important meeting. To ensure proper representation at the meeting, please complete, sign, date and return the proxy card in the enclosed, self-addressed envelope. Even if you vote your shares prior to the meeting, you still may attend the meeting and vote your shares in person.

274 Riverside Avenue
Westport, CT 06880

PROXY STATEMENT

2007 Annual Meeting of Stockholders

General

This Proxy Statement is furnished in connection with the solicitation of proxies by the board of directors of Patriot Capital Funding, Inc. for use at the Company’s 2007 Annual Meeting of Stockholders (the“Meeting”) to be held on June 14, 2007, at 10:00 a.m. (Eastern Daylight Time) at the offices of Edwards Angell Palmer & Dodge LLP, Three Stamford Plaza, 301 Tresser Boulevard, Stamford, Connecticut 06901, and at any adjournments or postponements thereof. This Proxy Statement, the accompanying proxy card, and the Company’s Annual Report to Stockholders for the year ended December 31, 2006, are first being sent to stockholders on or about May 15, 2007.

We encourage you to vote your shares, either by voting in person at the Meeting or by granting a proxy (i.e., authorizing someone to vote your shares). If you properly sign and date the accompanying proxy card, and the Company receives it in time for the Meeting, the persons named as proxies will vote the shares registered directly in your name in the manner that you specified.If you give no instructions on the proxy card, the shares covered by the proxy card will be voted FOR the election of the nominees as directors and FOR the other matters listed in the accompanying Notice of Annual Meeting of Stockholders.

If you are a“stockholder of record”(i.e., you hold shares directly in your name), you may revoke a proxy at any time before it is exercised by notifying the Company’s Secretary in writing. Please send your notification to Patriot Capital Funding, Inc., 274 Riverside Avenue, Westport, CT 06880, Attention: Secretary, and submit a properly executed, later-dated proxy or vote in person at the Meeting. Any stockholder of record attending the Meeting may vote in person whether or not he or she has previously voted his or her shares. If your shares are held for your account by a broker, bank, or other institution or nominee(“Broker Shares”), you may vote such shares at the Meeting only if you obtain proper written authority from your institution or nominee and present it at the Meeting.

Purpose of Meeting

At the Meeting, you will be asked to vote on the following proposals:

1. To elect one (1) Class II director of the Company who will serve for three years, or until his successor is duly elected and qualified;

2. To ratify the selection of Grant Thornton LLP to serve as the independent registered public accounting firm for the Company for the year ending December 31, 2007;

3. To approve the issuance of 1,213,000 shares of the Company’s common stock upon the exercise of options to be granted pursuant to the Company’s Stock Option Plan; and

4. To transact such other business as may properly come before the Meeting and any adjournments or postponements.

Voting Securities

You may vote your shares at the Meeting only if you were a stockholder of record at the close of business on May 11, 2007 (the“Record Date”). On April 20, 2007, there were 18,223,517 shares of the Company’s common stock outstanding. Each share of common stock is entitled to one vote.

Quorum Required

A quorum must be present at the Meeting for any business to be conducted. The presence at the Meeting, in person or by proxy, of the holders of a majority of the shares of common stock outstanding on the record date will constitute a quorum. Votes withheld from the nominee and abstentions will be treated as shares present for quorum purposes. Broker Shares for which the nominee has not received voting instructions from the record holder and does not have discretionary authority to vote the shares on certain proposals (which are considered “Broker Non-Votes” with respect to such proposals) will be treated as shares present for quorum purposes.

If a quorum is not present at the Meeting, the stockholders who are present at the Meeting may adjourn the Meeting until a quorum is present. Any such adjournment will require the affirmative vote of a majority of the shares represented at the Meeting in person or by proxy. The persons named as proxies will vote those proxies for such adjournment to permit the further solicitation of proxies.

Vote Required

Election of Nominee Directors.  The affirmative vote of a majority of the votes cast at the Meeting is required to elect the one nominee as director (i.e., the number of shares voted “for” the one nominee must exceed the number of votes “withheld” from the one nominee).

Ratification of Independent Registered Public Accounting Firm.  The affirmative vote of a majority of the votes cast at the Meeting in person or by proxy is required to ratify the appointment of Grant Thornton LLP to serve as the Company’s independent registered public accounting firm. Abstentions will not be included in determining the number of votes cast and, as a result, will have no effect on this proposal.

Approval of the Issuance of Common Stock upon the Exercise of Options to be Granted pursuant to the Company’s Stock Option Plan.  The affirmative vote of a majority of the votes cast at the Meeting in person or by proxy is required to approve this proposal. Abstentions and broker non-votes will not be included in determining the number of votes cast and, as a result, will have no effect on this proposal.

Additional Solicitation.  If there are not enough votes to approve any proposals at the Meeting, the stockholders who are present at the Meeting may adjourn the Meeting to permit the further solicitation of proxies. Any such adjournment will require the affirmative vote of a majority of the shares represented at the Meeting in person or by proxy. The persons named as proxies will vote those proxies for such adjournment to permit the further solicitation of proxies.

Also, a stockholder vote may be taken on one or more of the proposals in this Proxy Statement prior to any such adjournment if there are sufficient votes for approval of such proposal(s).

Information Regarding This Solicitation

The Company will bear the expense of the solicitation of proxies for the Meeting, including the cost of preparing, printing, and mailing this Proxy Statement, the accompanying Notice of Annual Meeting of Stockholders and the proxy card. The Company has requested that brokers, nominees, fiduciaries, and other persons holding shares in their names, or in the name of their nominees, which are beneficially owned by others, forward the proxy materials to, and obtain proxies from, such beneficial owners. The Company will reimburse such persons for their reasonable expenses in so doing.

Any proxy given pursuant to this solicitation may be revoked by notice from the person giving the proxy at any time before it is exercised. Any such notice of revocation should be provided in writing and signed by the stockholder in the same manner as the proxy being revoked and delivered to the Company’s Secretary.

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Security Ownership of Management and Certain Beneficial Owners

The following table sets forth, as of April 20, 2007, each stockholder who owned more than 5% of the Company’s outstanding shares of common stock, each current director, each nominee for director, the Company’s executive officers, and the directors and executive officers as a group. Unless otherwise indicated, the Company believes that each beneficial owner set forth in the table has sole voting and investment power.

The Company’s directors are divided into two groups — interested directors and independent directors. Interested directors are “interested persons” as defined in the Investment Company Act of 1940 (the “1940 Act”).

	Number of
Name of	Shares Owned			Percentage
Beneficial Owner	Beneficially(1)			of Class(2)
Stockholders Owning 5% or greater of the Company’s Outstanding Shares
Compass Group Investments, Inc.(3)		1,031,929			5.7	%
Bayside Executive Park West Bay St. & Blake Road Nassau, Bahamas
American Century Companies, Inc.(4)		1,217,850			6.7	%
4500 Main Street Kansas City, MO 64111
Interested Directors:
Richard P. Buckanavage		317,094	(5)		1.7
Timothy W. Hassler		315,764	(5)		1.7
Independent Directors:
Steven Drogin		2,044			*
Mel P. Melsheimer		8,000			*
Richard A. Sebastiao		5,575			*
Dennis C. O’Dowd		2,000			*
Executive Officers:
William E. Alvarez, Jr.		31,494	(5)		*
Clifford L. Wells		29,632	(5)		*
Matthew R. Colucci		128,163	(5)		*
All Directors and Officers as a Group(7)		839,765	(6)		4.6

*	Less than 1%
(1)	Beneficial ownership has been determined in accordance withRule 13d-3 of the Securities Exchange Act of 1934.
(2)	Based on a total of 18,223,517 shares of the Company’s common stock issued and outstanding on April 20, 2007.
(3)	Wilton Funding Holdings, LLC is the record holder of all of these shares. Wilton Funding Holdings, LLC is indirectly owned and controlled by Compass Group Investments, Inc. As a result, Compass Group Investments, Inc. may be deemed to beneficially own the shares held by Wilton Funding Holdings, LLC.

Compass Wilton Partners, LP is the sole member of Wilton Funding Holdings, LLC; Concorde Wilton Holdings, LP is the principal limited partner of Compass Wilton Partners, LP; and Navco Management, Inc. is the general partner of Compass Wilton Partners, LP and Concorde Wilton Holdings, LP, and, as a result, each of Compass Wilton Partners, LP, Concorde Wilton Holdings, LP and Navco Management, Inc. may be deemed to beneficially own the shares of common stock held by Wilton Funding Holdings, LLC. Compass Group Investments, Inc. is the sole limited partner of Concorde Wilton Holdings, LP.

Arthur Coady is a director of Navco Management, Inc. and, as a result, may be deemed to beneficially own the shares of common stock held by Wilton Funding Holdings, LLC.

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Arthur Coady and each of the entities discussed herein disclaims beneficial ownership of the shares of common stock referred to herein, except to the extent of their pecuniary interest therein.

Information regarding the share ownership was obtained from the Schedule 13G filed by Compass Group Investments, Inc. on August 16, 2006.

(4)	Information regarding share ownership was obtained from the Schedule 13G/A filed by American Century Companies, Inc., American Century Investment Management, Inc. and American Century Capital Portfolios, Inc. on February 13, 2007. American Century Companies, Inc., a holding company, reported sole voting power with respect to 1,157,600 shares and sole dispositive power with respect to 1,217,850 shares; American Century Investment Management, Inc., a wholly owned subsidiary of American Century Companies, Inc., reported sole voting power with respect to 1,157,600 shares and sole dispositive power with respect to 1,217,850 shares; and American Century Capital Portfolios, Inc., a registered investment company managed by American Century Investment Management, Inc., reported sole voting and dispositive power with respect to 1,075,000 shares.
(5)	Includes shares of our common stock issuable upon the exercise of options exercisable within 60 days of April 20, 2007 as follows: Richard P. Buckanavage (257,585 shares), Timothy W. Hassler (257,143 shares), William E. Alvarez, Jr. (28,188 shares), Clifford L. Wells (27,132 shares) and Matthew R. Colucci (121,385 shares).
(6)	Includes 691,432 shares of our common stock issuable upon the exercise of options exercisable within 60 days of April 20, 2007.
(7)	The address for all officers and directors is c/o Patriot Capital Funding, Inc., 274 Riverside Avenue, Westport, CT 06880.

Equity Compensation Plan Information

The following table sets forth information as of December 31, 2006, with respect to compensation plans under which the Company’s equity securities are authorized for issuance:

						Number of Securities
	Number of					Remaining Available for
	Securities to be					Future Issuance Under
	Issued Upon			Weighted-Average		Equity Compensation Plan
	Exercise of			Exercise Price of		(Excluding Securities
	Outstanding Options			Outstanding Options		Reflected in Column (a))
Plan Category	(a)			(b)		(c)
Equity compensation plans approved by public stockholders		903,000		$	10.97		227,181
Equity compensation plans not approved by public stockholders		1,301,496	(1)		14.00		—
Total		2,204,496		$	12.76		227,181	(2)

(1)

The stock option plan pursuant to which these options were issued or are issuable was approved by our stockholders prior to our initial public offering.

