UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, DC 20549
      Form 10-K
   (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2008ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF
    THE SECURITIES EXCHANGE ACT OF 1934   COMMISSION FILE NUMBER: 0-51459
   PATRIOT CAPITAL FUNDING,
    INC.
 (EXACT NAME OF REGISTRANT AS
    SPECIFIED IN ITS CHARTER)
   DELAWARE

74-3068511(STATE OR JURISDICTION OF
    INCORPORATION OR ORGANIZATION)

(IRS EMPLOYER
    IDENTIFICATION NO.)274 Riverside Avenue, Westport, CT(ADDRESS OF PRINCIPAL
    EXECUTIVE OFFICE)

06880(ZIP CODE)    REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE:
 (203) 429-2700
  SECURITIES
    REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
   Name of each exchangeTitle of each class

on which registeredCommon Stock, par value $0.01 per share

NASDAQ Global Select Market    SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE
    ACT:
 NONE
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer þ
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ
       DOCUMENTS INCORPORATED BY REFERENCE
  Form 10-K




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TABLE OF
    CONTENTS
  PagePART IITEM 1.


BUSINESS


1ITEM 1A.


RISK FACTORS


13ITEM 1B.


UNRESOLVED STAFF COMMENTS


25ITEM 2.


PROPERTIES


25ITEM 3.


LEGAL PROCEEDINGS


25ITEM 4.


SUBMISSION OF MATTERS TO A VOTE OF SECURITY
    HOLDERS


25PART IIITEM 5.


MARKET FOR REGISTRANTS COMMON EQUITY,
    RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
    SECURITIES


25ITEM 6.


SELECTED FINANCIAL DATA


29ITEM 7.


MANAGEMENTS DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS


30ITEM 7A.


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK


46ITEM 8.


FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


47ITEM 9.


CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
    ACCOUNTING AND FINANCIAL DISCLOSURE


78ITEM 9A.


CONTROLS AND PROCEDURES


78ITEM 9B.


OTHER INFORMATION


79PART IIIITEM 10.


DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
    GOVERNANCE


79ITEM 11.


EXECUTIVE COMPENSATION


79ITEM 12.


SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
    AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS


79ITEM 13.


CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
    AND DIRECTOR INDEPENDENCE


79ITEM 14.


PRINCIPAL ACCOUNTANT FEES AND SERVICES


80PART IVITEM 15.


EXHIBITS AND FINANCIAL STATEMENT
    SCHEDULES


80SIGNATURES


82EXHIBIT INDEX


83




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PART I ITEM 1.  Business  In light of the unprecedented instability in the financial
    markets and the severe slowdown in the overall economy, we do
    not have adequate liquidity, including access to the debt and
    equity capital markets, to operate our business in the manner in
    which we have historically operated. As a result, our short-term
    business focus has shifted from making debt and equity
    investments to preserving our liquidity position. In this
    regard, we are currently negotiating the renewal of the
    liquidity facility, which matures in April 2009, supporting our
    second amended and restated securitization revolving credit
    facility with certain liquidity banks. In the event that the
    liquidity banks do not renew the liquidity facility, the terms
    of the second amended and restated securitization revolving
    credit facility require that all principal and interest
    collected from the debt investments secured by the facility must
    be used to pay down amounts outstanding under the facility by
    April 2011. Because substantially all of our debt investments
    are secured by our second amended and restated securitization
    revolving credit facility, we cannot provide any assurance that
    we would have sufficient cash and liquid assets to fund normal
    operations and dividend distributions to our stockholders during
    the period of time when we are required to repay amounts
    outstanding under the second amended and restated securitization
    revolving credit facility if such amounts became due. If the
    liquidity facility is not renewed, we believe that we may be
    able to negotiate an