(2)

On February 23, 2007, the board of directors granted options to purchase 227,181 shares of our common stock to our executive officers and employees. The exercise price of these options is $14.38 per share, the closing market price of our common stock on the date of grant. For a description of the stock option plan, see Proposal 3 — “Approve Issuance of 1,213,000 shares of Common Stock upon Exercise of Options to be Granted pursuant to the Company’s Stock Option Plan.”

PROPOSAL 1.

ELECTION OF DIRECTORS

Pursuant to the Company’s restated bylaws, the board of directors may modify the number of members of the Board provided that the number of directors will not be fewer than five or greater than eleven and that no decrease in the number of directors shall shorten the term of any incumbent director. Currently, the number of

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directors is six. Directors are generally elected for a staggered term of three years each, with the term of office of only one of the three classes of directors expiring each year. Directors serve until their successors are duly elected and qualified; however, pursuant to the Company’s restated certificate of incorporation the initial term of office of directors of Class II shall expire at the annual meeting of stockholders in 2007; and that of Class III shall expire at the annual meeting in 2008.

The Class II director, Mr. O’Dowd, has been nominated for re-election for a three-year term expiring in 2010. No person being nominated as a director is being proposed for election pursuant to any agreement or understanding between any such person and the Company.

A stockholder can vote for or withhold his or her vote from the nominee.In the absence of instructions to the contrary, it is the intention of the persons named as proxies to vote such proxy FOR the election of the nominee named below. If the nominee should decline or be unable to serve as a director, it is intended that the proxy will be voted for the election of such person nominated as a replacement. The board of directors has no reason to believe that the person named will be unable or unwilling to serve.

THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION OF THE NOMINEE NAMED IN THIS PROXY STATEMENT.

Information about the Directors

Certain information, as of April 20, 2007, with respect to the nominee for election at the Meeting, as well as each of the current directors, is set forth below, including their names, ages, a brief description of their recent business experience, including present occupations and employment, certain directorships that each director and director nominee holds, and the year in which each director and director nominee became a director of the Company.

The business address of each nominee and director listed below is c/o Patriot Capital Funding, Inc., 274 Riverside Avenue, Westport, CT 06880.

Nominee for Class II Directors — Term Expiring 2010

Mr. O’Dowd is an independent director for purposes of the 1940 Act.

Dennis C. O’Dowd

Age 57. Mr. O’Dowd has been a member of our board of directors since June 2005. He has been a financial and business consultant since 1980 and maintains an active portfolio in timber and real estate. From 1983 to 2000, Mr. O’Dowd also served in various capacities, including chief executive officer, of the U.S. branch and related financial and investment companies of Creditanstalt Bankverein, an Austrian-based financial institution, which later merged with Bank Austria. Prior to joining Creditanstalt Bankverein, Mr. O’Dowd worked at Nederlandsche Middenstandsbank from 1979 to 1983, Fidelity Bank from 1977 to 1979 and began his banking career at Chemical Bank in 1970.

Class III Directors — Term Expiring 2008

Messrs. Buckanavage and Hassler are interested persons of Patriot Capital Funding under the 1940 Act because they are also officers of Patriot Capital Funding.

Richard P. Buckanavage

Age 43.  Mr. Buckanavage has been a member of our board of directors since June 2003. He is our president and chief executive officer. Prior to founding Patriot Capital Funding, Mr. Buckanavage was a managing director and the head of debt sales at GE Capital Markets, Inc. from 1999 to 2003 where he was responsible for all domestic debt syndication and private placement activities. From 1995 to 1999, Mr. Buckanavage was a senior vice president and midwest region manager for Creditanstalt Corporate Finance,

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Inc. (“CCFI”). During that time, he was also a senior investment officer at Creditanstalt Small Business Investment Corporation (“CSBIC”), CCFI’s private equity unit that originated and managed a portfolio of non-controlling equity investments. CCFI and CSBIC were a “one-stop” capital source that focused on making investments in middle market companies in conjunction with private equity sponsors. In his capacities at CCFI and CSBIC, Mr. Buckanavage managed a portfolio of senior secured loans, subordinated debt and equity investments in excess of $1.2 billion. While at CSBIC, Mr. Buckanavage was also a member of the board of directors of several of CSBIC’s portfolio companies. His professional experience also includes various business development and portfolio management roles in the leveraged finance groups at Bank of America, and Fleet Bank and its predecessors.

Timothy W. Hassler

Age 38.  Mr. Hassler has been a member of our board of directors since November 2002. He is our chief operating officer and chief compliance officer. Prior to founding Patriot Capital Funding, Mr. Hassler was a director in the capital markets division of U.S. Bank National Association and its predecessors from 1999 to 2002. During that time, he focused on originating, structuring and negotiating senior debt and junior capital investments for middle market leveraged transactions in the manufacturing, distribution, and food and agribusiness industries. From 1991 to 1999, Mr. Hassler worked in a middle market lending group of U.S. Bank National Association and its predecessors, where he was a relationship manager for a more than $200 million portfolio of middle market loans outstanding, with over $500 million of commitments. In this capacity, he was responsible for new business development, portfolio management and underwriting. Mr. Hassler began his career in the training program of U.S. Bank National Association and its predecessors in 1990.

Class I Directors — Term Expiring 2009

All three Class I directors are independent directors for purposes of the 1940 Act.

Steven Drogin

Age 63.  Mr. Drogin has been a member of our board of directors since June 2005. He retired from KPMG LLP in 2003 where he worked for 38 years and served as an audit partner since 1976. From 1992 until he retired, Mr. Drogin was a member of KPMG’s Financial Services Practice. Mr. Drogin is a Certified Public Accountant(“CPA”) and a member of the American Institute of Certified Public Accountants and the New York State Society of CPAs(“NYSSCPA”). He has served on several of NYSSCPA’s committees. From 1990 to 1992, he was the Chairman of the NYSSCPA’s Leasing and Financial Services Companies Committee.

Mel P. Melsheimer

Age 67.  Mr. Melsheimer has been a member of our board of directors since June 2005. Since August 2006, he has served as the chairman of our board of directors. Since January 7, 2005, Mr. Melsheimer has been the president and a director of Linkhorn Capital Advisors, Inc., an entity which is the managing member of Masters Capital Nanotechnology, LLC, a venture capital general partner. From February 1997 to December 2004, Mr. Melsheimer served as the president, chief operating officer and chief financial officer of Harris & Harris Group, Inc., a publicly traded business development company. During his tenure at Harris & Harris Group, Mr. Melsheimer also served as the chief compliance officer, the treasurer and a managing director. From March 1994 to February 1997, he served as a consultant to Harris & Harris Group or as an officer and a director to one of its portfolio companies. From November 1992 to February 1994, he served as executive vice president, chief operating officer and secretary of Dairy Holdings, Inc., a privately-held dairy company.

Richard A. Sebastiao

Age 59.  Mr. Sebastiao has been a member of our board of directors since June 2005. He is the founder of RAS Management Advisors, Inc. and its predecessors (“RAS Management”), a crisis management and turnaround firm. Since December 1989, he has served as the president of RAS Management. As president of RAS Management, Mr. Sebastiao has also served, on an interim basis, as the chief restructuring officerand/or

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chief executive officer and a director of several entities which retained RAS Management in connection with their restructurings. Since February 2003, Mr. Sebastiao has also served on the board of directors of ATC Associates, Inc., an environmental consulting firm. Since December 2005, he has served on the board of directors of CDI Holding Corp., a holding company for a regional chain of drug stores and convenience stores. Mr. Sebastiao is a member of the Turnaround Management Association and the American Bankruptcy Institute.

Committees of the Board of Directors

The board of directors of the Company has established an executive committee, an audit committee, a compensation committee, a valuation committee, and a nominating and corporate governance committee. The audit committee, the compensation committee and the nominating and corporate governance committee each operate pursuant to a committee charter. The charter of each committee is available on the Company’s web site atwww.patcapfunding.com in the Corporate Governance section.

During 2006, the board of directors of the Company held five board meetings and 15 committee meetings. All directors attended at least 75% of the aggregate number of meetings of the board and of the respective committees on which they served. The Company expects each of its directors to make a diligent effort to attend all board and committee meetings, as well as the annual meeting of stockholders.

The Executive Committee.  The executive committee exercises those rights, powers, and authority that the board of directors from time to time grants to it, except where action by the board is required by statute, an order of the SEC, or the Company’s restated certificate of incorporation or restated bylaws. In addition, prior to August 7, 2006, one of the principal functions of the executive committee was to review and approve the acquisition of the Company’s investments which had been approved by the Company’s Investment Committee. The unanimous approval of each member of the executive committee was required to approve the acquisition of the Company’s investments. However, on August 7, 2006, the board of directors of the Company adopted amendments to the Company’s restated bylaws to remove from the executive committee’s duties the requirement to review and approve each investment proposed to be made by the Company.

Prior to August 1, 2006, the members of the executive committee were Messrs. Buckanavage, Hassler and I. Joseph Massoud. On August 1, 2006, Mr. Massoud resigned from the board of directors of the Company in order to devote full attention to his duties as the chief executive officer of Compass Group Diversified Holdings LLC and the managing member of Compass Group Management LLC. On August 7, 2006, the Company’s board of directors appointed Mr. O’Dowd to the executive committee. The executive committee met seven times during 2006.

The Valuation Committee.  The valuation committee is responsible for reviewing and approving for submission to our board of directors, in good faith, the fair value of all of our debt and equity securities, which includes securities that are not publicly traded, securities for which current market values are not readily available and securities that are publicly traded and have readily available market values. The valuation committee met five times during 2006. The members of the valuation committee are Messrs. O’Dowd, Melsheimer and Sebastiao, each of whom is independent for purposes of the 1940 Act and the Nasdaq Global Select Market corporate governance listing standards. Mr. Sebastiao serves as the chairman of the valuation committee.

The Audit Committee.  The audit committee is responsible for selecting our independent accountants, reviewing the plans, scope and results of the audit engagement with our independent accountants, reviewing the independence of our independent accountants and reviewing the adequacy of our internal accounting controls. The audit committee met five times during 2006. The members of the audit committee are Messrs. Melsheimer, Sebastiao and Drogin, each of whom is independent for purposes of the 1940 Act and the Nasdaq Global Select Market corporate governance listing standards. Mr. Melsheimer serves as the chairman of the audit committee. Our board of directors has determined that Mr. Melsheimer is an “audit committee financial expert” as defined under SEC rules.

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The Compensation Committee.  The compensation committee determines the total compensation of our executive officers including the amount of salary and bonus for each of our executive officers. The compensation committee met three times during 2006. The members of the compensation committee are Messrs. Sebastiao, O’Dowd and Drogin, each of whom is independent for purposes of the 1940 Act and the Nasdaq Global Select Market corporate governance listing standards. Mr. O’Dowd serves as the chairman of the compensation committee.

Compensation Committee Interlocks and Insider Participation.  None of the members of the compensation committee are current or former officers or employees of the Company. None of the members of the compensation committee has any relationship required to be disclosed under this caption under the rules of the SEC.

The Nominating and Corporate Governance Committee.  The nominating and corporate governance committee is responsible for identifying, researching and nominating directors for election by our stockholders, selecting nominees to fill vacancies on our board of directors or a committee of the board and overseeing the evaluation of the board of directors and our management. The nominating and corporate governance committee met twice during 2006. In April 2007, the nominating and corporate governance committee met to discuss, among other things, nominating the director for election by our stockholders at this Meeting. The members of the nominating and corporate governance committee are Messrs. Melsheimer, O’Dowd and Drogin, each of whom is independent for purposes of the 1940 Act and the Nasdaq Global Select Market corporate governance listing standards. Mr. Drogin serves as the chairman of the nominating and corporate governance committee.

The nominating and corporate governance committee’s goal is to assemble a board of directors that brings to the Company a variety of perspectives and skills derived from high quality business and professional experience. Other than the foregoing, there are no stated minimum criteria for director nominees, although the nominating and corporate governance committee may also consider such other factors as it may deem to be in the best interests of the Company and its stockholders. The nominating and corporate governance committee also believes it appropriate for certain key members of the Company’s management to participate as members of the board.

The nominating and corporate governance committee identifies nominees by first evaluating the current members of the board of directors willing to continue in service. Current members of the board with skills and experience that are relevant to the Company’s business and who are willing to continue in service are considered for re-nomination, balancing the value of continuity of service by existing members of the board with that of obtaining a new perspective. If any member of the board does not wish to continue in service or if the nominating and corporate governance committee or the board decides not to re-nominate a member for re-election, or if the nominating and corporate governance committee recommends to expand the size of the board of directors, the nominating and corporate governance committee identifies the desired skills and experience of a new nominee in light of the criteria above. Current members of the nominating and corporate governance committee and board of directors provide suggestions as to individuals meeting the criteria of the nominating and corporate governance committee. Consultants may also be engaged to assist in identifying qualified individuals.

Communication with the Board of Directors

Stockholders with questions about the Company are encouraged to contact Patriot Capital Funding’s Secretary. However, if stockholders feel their questions have not been addressed, they may communicate with the Company’s board of directors by sending their communications to Patriot Capital Funding, Inc., Board of Directors,c/o Secretary, 274 Riverside Avenue, Westport, CT 06880. All stockholder communications received by our Secretary in this manner will be delivered to one or more members of the board of directors.

Code of Business Conduct and Ethics

Each executive officer as well as every employee of the Company is subject to the Company’s code of business conduct and ethics, a copy of which is available on the Company’s website at www.patcapfunding.com in the Corporate Governance section.

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Information about Executive Officers

The following information, as of April 20, 2007, pertains to the Company’s executive officers who are not directors of the Company.

William E. Alvarez, Jr.

Age 53.  Mr. Alvarez serves as our executive vice president, chief financial officer and secretary. Prior to joining Patriot Capital Funding in December 2004, Mr. Alvarez was an executive financial consultant at Trans-Lux Corporation, a public media and communication company, from February 2003 to December 2004. During that period, he was responsible for operations restructuring, SEC reporting and compliance with the Sarbanes-Oxley Act of 2002. From 2001 to 2003, Mr. Alvarez was employed by Bond Technologies, Inc., a privately-held professional technology consulting services firm, as chief financial officer. From 1998 to 2001, Mr. Alvarez was employed by Dynax Solutions, Inc., a privately-held professional technology consulting services firm, as chief financial officer. Prior to 1998, Mr. Alvarez held financial officer positions with other companies. Mr. Alvarez began his career at Deloitte & Touche, LLP where he was primarily responsible for servicing financial services companies. Mr. Alvarez is a Certified Public Accountant.

Clifford L. Wells

Age 51.  Mr. Wells serves as our executive vice president and chief investment officer. Prior to joining Patriot Capital Funding in 2004, Mr. Wells was senior vice president — credit risk/portfolio management at the US branch of Abbey National Treasury Services from 2002 to 2004. In that role, he provided credit analysis for middle market leveraged transactions, managed risks associated with a loan portfolio of distressed assets and providedday-to-day risk management of an oil and natural gas loan portfolio of nearly $1 billion. From 1996 to 2002, Mr. Wells served as senior vice president and northeast/mid-atlantic region manager for Creditanstalt Corporate Finance, Inc., a “one-stop” capital source that focused on making investments in middle market companies in conjunction with private equity sponsors, where he was responsible for all facets of the deal process including sourcing, structuring, closing and managing of senior and junior capital opportunities for middle market cash-flow transactions. He was also involved in implementing appropriate strategies for a portfolio of underperforming investments. His professional background also includes lending positions with Heller Financial, Inc., US West Financial Services, Inc. and GATX Capital Corporation. He started his career as an auditor with Arthur Andersen & Company. Mr. Wells is a Certified Public Accountant.

Matthew R. Colucci

Age 35.  Mr. Colucci serves as our executive vice president and managing director. Prior to joining Patriot Capital Funding in December 2003, Mr. Colucci was a vice president in GE’s Merchant Banking Group (and with its predecessor, Heller Financial, Inc.) from 1998 to 2003. During that period, he was responsible for originating, structuring, underwriting and monitoring both senior and junior capital investments in middle market leveraged transactions. From 1996 to 1998, Mr. Colucci was a senior associate in the Corporate Finance Group of Bayerische Landesbank, a German commercial bank. He began his career in 1994 as a bond analyst for The Aetna Casualty & Surety Company.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Throughout this proxy statement, the individuals who served as our chief executive officer and chief financial officer, as well as the other individuals included in the Summary Compensation Table on page 17 herein, are referred to as the “named executive officers.”

Overview of Compensation Program

The compensation committee of our board of directors is responsible for establishing and evaluating our policies governing the compensation of our executive officers, including our named executive officers. The compensation committee ensures that the total compensation paid to our executive officers is fair, reasonable and competitive.

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Compensation Objectives

Our executive compensation programs are designed to achieve the following objectives:

•  Attract and retain talented and experienced executive officers in the highly competitive business development company/private equity industries;

•  Motivate and reward executive officers whose knowledge, skills, performance and private equity sponsor relationships are critical to our success;

•  Align the interests of our executive officers and stockholders by motivating executive officers to increase stockholder value, including dividends payable in connection with ownership of common stock, and rewarding executive officers when stockholder value increases;

•  Compensate our executive officers to manage our business to meet our long-range goals;

•  Ensure fairness among the executive officers by recognizing the contributions each executive officer makes to our success; and

•  Provide a competitive compensation package which is weighted towards pay for performance.

Role of Others in Compensation Decisions

The compensation committee makes all of the decisions with respect to the compensation received by our executive officers. The compensation committee meets outside the presence of all of our executive officers to consider appropriate compensation for our chief executive officer, including his salary, annual cash incentive bonus and grants of long-term equity incentive awards. For all other executive officers, the compensation committee meets outside the presence of all executive officers except for our president and chief executive officer. Mr. Buckanavage, our president and chief executive officer, annually reviews each other executive officer’s performance with the compensation committee and makes recommendations to the compensation committee with respect to the appropriate base salary, annual cash incentive bonus and grants of long-term equity incentive awards for all executive officers, excluding himself. Based in part on these recommendations from our president and chief executive officer and other considerations, the compensation committee approves the annual compensation package of our executive officers other than our president and chief executive officer.

Although the compensation committee has not retained a compensation consultant to review our policies and procedures with respect to executive compensation, it has informally considered the competitive market practices with respect to the salaries and total compensation paid by other internally managed business development companies to their executive officers. In this regard, the compensation committee has periodically reviewed annual reports onForm 10-K and proxy statements of other internally managed business development companies.

2006 Executive Compensation Components

For the fiscal year ended December 31, 2006, the principal components of compensation for our named executive officers were:

•  Annual base salary;

•  Annual cash incentive bonus;

•  Long-term equity incentive compensation; and

•  Other benefits.

Base Salary

Base salary is designed to attract and retain experienced executive officers who will advance the achievement of our goals. While the initial base salary for our executive officers was determined by an assessment of competitive market levels and is included as part of the employment agreement we have with

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each of our named executive officers, the factors used in determining increases in base salary include individual performance, changes in roleand/or responsibility and changes in the competitive market environment. The compensation committee determines the base salary for each executive officer on an annual basis.

Annual Cash Incentive Bonus

The annual cash incentive bonus is designed to reward those executive officers that have achieved certain individual performance objectives and have helped to contribute to the achievement of certain of our long-term objectives. The annual cash incentive bonus is based on the achievement of specific benchmarks by the individual executive officer. If the individual objectives are achieved, and if we achieve some or all of our firm wide objectives, the executive officer will receive a cash bonus within a range, as specified in the employment agreement we have with each of our named executive officers.

The compensation committee also exercises discretion to award a cash bonus if the individual performance objectives have not been fully met.

Long-Term Equity Incentive Compensation

We award long-term equity incentive awards to executive officers, including the named executive officers, as part of our total compensation package. These awards are consistent with our pay for performance principles and align the interests of the executive officers to the interests of our stockholders. The compensation committee reviews and approves the amount of each award to be granted to each named executive officer. Long-term equity incentive awards are made pursuant to the Patriot Capital Funding, Inc. Amended Stock Option Plan, which we refer to as our stock option plan.

Our long-term equity incentive is currently in the form of options to acquire our common stock. Stock option awards provide our executive officers with the right to purchase shares of our common stock at a fixed exercise price for a period of up to ten years under the stock option plan. Stock options are granted under the stock option plan at a price not less than the prevailing market value at the time of grant and will have realizable value only if our stock price increases. Stock options are earned on the basis of continued service to us and vest over a period of three years from the grant date.

The compensation committee will determine the amount and features of the stock options, if any, to be awarded to executive officers. The compensation committee will evaluate a number of criteria, including the past service of each such executive officer to us, the present and potential contributions of such executive officer to our success and such other factors as the compensation committee shall deem relevant in connection with accomplishing the purposes of the stock option plan, including the executive officer’s current stock holdings, years of service, position with us and other factors. The compensation committee will not apply a formula assigning specific weights to any of these factors when making its determination.

In November 2006, we applied for an exemptive order from the SEC to permit us to issue restricted shares of our common stock as part of the compensation packages for certain of our employees, including our named executive officers. We believe that the particular characteristics of our business, the dependence we have on key personnel to conduct our business effectively and the highly competitive environment in which we operate require the use of equity-based compensation for our personnel in the form of restricted stock. There can be no assurance that the SEC will grant an exemptive order to allow the granting of restricted stock. In addition, any issuances of restricted shares of our common stock will require the approval of our stockholders.

Other Benefits

Retirement Benefits

We maintain a 401(k) plan in which all full-time employees, including our named executive officers, who are at least 21 years of age and have one year of service are eligible to participate. We provide this plan to help our employees save some portion of their cash compensation for retirement in a tax efficient manner. We do not provide an option for our employees to invest in our stock in the 401(k) plan.

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In 2006, we contributed up to 4% (1% of which was discretionary) of the lesser of (i) each participant’s eligible compensation for the year and (ii) $220,000, to each participant’s plan account on the participant’s behalf, which was fully vested at the time of the contribution. The compensation committee makes the determination of whether to provide the 1% discretionary contribution to a participant’s plan account on the participant’s behalf.

Health and Welfare Benefits

All full-time employees, including our named executive officers, may participate in our health and welfare benefit programs, including medical, dental and vision care coverage, term life and disability insurance. In addition, we paid the premiums during 2006 for whole life and disability insurance for Messrs. Buckanavage and Hassler, and term life and group disability insurance for Messrs. Alvarez, Colucci and Wells.

Employment Agreements, Severance Benefits and Change in Control Provisions

We have employment agreements in effect with all of our named executive officers. We entered into these agreements with our named executive officers to ensure that they would perform their respective roles with us for an extended period of time. In addition, we also considered the critical nature of each of their positions and our need to retain them when we committed to these agreements.

The terms “good reason,” “cause” and “change in control” are defined in the employment agreements of our named executive officers and are summarized below.

“Good reason” means that, without the named executive officer’s written consent, any of the following events occurs:

•  a material reduction in the duties and responsibilities of the executive;

•  a material and adverse change in the executive’s titles or offices with the company;

•  a reduction in the executive’s salary or bonus opportunity, as prescribed by the employment agreement, unless the Company is implementing an overall general salary reduction affecting all employees;

•  a requirement that the executive be relocated more than 50 miles from the Company’s office; or

•  the failure of a purchaser of the Company or the successor to the obligations of the employment agreement to honor the terms of the agreement.

“Cause” refers to:

•  the executive’s willful and continued failure to perform substantially his duties with the Company after a written demand for substantial performance is delivered by the Company;

•  the executive’s willfully engaging in illegal conduct or gross misconduct materially injurious to the Company;

•  the executive’s ineligibility to serve as an executive officer pursuant to Section 9 of the 1940 Act; or

•  the executive’s conviction of a felony or crime of moral terpitude.

“Change in Control” includes a variety of events, including significant changes in our stock ownership, a merger and consolidation of the Company, and the sale and disposition of all or substantially all of the Company’s assets.

     Employment Agreements with Messrs. Buckanavage and Hassler

In August 2005, we entered into employment agreements with Messrs. Buckanavage and Hassler that provide for a three-year term. Pursuant to the employment agreements, if the executive officer’s employment is terminated by such executive officer without “good reason” (as defined above) or due to death or a disability, the executive officer or his beneficiary would be entitled to receive, among other things, his accrued

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but unpaid base salary, bonuses, reimbursable expenses and benefits. In addition, if the executive officer’s employment is terminated due to death or disability, the executive officer or his beneficiary will be entitled to receive an amount equal to a pro rata portion (based on length of service during the year in which the executive officer terminated employment) of his average bonus during the term of the agreement, paid in a lump sum. Furthermore, in the case of termination of employment due to death, the executive officer’s beneficiary will be entitled to an amount equal to between one and one and one-half times the sum of his annual base salary in the current year and his average bonus during the term of the agreement, paid in a lump sum.

If either of Messrs. Buckanavage and Hassler terminates his employment for good reason, or if we terminate his employment other than for “cause” (as defined above), he will be entitled to receive, among other things, an amount equal to between one and one and one-half times the sum of his annual base salary in the then current year and his average bonus during the term of the agreement, paid over one to one and one-half years in monthly installments. In addition, the executive officer will be entitled to receive an amount equal to a pro rata portion (based on length of service during the year in which the executive officer terminated employment) of his average bonus during the term of the agreement. Moreover, he will be entitled to receive his accrued but unpaid base salary, bonuses, reimbursable expenses and benefits. He will also be entitled to receive benefits under any group health and life insurance for up to one and one-half years after termination. Finally, the executive officer’s options shall become fully vested upon termination.

If the executive officer terminates his employment for any reason in the seven month period after a “change in control” (as defined above), the executive officer will be entitled to receive the amounts and benefits set forth in the immediately preceding paragraph. If the executive officer terminates his employment for good reason (for this purpose only, the term good reason has a slightly modified meaning under the employment agreements), or if we terminate the executive officer’s employment without cause within one year following a change in control, the executive officer will be entitled to receive an amount equal to three times the sum of his annual base salary in the then current year and his average bonus during the term of the agreement, paid over three years in monthly installments. In addition, the executive officer will be entitled to receive an amount equal to a pro rata portion (based on length of service during the year in which the executive officer terminated employment) of his average bonus during the term of the agreement. Moreover, the executive officer will be entitled to receive his accrued but unpaid base salary, bonuses, reimbursable expenses and benefits. The executive officer will also be entitled to receive benefits under any group health and life insurance for up to three years after termination. In addition, upon change in control, regardless of whether the executive officer terminates employment, the executive officer’s options will become fully vested.

For a period of one year after an executive officer’s termination of employment for any reason, each of the above-described employment agreements prohibit such executive officer from soliciting any of our employees, portfolio companies and certain prospective clients. For this same time period, each of the above-described employment agreements also prohibit each of the executive officers from engaging in any business activity that competes with us within certain geographic boundaries. The employment agreements also require that each of the executive officers protect our confidential information. Finally, each executive officer will be required to enter into an agreement with us that provides for a general release of all legal claims that are or may be held by each such executive officer against us in order for such officer to receive any severance and change in control payments pursuant to the employment agreements.

Employment Agreements with Messrs. Alvarez, Wells and Colucci

In December 2005, we entered into employment agreements with our executive vice president, chief financial officer and secretary, William E. Alvarez, Jr.; our executive vice president and chief investment officer, Clifford L. Wells; and our executive vice president and managing director, Matthew R. Colucci. The employment agreements with Messrs. Alvarez and Wells provide for a two-year term. The employment agreement with Mr. Colucci provides for a three-year term.

Pursuant to the employment agreements, if the executive officer’s employment is terminated by such executive officer without “good reason” (as defined above) or due to death or a disability, the executive officer

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or his beneficiary would be entitled to receive, among other things, his accrued but unpaid base salary, bonuses, reimbursable expenses and benefits. In addition, if the executive officer’s employment is terminated due to death or a disability, the executive officer or his beneficiary will be entitled to receive an amount equal to a pro rata portion (based on length of service during the year in which the executive officer terminated employment) of his average bonus during the term of the agreement, paid in a lump sum. Furthermore, in the case of termination of employment due to death, the executive officer’s beneficiary will be entitled to an amount equal to one-half of the sum of his annual base salary in the current year and his average bonus during the term of the agreement, paid in a lump sum.

If the executive officer’s employment is terminated for good reason, or if we terminate his employment other than for “cause” (as defined above), he will be entitled to receive, among other things, an amount equal to the sum of, in the case of Messrs. Alvarez and Wells, and one and one-half of the sum of, in the case of Mr. Colucci, his annual base salary in the then current year and his average bonus during the term of the agreement, paid in equal monthly installments, except that the first six months of installments will be paid in a single lump sum six months after the executive officer’s termination of employment, and the remaining installments paid monthly thereafter. In addition, the officer will be entitled to receive a lump sum amount equal to a pro rata portion (based on length of service during the year in which the executive officer terminated employment) of his average bonus during the term of the agreement. Moreover, each officer will be entitled to receive his accrued but unpaid base salary, bonuses, reimbursable expenses and benefits. Messrs. Alvarez and Wells will also be entitled to receive employer paid benefits under any group health and life insurance for up to 12 months after termination and Mr. Colucci will be entitled to receive such benefits for up to 18 months after termination. Finally, the executive officer’s options shall become fully vested upon termination.

For a period of one year after an executive officer’s termination of employment for any reason, each of the above-described employment agreements prohibit such executive officer from soliciting any of our employees, portfolio companies and certain prospective clients. For this same time period, each of the above-described employment agreements also prohibit each of the executive officers from engaging in any business activity that competes with us within certain geographic boundaries. The employment agreements also require that each of the executive officers protect our confidential information. Finally, each executive officer will be required to enter into an agreement with us that provides for a general release of all legal claims that are or may be held by each such executive officer against us in order for such officer to receive any severance and change in control payments pursuant to the employment agreements.

Severance Benefits and Change in Control Provisions

The rationale behind providing a severance package in certain events is to attract talented executive officers who are assured that they will not be financially injured if they physically relocateand/or leave another job to join us but are forced out through no fault of their own and to insure that our business is operated and governed for our stockholders by a management team, and under the direction of a board of directors, who are not financially motivated to frustrate the execution of achange-in-control transaction.

The table below summarizes the maximum termination and change in control amounts that would be payable to our named executive officers under each of their employment agreements if the employment agreement of each had terminated on December 31, 2006. The table does not include the dollar value of vested but unexercised stock options as of December 31, 2006. The footnotes to the table describe the assumptions used in estimating the amounts set forth in the table. Because the payments to be made to a named executive officer depend on several factors, the actual amounts to be paid out upon a named executive officer’s termination of employment can only be determined at the time of the named executive officer’s separation from the Company.

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									Termination
					Termination				by Us Within
					for Good		Termination		1 Year of
					Reason by		by Named		Change in
					Named		Executive		Control
					Executive		Officer		Without
					Officer or		Within Seven		Cause or
					We Terminate		Months		by Named
	Termination		Termination		Employment		After a		Executive
	Due to		Due to		Other Than for		Change in		Officer for
Name	Disability		Death		Cause		Control		Good Reason
Richard P. Buckanavage	$	408,000	$	1,393,000	$	2,434,000	$	2,434,000	$	3,088,000
William E. Alvarez, Jr.	$	125,000	$	363,000	$	610,000		n/a		n/a
Timothy W. Hassler	$	386,000	$	1,298,000	$	2,336,000	$	2,336,000	$	2,934,000
Matthew R. Colucci	$	200,000	$	510,000	$	1,084,000		n/a		n/a
Clifford L. Wells	$	110,000	$	332,000	$	579,000		n/a		n/a

(1)	Assumes that the amount of the accrued, but unpaid bonus is equal to the average bonus paid during the term of the employment agreement for each named executive officer.
(2)	For stock options, the dollar value is calculated for“in-the-money” options by multiplying the number of options that vest upon the change in control by the difference between $14.49, the closing price of the Company’s common stock on December 29, 2006, and the option exercise price.

Impact of Regulatory Requirements

We are an internally managed closed-end, investment company that has elected to be treated as a business development company under the 1940 Act. The 1940 Act places significant limitations on the structure of our compensation programs. In this regard, the 1940 Act prohibits us from simultaneously maintaining a stock option plan and a profit sharing arrangement. Because we have adopted a stock option plan, we cannot link the compensation to be paid by us to any of our employees, including our named executive officers, on our performance and instead can only link it to the individual performance of such employees.

In addition, although we may issue options to our employees, including our named executive officers, as compensation for the services they provide us, the 1940 Act prohibits us from issuing other forms of equity compensation, including restricted stock and stock appreciation rights, to our employees as compensation without an exemptive order from the SEC. As noted above, we have applied for an exemptive order from the SEC to permit us to issue restricted shares of our common stock as part of the compensation packages for certain of our employees, including our named executive officers.

Tax Deductibility of Executive Compensation

Limitations on deductibility of compensation may occur under Section 162(m) of the Internal Revenue Code which generally limits the tax deductibility of compensation paid by a public company to its chief executive officer and certain other highly compensated executive officers to $1 million in the year the compensation becomes taxable to the executive officer. There is an exception to the limit on deductibility for performance-based compensation that meets certain requirements.

Although deductibility of compensation is preferred, tax deductibility is not a primary objective of our compensation programs. We believe that achieving our compensation objectives set forth above is more important than the benefit of tax deductibility and we reserve the right to maintain flexibility in how we compensate our executive officers that may result in limiting the deductibility of amounts of compensation from time to time.

2006 Compensation Determination

We believe that the total compensation paid to our named executive officers for the fiscal year ended December 31, 2006 achieves the overall objectives of our executive compensation program. In accordance with

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our overall objectives, executive compensation for 2006 was competitive with other similarly-sized, internally managed business development companies and was weighted more heavily to pay for performance.

Determination of Annual Base Salary

As noted above, we have entered into employment agreements with each of our named executive officers. The initial base salary under the employment agreements of each of Messrs. Buckanavage, Hassler, Alvarez, Wells and Colucci is $300,000, $300,000, $200,000, $200,000 and $185,000, respectively. The compensation committee annually reviews the base salary for each of our executive officers, including our named executive officers, and determines whether or not to increase it in its sole discretion. In 2006, increases to base salary were awarded to certain of our named executive officers to address competitive pressures. The base salaries paid to our named executive officers in 2006 are set forth below in the “Summary Compensation Table.”

Determination of Annual Cash Incentive Bonus

The employment agreements for each of our named executive officers provide that each of the named executive officers is entitled to receive an annual cash incentive bonus determined according to a formula based on the performance of the named executive officer during the year. If a named executive officer achieves the highest level of performance objectives, as defined in the employment agreements, the bonus payment will be at or near the upper end of the range, subject to the approval of the compensation committee. In addition, the compensation committee is authorized to award a discretionary bonus to the executive officers even if the applicable performance objectives have not been fully met. The compensation committee establishes such performance objectives annually.

The range of payments that may be made to our named executive officers if they achieve “base performance objectives” and the “highest level of performance objectives” is presented below as well as the actual percentage of bonuses paid as compared to the salary paid in 2006 for each of our named executive officers.

							Actual % of
	Base Performance			Highest Performance			2006 Salary
Named Executive Officer	% of 2006 Salary			% of 2006 Salary			Awarded
Richard P. Buckanavage		50	%		175	%		137	%
William E. Alvarez, Jr.		25	%		75	%		68	%
Timothy W. Hassler		50	%		175	%		124	%
Matthew R. Colucci		50	%		150	%		114	%
Clifford L. Wells		25	%		75	%		56	%

Annual cash incentive bonuses are awarded based upon an evaluation of individual performance measures established for each individual by the compensation committee. The compensation committee may establish different performance measures for different individuals and the performance measures chosen may include individual performance measures that are specific to a particular individual.

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Determination of Long-Term Equity Incentive Compensation

The employment agreements for Messrs. Buckanavage, Hassler and Colucci provide that such named executive officers will be entitled to receive a fixed percentage of the options to be available for grant under our stock option plan to members of our senior management after the completion of each of the first three public offerings of shares of our common stock. The fixed percentages for each of our named executive officers is presented below.

	Fixed
	% of Options to be			Number of Public
	Awarded after each			Offerings Completed
Named Executive Officer	Public Offering			in 2006
Richard P. Buckanavage		20	%		1
Timothy W. Hassler		20	%		1
Matthew R. Colucci		8	%		1

Messrs. Alvarez and Wells’ employment agreements entitle them to participate in our stock option plan. See “Grants of Plan-Based Award Tables” below for information regarding the grant of stock options to our named executive officers in 2006. During January 2007, we completed our third public offering of shares of our common stock, accordingly the named executive officers received grants of options to purchase shares of our common stock on February 23, 2007. Options issued on February 23, 2007 were issued with an exercise price equal to $14.38, which was the closing price of our common stock on the Nasdaq Global Select Market on such date. The options vest over three years at a rate of 1/36^th per month. The following number of options were awarded to our named executive officers: 50,031 to Mr. Buckanavage; 45,100 to Mr. Hassler; 34,250 to Mr. Colucci; 27,300 to Mr. Alvarez; and 15,500 to Mr. Wells.

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COMPENSATION COMMITTEE REPORT

The compensation committee of our board of directors has reviewed and discussed the “Compensation Disclosure and Analysis” required by Item 402(b) ofRegulation S-K with management and, based on such review and discussions, the compensation committee recommended to our board of directors that the “Compensation Discussion and Analysis” be included in this proxy statement.

THE COMPENSATION COMMITTEE

Dennis C. O’Dowd, Chairman
Steven Drogin
Richard A. Sebastiao

Summary Compensation Table

The following table sets forth compensation that we paid during the fiscal year ended December 31, 2006, to our named executive officers in each capacity in which each named executive officer served. Certain of our named executive officers served as both officers and directors.

							Non-Equity
Name and Principal							Incentive Plan		All Other
Position	Year		Salary		Option Awards (1)		Compensation		Compensation(2)		Total
Richard P. Buckanavage		2006	$	339,583	$	186,072	$	465,000	$	39,756	$	1,030,411
President, Chief Executive Officer and Director
William E. Alvarez, Jr.		2006	$	200,000	$	18,239	$	135,000	$	11,379	$	364,618
Executive Vice President, Chief Financial Officer and Secretary
Timothy W. Hassler		2006	$	339,583	$	186,072	$	422,500	$	38,992	$	987,147
Chief Operating Officer, Chief Compliance Officer and Director
Matthew R. Colucci		2006	$	196,875	$	82,092	$	225,000	$	9,810	$	513,777
Executive Vice President and Managing Director
Clifford L. Wells		2006	$	206,333	$	18,239	$	115,000	$	12,533	$	352,105
Executive Vice President and Chief Investment Officer

(1)

The amounts in this column reflect the dollar value recognized for financial statement reporting purposes with respect to the fiscal year in accordance with FAS 123(R) of awards pursuant to the Company’s stock option plan and thus include amounts from awards granted in and prior to 2006. Assumptions used in the calculation of this amount for the fiscal year ended December 31, 2006 are included in Note 2 to the Company’s audited financial statements for the fiscal year ended December 31, 2006 included in the Company’s Annual Report onForm 10-K filed with the SEC on March 6, 2007.

(2)

The amounts in this column represent employer contributions to the Company’s 401(k) retirement plan for each of the named executives; whole life and disability insurance premiums for Messrs. Buckanavage and Hassler in the amount of $30,956 and $30,192, respectively; and term life and disability insurance premiums for Messrs. Alvarez, Colucci and Wells, in the amount of $2,579, $1,010 and $3,733 respectively, paid in each case by us.

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Grants of Plan-Based Award Tables

The following table presents information regarding the non-equity incentive plan awards made, and stock options awarded to, our named executive officers during the fiscal year ended December 31, 2006.

									All Other
									Option
									Awards;				Grant Date
									Number of				Fair Value of
			Estimated Future Payouts Under						Securities		Exercise or Base		Stock and
			Non-Equity Incentive Plan Awards						Underlying		Price of Option		Option
Name	Grant Date		Threshold		Target		Maximum		Options		Awards		Awards(2)
Richard P. Buckanavage		06/26/2006		—		—		—		275,000	$	10.97	$	203,500
		—	$	0	$	175,000	$	612,500		—		—		—
William E. Alvarez, Jr.		06/26/2006		—		—		—		32,500	$	10.97	$	24,050
		—	$	0	$	50,000	$	150,000		—		—		—
Timothy W. Hassler		06/26/2006		—		—		—		275,000	$	10.97	$	203,500
		—	$	0	$	175,000	$	612,500		—		—		—
Matthew R. Colucci		06/26/2006		—		—		—		165,000	$	10.97	$	125,800
		—	$	0	$	100,000	$	300,000		—		—		—
Clifford L. Wells		06/26/2006		—		—		—		32,500	$	10.97	$	24,050
		—	$	0	$	52,000	$	156,000		—		—		—

(1)	The options granted vest equally, on a monthly basis, over three years from the date of grant. The exercise price of $10.97 represented the closing price of our common stock on the Nasdaq Global Select Market on June 26, 2006, the date of grant.
(2)	Represents the fair value of each stock option as of the date it was granted, computed in accordance with FAS 123(R). The Black-Scholes pricing option model used the following assumptions for the 2006 grants: annual dividend rate of 9.2%, risk-free interest rate of 5.25%, expected volatility of 21%, and the expected life of the options of 6.5 years.

Outstanding Equity Awards at Fiscal Year-End

The following table presents the stock option awards outstanding as of December 31, 2006 for each of our named executive officers.

	Option Awards
	Number of			Number of
	Securities			Securities
	Underlying			Underlying
	Unexercised			Unexercised		Option		Option
	Options			Options		Exercise		Expiration
Name	Exercisable			Unexercisable		Price		Date
Richard P. Buckanavage		167,719	(1)		335,437	$	14.00		07/27/2015
		61,111	(2)		213,889	$	10.97		06/26/2016
William E. Alvarez, Jr.		15,654	(1)		31,307	$	14.00		07/27/2015
		7,222	(2)		25,278	$	10.97		06/26/2016
Timothy W. Hassler		167,719	(1)		335,437	$	14.00		07/27/2015
		61,111	(2)		213,889	$	10.97		06/26/2016
Matthew R. Colucci		67,087	(1)		134,175	$	14.00		07/27/2015
		36,667	(2)		128,333	$	10.97		06/26/2016
Clifford L.Wells		15,654	(1)		31,307	$	14.00		07/27/2015
		7,222	(2)		25,278	$	10.97		06/26/2016

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(1)	Options awarded on July 28, 2005 vest over three years, with one-third of such options vesting on each of the first three anniversaries of the grant date. The exercise price of $14.00 was equivalent to the offering price of our common shares in our initial public offering on July 28, 2005.
(2)	Options awarded on June 26, 2006 vest equally, on a monthly basis, over three years from the date of grant. The exercise price of $10.97 represents the closing price of our common stock on the Nasdaq Global Select Market on June 26, 2006, the date of the grant.

Option Exercises and Stock Vested

None of our named executive officers exercised any stock options during the fiscal year ended December 31, 2006.

Director Compensation

The following table sets forth compensation that we paid during the fiscal year ended December 31, 2006, to our directors. We do not separately compensate directors who are employees for their service as a director.

The chairman of our board of directors and our independent directors receive an annual fee of $28,000 and $18,000, respectively. The chairman of our board of directors and our independent directors also receive $3,500 in connection with attending each board meeting. In addition, each member of the audit committee, compensation committee, nominating and corporate governance committee and valuation committee, other than the chairman of such committee, receives $1,500 in connection with attending each committee meeting. Each chairman of such committees receives $2,500 in connection with attending each committee meeting. Also, any independent director requested to participate in a meeting of the executive committee receives $2,500 in connection with participating in each such meeting. Meeting fees are reduced by 50% in the event that a director does not attend such board meeting in-person.

	Fees
	Earned or
	Paid		All Other
Name	in Cash		Compensation		Total
Steven Drogin	$	52,500	$	—	$	52,500
Mel P. Melsheimer(1)	$	56,500	$	—	$	56,500
Richard A. Sebastiao	$	59,000	$	—	$	59,000
Dennis C. O’Dowd	$	53,500	$	—	$	53,500

(1) Mr. Melsheimer was appointed chairman of our board of directors in August 2006. Mr. I. Joseph Massoud, an interested person of the Company within the meaning of Section 2(a)(19) of the 1940 Act, resigned from our board of directors in August 2006. Mr. Massoud did not receive any compensation in 2006.

Certain Relationships and Related Transactions

Transactions with Related Persons

During 2006, the Company did not enter into any transactions with related persons that would be required to be disclosed under this caption pursuant to Item 404(a) ofRegulation S-K.

Review, Approval or Ratification of Transactions with Related Parties

As required by the Nasdaq Global Select Market corporate governance listing standards, the audit committee of the Company’s board of directors is required to review and approve any transactions with related parties (as such term is defined in Item 404 ofRegulation S-K). Such requirement is set forth in the audit committee’s charter.

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Section 16(a) Beneficial Ownership Reporting Compliance

Pursuant to Section 16(a) of the Securities Exchange Act of 1934, the Company’s directors and executive officers, and any persons holding 10% or more of its common stock, are required to report their beneficial ownership and any changes therein to the SEC and the Company. Specific due dates for those reports have been established, and the Company is required to report herein any failure to file such reports by those due dates. Based on the Company’s review of Forms 3, 4, and 5 filed by such persons, the Company believes that during 2006 all Section 16(a) filing requirements applicable to such persons were met in a timely manner, except that Richard A. Sebastiao, a member of our board of directors, failed to timely file one Form 4.

PROPOSAL 2.

RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

The audit committee and the independent members of the board of directors have appointed Grant Thornton LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2007, subject to ratification by stockholders.

Grant Thornton LLP has advised the Company that neither the firm nor any present member or associate of it has any material financial interest, direct or indirect, in the Company or its subsidiary.

The Company expects that a representative of Grant Thornton LLP will be present at the Meeting and will have an opportunity to make a statement if he or she so chooses and will be available to respond to questions.

Unless marked to the contrary, the shares represented by the enclosed proxy card will be voted for ratification of the selection of Grant Thornton LLP as the independent registered public accounting firm of the Company.

THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT
STOCKHOLDERS VOTE TO RATIFY THE SELECTION OF GRANT THORNTON LLP AS THE
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF THE COMPANY.

Fees Paid to Grant Thornton LLP for 2006 and 2005

The following are aggregate fees billed to the Company by Grant Thornton LLP relating to services performed by Grant Thornton LLP during 2006 and 2005.

	Fiscal Year Ended
	December 31
	2006		2005
Audit Fees	$	596,075	$	487,164
Audit-Related Fees		—		—
Tax Fees		23,409		11,205
All Other Fees		—		—
TOTAL FEES:	$	619,484	$	498,369

Audit Fees.  Audit fees consist of fees billed for professional services rendered for the audit of our year-end consolidated financial statements and reviews of the interim consolidated financial statements and services that are normally provided by Grant Thornton LLP in connection with statutory and regulatory filings, including services rendered in connection with registration statements and comfort letters. During 2006 and 2005, such fees included services provided in connection with the Company’s secondary offerings and initial public offering.

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Audit-Related Fees.  Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards.

Tax Fees.  Tax fees consist of fees billed for professional services for tax compliance. These services include assistance regarding federal, state, and local tax compliance.

All Other Fees.  All other fees would include fees for products and services other than the services reported above.

Report of the Audit Committee

As part of its oversight of the Company’s financial statements, the audit committee reviewed and discussed with both management and the Company’s independent registered public accounting firm all of the Company’s financial statements filed with the SEC for each quarter during 2006 and as of and for the year ended December 31, 2006. Management advised the audit committee that all financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and reviewed significant accounting issues with the audit committee. The audit committee also discussed with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61,Communication with Audit Committees, as amended, by the Auditing Standards Board of the American Institute of Certified Public Accountants.

In accordance with its charter, the audit committee’s policy is to expressly pre-approve all audit and permissible non-audit services provided by the Company’s registered independent public accounting firm before the registered independent public accounting firm is engaged by the Company to provide any such services. These services may include audit services, audit-related services, tax services and other related services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of service. The audit committee limits the engagement by the Company of Grant Thornton LLP for non-audit services and tax services to those circumstances where the services are considered integral to the audit services that it provides, or in which there is another compelling rationale for using its services. During the year ended December 31, 2006, all services provided by Grant Thornton LLP were pre-approved by the audit committee in accordance with this policy.

The audit committee received and reviewed the written disclosures from the independent registered public accounting firm required by Independence Standard No. 1,Independence Discussions with Audit Committees, as amended, by the Independence Standards Board, and has discussed with the firm its independence. The audit committee has reviewed the audit fees paid by the Company to the independent registered public accounting firm. It has also reviewed non-audit services and fees to assure compliance with the rules restricting the independent registered public accounting firm from performing services that might impair its independence.

Based on the reviews and discussions referred to above, the audit committee recommended to the board of directors that the financial statements as of and for the year ended December 31, 2006, be included in the Company’s Annual Report onForm 10-K for the year ended December 31, 2006, for filing with the SEC. The audit committee also recommended the selection of Grant Thornton LLP to serve as the independent registered public accounting firm of the Company for the year ending December 31, 2007.

Audit Committee

Mel P. Melsheimer, Chairman

Richard A. Sebastiao, Member

Steven Drogin, Member

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PROPOSAL 3.

APPROVE ISSUANCE OF 1,213,000 SHARES OF COMMON STOCK UPON EXERCISE OF OPTIONS TO BE GRANTED PURSUANT TO THE COMPANY’S STOCK OPTION PLAN

We established the Stock Option Plan (the “Option Plan”) to encourage stock ownership in the Company by our officers, thus giving them a proprietary interest in our performance and also to reward outstanding performance and provide a means to attract and retain persons of outstanding ability to the service of the Company.

The Company’s board of directors and its compensation committee, which consists entirely of directors who are independent and not employees of the Company, believe that stock-based incentive compensation, particularly the award of stock options, is a key element of officer compensation. Stock-based compensation advances the interests of the Company by providing substantial motivation for superior performance and more fully aligning the interests of officers with the interests of the stockholders.

As a business development company under the 1940 Act, Patriot Capital Funding is permitted to allocate up to 20% of its total shares outstanding to the Option Plan. Currently, the Option Plan provides for the issuance of options to purchase a maximum of 2,431,677 shares of common stock, which represents approximately 13.3% of the 18,223,517 shares of common stock that were outstanding as of April 20, 2007.

The compensation committee is submitting to the stockholders for approval the issuance of 1,213,000 shares of the Company’s common stock upon the exercise of options to be granted under the Option Plan. These options, when combined with the outstanding but unexercised options would represent approximately 20% of the outstanding common stock of the Company on a fully diluted basis. The compensation committee and the board of directors believe that the approval of this proposal is essential to further the long-term stability and financial success of the Company by attracting, motivating, and retaining qualified employees through the use of stock incentives. A copy of the Option Plan, as proposed to be amended, is attached to this Proxy Statement asAppendix A.

The Company believes that increasing the number of shares of common stock available under the Option Plan to 20% of the Company’s total shares outstanding, on a fully diluted basis, is reasonable and appropriate and achieves the competitive compensation objective without compromising stockholder value through less favorable alternatives. The compensation committee and the board of directors recommend the adoption of this proposal.

Description of the Option Plan

Purpose.  The purpose of the Option Plan is to advance the interests of the Company by providing officers of the Company who have substantial responsibility for the direction and management of the Company with additional incentives to exert their best efforts to increase their proprietary interest in the success of the Company, to reward outstanding performance, and to attract and retain persons of outstanding ability.

Authorization.  Under the existing Option Plan, options may be granted from time to time to purchase up to 2,431,677 shares. As of April 20, 2007, the Company had granted 2,431,677 options, of which none have been exercised. The board of directors proposes to amend the existing Option Plan to increase the number of shares authorized for issuance by 1,213,000 shares. The maximum number of shares that may be issued through the exercise of options granted under the Option Plan, as proposed to be amended, would be 3,644,677.

Administration.  The Option Plan is administered by the Company’s compensation committee which is comprised of members of the Company’s board of directors, who each shall (a) be a non-employee director, as defined inRule 16b-3 promulgated under the Securities Exchange Act of 1934, (b) have no financial interest in grants of stock options to officers of the Company under the Option Plan and not be an “interested person,” as defined in Section 2(a)(19) of the 1940 Act, of the Company, and (c) be an “outside director” as that term is defined under Section 162(m) of the Internal Revenue Service Code (the “Code”).

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The compensation committee interprets the Option Plan and, to the extent and in the manner contemplated in the Option Plan, exercises the discretion reserved to it in the Option Plan. The compensation committee may prescribe, amend, and rescind rules and regulations relating to the Option Plan and make all other determinations necessary for its administration. The decision of the compensation committee on any interpretation of the Option Plan or administration thereof, if in compliance with the provisions of the 1940 Act and regulations promulgated thereunder, shall be final and binding with respect to the Company, any optionee or any person claiming to have rights as, or on behalf of, any optionee.

Terms of options.  The compensation committee’s principal objective in awarding stock options to the eligible officers of the Company is to align each optionee’s interests with the success of the Company and the financial interests of its stockholders by linking a portion of such optionee’s compensation with the performance of the Company’s stock and the value delivered to stockholders. Stock options are granted under the Option Plan at a price not less than the prevailing market value at the time of grant and will have realizable value only if the Company’s stock price increases. The compensation committee determines the amount and features of the stock options, if any, to be awarded to optionees. The compensation committee evaluates a number of criteria, including the past service of each such optionee to the Company, the present and potential contributions of such optionee to the success of the Company, and such other factors as the compensation committee shall deem relevant in connection with accomplishing the purposes of the Option Plan, including the recipient’s current stock holdings, years of service, position with the Company, and other factors. The compensation committee does not apply a formula assigning specific weights to any of these factors when making its determination. The compensation committee awards stock options on a subjective basis and such awards depend in each case on the performance of the officer under consideration. Pursuant to the 1940 Act, options may not be repriced for any participant.

Participants — key employees.  The compensation committee determines and designates those key employees of the Company who are eligible to participate in the Option Plan. The compensation committee also determines the number of options to be awarded to each optionee. In making these determinations, the compensation committee takes into account the past service of the optionee and potential contributions to the success of the Company, and such other factors as the compensation committee deems relevant to accomplish the purposes of the Option Plan.

Participants — non-officer directors.  Non-employee directors will be eligible to participate in the Option Plan upon issuance of an order by the SEC pursuant to Section 61 of the 1940 Act and then only in accordance with the terms and condition of such order. As of the date of this proxy statement, we have not filed an application to receive such an order, though we may do so in the future.

Exercise of options.  Options are exercisable at a price equal to the fair market value of the shares at the time the option is granted, except with respect to options that are intended to be incentive stock options (within the meaning of the Code) and that are granted to any holder of 10% or more of the Company’s outstanding shares, in which case the exercise price will be not less than 110% of the then-current fair market value. The day on which the Company approves the granting of an option or the date specified in the Option Plan is considered the date on which the option is granted.

Options may contain such other terms and conditions as the compensation committee deems advisable, including, but not limited to, being exercisable only in installments. Options granted to different optionees or at different times need not contain similar provisions. Each option will state the period or periods of time within which the option may be exercised by the optionee, which may not exceed ten years from the date the option is granted. The option period may not exceed five years if the option is intended to be an incentive stock option (within the meaning of the Code) and the option is awarded to a holder of 10% or more of the Company’s outstanding shares.

All rights to exercise options terminate 180 days after an optionee ceases to be an employee of the Company for any cause other than death or total and permanent disability. If an optionee’s employment is terminated for any reason other than death or total and permanent disability before expiration of his option and before he has fully exercised it, the optionee has the right to exercise the option during the balance of a180-day period from the date of termination. If an optionee dies or becomes totally and permanently disabled

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before expiration of the option without fully exercising it, he or the executors or administrators or legatees or distributees of the estate shall, as may be provided at the time of the grant, have the right, within one year after the optionee’s death or total and permanent disability, to exercise the option in whole or in part before the expiration of its term.

Payment for shares.  Full payment for shares purchased must be made at the time of exercising the option in whole or in part.

Effect of change in shares subject to the plan.  If there is a change in the outstanding shares through the declaration of stock dividends, stock splits, or combinations or exchanges of shares, or otherwise, the number of shares available for option and the shares subject to an option and the option prices shall be appropriately adjusted by the compensation committee.

Change of control.  In the event of a change of control, all outstanding options will become fully vested and exercisable as of the change of control. For purposes of the Option Plan, a “change in control” is defined in the Option Plan to include a variety of events, including significant changes in our stock ownership, a merger and consolidation of the Company, and the sale and disposition of all or substantially all of the Company’s assets.

Amendment and termination.  The board of directors may modify, revise or terminate the Option Plan at any time. While the board of directors may seek stockholder approval of an action modifying a provision of the Option Plan when deemed advisable, the board of directors may make certain modifications without stockholder approval (except with respect to the number of options authorized for issuance under the Option Plan). The Option Plan will terminate when all shares reserved for issuance have been issued upon the exercise of options, or by action of the board of directors, whichever shall first occur.

If the board of directors determines that the listing, registration, or qualification of the shares subject to an option upon a securities exchange or under any state or federal law, or the consent or approval of any government regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such option or the issue or purchase of shares thereunder, the option may not be exercised unless such listing, registration, qualification, consent, or approval has been effected or obtained free of any conditions not acceptable to the board of directors. No option will expire during any period when the right to exercise an option is so suspended by the board of directors. The board of directors will extend its term for a further period so as to afford the optionee a reasonable opportunity to exercise the option, except that no option may be exercised more than ten years after it was granted.

Federal tax consequences of the option plan.  The following is a summary of certain federal income tax consequences of transactions under the Option Plan based on current federal income tax laws. This summary is not intended to be exhaustive and does not describe state, local, or other tax consequences.

Incentive stock options.  In general, no income will be recognized by an optionee and no deduction will be allowed to the Company with respect to the grant or exercise of an incentive stock option granted under the Option Plan. The difference between the exercise price and the fair market value of the shares of common stock on the date the option is exercised is, however, an adjustment item for the participant for purposes of the alternative minimum tax. When the stock received upon exercise of the option is sold, provided that the stock is held for more than two years from the date of grant of the option and more than one year from the date of exercise, the participant will recognize a long-term capital gain or loss equal to the difference between the amount realized and the exercise price of the option related to such stock. If the above mentioned holding period requirements of the Code are not satisfied, the subsequent sale of stock received upon exercise of an incentive stock option is treated as a “disqualifying disposition.”

In general, the participant will recognize taxable income at the time of such disqualifying disposition as follows: (i) ordinary income in an amount equal to the excess of (A) the lesser of the fair market value of the shares of common stock on the date the incentive stock option is exercised or the amount realized on such disqualifying disposition over (B) the exercise price and (ii) capital gain to the extent of any excess of the amount realized on such disqualifying disposition over the fair market value of the shares of common stock on the date the incentive stock option is exercised (or capital loss to the extent of any excess of the exercise price

25

over the amount realized on disposition). Any capital gain or loss recognized by the participant will be long-term or short-term depending upon the holding period for the stock sold. The Company may claim a deduction at the time of the disqualifying disposition equal to the amount of ordinary income the participant recognizes. Note that the tax treatment generally applies only to the extent that the optionee is an employee of the Company at the time of the grant of the option and at all times during the period ending three months before the date of exercise.

Non-qualified stock options.  The grant of a non-qualified stock option under the Option Plan will not result in the recognition of taxable income to the participant or in a deduction to the Company. In general, upon exercise, a participant will recognize ordinary income in an amount equal to the excess of the fair market value of the shares of common stock purchased over the exercise price. The Company is required to withhold tax on the amount of income so recognized, and is entitled to a tax deduction equal to the amount of such income. Gain or loss upon a subsequent sale of any shares of common stock received upon the exercise of a non-qualified stock option is taxed as capital gain or loss (long-term or short-term, depending upon the holding period of the stock sold) to the participant.

The board of directors believes that it is in the best interests of the Company and its stockholders to approve the issuance of 1,213,000 shares of the Company’s common stock upon the exercise of options to be granted under the Option Plan.

Vote Required

The affirmative vote of the holders of a majority of the votes cast at the Meeting, or any adjournment thereof, is required to approve this proposal. In the event such approval is not obtained, the Option Plan shall continue in operation as it existed prior to the submission of this proposal to the Company’s stockholders.

THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE TO APPROVE THIS PROPOSAL.

OTHER BUSINESS

The board of directors knows of no other business to be presented for action at the Meeting. If any matters do come before the Meeting on which action can properly be taken, it is intended that the proxies shall vote in accordance with the judgment of the person or persons exercising the authority conferred by the proxy at the Meeting. The submission of a proposal does not guarantee its inclusion in the Company’s Proxy Statement or presentation at the Meeting unless certain securities law requirements are met.

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2008 ANNUAL MEETING OF STOCKHOLDERS

Any stockholder proposals submitted pursuant to the SEC’sRule 14a-8 for inclusion in the Company’s proxy statement and form of proxy for the 2008 annual meeting of stockholders must be received by the Company on or before January 16, 2008. Such proposals must also comply with the requirements as to form and substance established by the SEC if such proposals are to be included in the proxy statement and form of proxy. Any such proposal should be mailed to: Patriot Capital Funding, Inc., 274 Riverside Avenue, Westport, CT 06880, Attention: Secretary.

Stockholder proposals or director nominations to be presented at the 2008 annual meeting of stockholders, other than stockholder proposals submitted pursuant to the SEC’sRule 14a-8, must be delivered to, or mailed and received at, the principal executive offices of the Company not less than ninety (90) days in advance of the one year anniversary of the previous year’s annual meeting of stockholders. For the Company’s 2008 annual meeting of stockholders, the Company must receive such proposals and nominations no later than March 15, 2008. If the date of the annual meeting has been changed by more than thirty (30) calendar days prior to or delayed by more than sixty (60) days after such anniversary date, stockholder proposals or director nominations must be so received not later than the close of business ninety (90) days prior to the 2008 annual meeting of stockholders or the tenth day following the day on which such notice of the date of the 2008 annual meeting of stockholders was mailed or such public disclosure is made. Proposals must also comply with the other requirements contained in the Company’s restated bylaws, including supporting documentation and other information. Proxies solicited by the Company will confer discretionary voting authority with respect to these proposals, subject to SEC rules governing the exercise of this authority.

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Appendix A

Amended Stock Option Plan

PATRIOT CAPITAL FUNDING, INC.

AMENDED STOCK OPTION PLAN

1.   Purpose of the Plan

The purpose of this Amended Stock Option Plan (this “Plan”) is to advance the interests of Patriot Capital Funding, Inc. (the “Company”) by providing to directors of the Company and to key employees of the Company who have substantial responsibility for the direction and management of the Company additional incentives to exert their best efforts on behalf of the Company, to increase their proprietary interest in the success of the Company, to reward outstanding performance and to provide a means to attract and retain persons of outstanding ability to the service of the Company. Options granted under this Plan may qualify as incentive stock options (“ISOs”), as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).

2.   Administration

This Plan shall be administered by a committee (the “Committee”) comprised of at least two (2) members of the Company’s Board of Directors who each shall be (a) a “non-employee director,” as defined inRule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, unless administration of the Plan by “non-employee directors” is not then required for exemptions underRule 16b-3 to apply to transactions under the Plan, (b) not an “interested person,” as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “Act”), and (c) an “outside director” as defined under Section 162(m) of the Code, unless the action taken pursuant to the Plan is not required to be taken by “outside directors” to qualify for tax deductibility under Section 162(m) of the Code. The Committee shall interpret this Plan and, to the extent and in the manner contemplated herein, shall exercise the discretion reserved to it hereunder. The Committee may prescribe, amend and rescind rules and regulations relating to this Plan and to make all other determinations necessary for its administration. The decision of the Committee on any interpretation of this Plan or administration hereof, if in compliance with the provisions of the Act and regulations promulgated thereunder, shall be final and binding with respect to the Company, any optionee or any person claiming to have rights as, or on behalf of, any optionee.

3.   Shares Subject to the Plan

The shares subject to option and the other provisions of this Plan shall be shares of the Company’s common stock, par value $.01 per share (the “shares”). Subject to the provisions hereof concerning adjustment, the total number of shares that may be purchased upon the exercise or surrender of stock options granted under this Plan shall not exceed 3,644,677 shares, which includes all shares with respect to which options have been granted or surrendered for payment in cash or other consideration pursuant to this Plan. In the event any option shall cease to be exercisable in whole or in part for any reason, the shares which were covered by such option, but as to which the option had not been exercised, shall again be available under this Plan. Shares may be made available from authorized, unissued or reacquired stock or partly from each.

4.   Participants

(a) Key Employees.  The Committee shall determine and designate from time to time those key employees of the Company who shall be eligible to participate in this Plan. The Committee shall also determine the number of shares to be offered from time to time to each optionee. In making these determinations, the Committee shall take into account the past service of each such officer to the Company, the present and potential contributions of such officer to the success of the Company and such other factors as the Committee shall deem relevant in connection with accomplishing the purposes of this Plan; provided that the Committee shall determine that each grant of options to an optionee, the number of shares offered thereby

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and the terms of such option are in the best interests of the Company and its shareholders. The date on which the Committee approves the grant of any option to an officer of the Company shall be the date of issuance of such option. The agreement documenting the award of any option granted pursuant to this paragraph 4(a) shall contain such terms and conditions as the Committee shall deem advisable, including but not limited to being exercisable only in such installments as the Committee may determine.

(b) Non-Employee Directors.  Non-employee directors will be eligible to participate in the Plan upon issuance of an order by the Securities and Exchange Commission pursuant to Section 61(a)(3)(B)(i)(II) of the Act and then only in accordance with the terms and conditions of such order.

(c) Option Agreements.  Agreements evidencing options granted to different optionees or at different times need not contain similar provisions. Options that are intended to be ISOs will be designated as such; any option not so designated will be treated as a nonqualified stock option.

5.   Option Price

Each option agreement shall state the price at which the subject option may be exercised, which shall not be less than the current fair market value of the shares at the date of issuance of an option; provided, that the exercise price of any option that is intended to be an ISO and that is granted to a holder of 10% or more of the Company’s shares shall not be less than 110% of such current fair market value.

6.   Option Period

Each option agreement shall state the period or periods of time within which the subject option may be exercised, in whole or in part, by the optionee as may be determined by the Committee; provided, that the option period shall not exceed ten years from the date of issuance of the option and, in the case of an option that is intended to be an ISO and that is granted to a holder of 10% or more of the Company’s shares, shall not exceed five years.

7.   Payment for Shares

Full payment for shares purchased shall be made at the time of exercising the option in whole or in part. Payment of the purchase price shall be made in cash (including check, bank draft or money order).

8.   Transferability of Options

Options shall not be transferable other than by will, instestacy, or as otherwise permitted by the Act, provided that a transfer will not be permitted to the extent that it would result in adverse tax consequences for the optionee under Section 83 or Section 422 of the Code.

9.   Termination of Options

All rights to exercise options shall terminate one-hundred eighty days (180) after any optionee ceases to be a director or an employee of the Company except as otherwise provided by the Committee in an option agreement, and no options will vest after an optionee’s termination date. Notwithstanding the foregoing, however, where an optionee’s service as a director or key employee of the Company terminates as a result of the optionee’s death or his total and permanent disability, the optionee or the executors or administrators or legatees or distributees of the estate, as the case may be, shall have the right, from time to time within one year after the optionee’s total and permanent disability or death and prior to the expiration of the term of the option, to exercise any portion of the option not previously exercised, in whole or in part, as provided in the respective option agreement.

10.   Effect of Change in Stock Subject to the Plan

Subject to any required action by the shareholders of the Company and the provisions of applicable corporate law, the number of shares represented by the unexercised portion of an option, the number of shares which has been authorized or reserved for issuance hereunder, and the number of shares covered by any

A-2

applicable vesting schedule hereunder, as well as the exercise price of a share represented by the unexercised portion of an option, shall be adjusted as determined by the Committee to reflect any merger, share exchange, reorganization, consolidation, recapitalization, reclassification, distribution, stock dividend, stock split, reverse stock split,split-up, spin-off, issuance of rights or warrants or other similar transaction or event affecting the shares after adoption of the Plan.

11.   General Restriction

Each option shall be subject to the requirement that, if at any time the Board of Directors shall determine, in its discretion, that the listing, registration or qualification of the shares subject to such option upon any securities exchange or under any state or federal law, or the consent or approval of any government regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such option or the issue or purchase of the shares thereunder, such option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. Subject to the limitations of paragraph 6, no option shall expire during any period when exercise of such option has been prohibited by the Board of Directors or the rules and regulations of the Securities and Exchange Commission, including Regulation BTR, but shall be extended for such further period so as to afford the optionee a reasonable opportunity to exercise his option.

12.   Miscellaneous Provisions

(a) No optionee shall have rights as a shareholder with respect to shares covered by his option until the date of exercise of his option.

(b) The granting of any option shall not impose upon the Company any obligation to appoint or to continue to appoint as a director or key employee any optionee, and the right of the Company to terminate the employment of any key employee or other employee, or service of any director, shall not be diminished or affected by reason of the fact that an option has been granted to such optionee.

(c) Options shall be evidenced by stock option agreements in such form and subject to the terms and conditions of this Plan as the Committee shall approve from time to time, consistent with the provisions of this Plan. Such stock option agreements may contain such other provisions, as the Committee in its discretion may deem advisable. In the case of any discrepancy between the terms of the Plan and the terms of any option agreement, the Plan provisions shall control.

(d) For purposes of the Plan, the fair market value means, with respect to a share, if the shares are then listed and traded on a national securities exchange or quoted on a national securities association, the closing sales price of a share on such exchange or association on the date of grant of an option. If the shares are not traded on a national securities exchange or association, then the fair market value, with respect to a share, shall mean the current net asset value of a share.

(e) The aggregate fair market value (determined as of the date of issuance of an option) of the shares with respect to which an option, or portion thereof, intended to be an ISO is exercisable for the first time by any optionee during any calendar year (under all incentive stock option plans of the Company) shall not exceed $100,000.

(f) All options issued pursuant to this Plan shall be granted within ten years from the earlier of the date of adoption of this Plan (or any amendment thereto requiring shareholder approval pursuant to the Code) or the date this Plan (or any amendment thereto requiring shareholder approval pursuant to the Code) is approved by the shareholders of the Company.

(g) The grant of any option under this Plan in violation of the Act shall be null and void.

(h) A leave of absence granted to an employee does not constitute an interruption in continuous employment for purposes of this Plan as long as the leave of absence does not extend beyond one year.

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(i) Any notices given in writing shall be deemed given if delivered in person or by certified mail; if given to the Company addressed to the Company’s Chief Financial Officer, 274 Riverside Avenue, Westport, CT 06880; and, if to an optionee, in care of the optionee at his or her last address on file with the Company.

(j) This Plan and all actions taken by those acting under this Plan shall be governed by the substantive laws of the State of Delaware without regard to any rules regardingconflict-of-law orchoice-of-law.

(k) All costs and expenses incurred in the operation and administration of this Plan shall be borne by the Company.

13.   Change of Control

In the event of a Change of Control (as hereinafter defined), all then-outstanding options will become fully vested and exercisable as of the Change of Control.

“Change in Control” means the occurrence of any of the following events:

(i) An acquisition in one or more transactions (other than directly from the Company) of any voting securities of the Company by any Person (as defined below) immediately after which such Person has Beneficial Ownership (as defined below) of fifty percent or more of the combined voting power of the Company’s then outstanding voting securities; provided, however, in determining whether a Change in Control has occurred, voting securities which are acquired in a “Non-Control Acquisition” (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A “Non-Control Acquisition” shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (I) the Company or (II) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Company (for purposes of this definition, a “Subsidiary”), (B) the Company or its Subsidiaries, or (C) any Person in connection with a “Non-Control Transaction” (as hereinafter defined);

(ii) The individuals who, as of the date hereof are members of the Board (the “Incumbent Board”), cease for any reason to constitute at least a majority of the members of the Board or, following a Merger (as defined below), the board of directors of the ultimate Parent Corporation (as defined below); provided, however, that if the election, or nomination for election by the Company’s common stockholders, of any new director was approved by a vote of at least a majority of the Incumbent Board (or, with respect to the directors who are not “interested persons” as defined in Act, by a majority of the directors who are not “interested persons” serving on the Incumbent Board), such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a “Proxy Contest”) including by reason of any agreement intended to avoid or settle any Proxy Contest; or

(iii) The consummation of:

(A) A merger, consolidation or reorganization involving the Company (a “Merger”) or an indirect or direct subsidiary of the Company, or to which securities of the Company are issued, unless:

(I) the stockholders of the Company, immediately before a Merger, own, directly or indirectly immediately following the Merger, more than fifty percent of the combined voting power of the outstanding voting securities of (1) the corporation resulting from the Merger (the “Surviving Corporation”) if fifty percent or more of the combined voting power of the then outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly, by another Person or group of Persons (a “Parent Corporation”), or (2) if there is one or more Parent Corporations, the ultimate Parent Corporation,

(II) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for a Merger constitute at least a majority of the members

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of the board of directors of (1) the Surviving Corporation or (2) the ultimate Parent Corporation, if the ultimate Parent Corporation, directly or indirectly, owns fifty percent or more of the combined voting power of the then outstanding voting securities of the Surviving Corporation, and

(III) no Person other than (1) the Company, (2) any Subsidiary, (3) any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the Surviving Corporation, any Subsidiary, or the ultimate Parent Corporation, or (4) any Person who, together with its Affiliates (as defined below), immediately prior to a Merger had Beneficial Ownership of fifty percent or more of the then outstanding voting securities, owns, together with its Affiliates, Beneficial Ownership of fifty percent or more of the combined voting power of the then outstanding voting securities of (1) the Surviving Corporation or (2) the ultimate Parent Corporation.

Each transaction described in clauses (I) through (III) above shall herein be referred to as a “Non-Control Transaction.”

(B) A complete liquidation or dissolution of the Company (other than where assets of the Company are transferred to or remain with a Subsidiary or Subsidiaries of the Company).

(C) The direct or indirect sale or other disposition of all or substantially all of the assets of the Company to any Person (other than (1) a transfer to a Subsidiary, (2) under conditions that would constitute a Non-Control Transaction with the disposition of assets being regarded as a Merger for this purpose, or (3) the distribution to the Company’s stockholders of the stock of a Subsidiary or any other assets).

Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the “Subject Person”) acquired Beneficial Ownership of more than the permitted amount of the then outstanding voting securities as a result of the acquisition of voting securities by the Company which, by reducing the number of voting securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional voting securities which increases the percentage of the then outstanding voting securities Beneficially Owned by the Subject Person, then a Change in Control shall occur.

14.   Amendment and Termination

The Board of Directors may modify, revise or terminate this Plan at any time and from time to time. While the Board of Directors may seek shareholder approval of an action modifying a provision of the Plan where it is determined that such shareholder approval is advisable under the provisions of applicable law, the Board of Directors shall be permitted to make any modification or revision to any provision of this Plan without shareholder approval. This Plan shall terminate when all shares reserved for issuance hereunder have been issued upon the exercise of options, or by action of the Board of Directors pursuant to this paragraph, whichever shall first occur.

15.   Effective Date of the Plan

The Plan shall become effective upon the latest to occur of (1) adoption by the Board of Directors, and (2) approval of this Plan by the shareholders of the Company.

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PATRIOT CAPITAL FUNDING, INC.

PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

          The undersigned hereby appoints Richard P. Buckanavage and Timothy W. Hassler, or any one of them, and each with full power of substitution, to act as attorneys and proxies for the undersigned to vote all the shares of common stock of Patriot Capital Funding, Inc. (the “Company”) which the undersigned is entitled to vote at the Annual Meeting of Stockholders of the Company (the “Meeting”) to be held at the offices of Edwards Angell Palmer & Dodge LLP, Three Tresser Boulevard, Stamford, Connecticut 06901, on June 14, 2006 at 10:00 a.m., Eastern Daylight Time, and at all adjournments thereof, as indicated on this proxy.

1. FOR  ¨                     WITHHELD  ¨

          To elect:

                Dennis O’Dowd

to serve as a director (except as marked to the contrary) for the Company for a three-year term expiring in 2010 or until his successor is elected and qualified.

2.       FOR  ¨            AGAINST  ¨      ABSTAIN  ¨

          To ratify the selection of Grant Thornton LLP as the Company’s registered independent public accounting firm

3.       FOR  ¨            AGAINST  ¨            ABSTAIN  ¨

          To approve the issuance of 1,213,000 shares of common stock upon exercise of options to be granted pursuant to the Company’s Stock Option Plan

          If any other business is presented at the Meeting, this proxy will be voted by the proxies in their best judgment, including a motion to adjourn or postpone the Meeting to another time and/or place for the purpose of soliciting additional proxies.

THIS PROXY IS REVOCABLE AND WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED “FOR” THE PROPOSALS LISTED.

Please mark, sign and return this proxy in the enclosed envelope. The undersigned acknowledges receipt from the Company prior to the execution of this proxy of a Notice of Annual Meeting of Stockholders and a Proxy Statement.

   Dated

   Signature

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Please sign your name(s) exactly as shown hereon and date your proxy in the blank provided. For joint accounts, each joint owner should sign. When signing as attorney, executor, administrator, trustee or guardian, please give your full title as such. If the signer is a corporation or partnership, please sign in full corporate or partnership name by a duly authorized officer or partner.

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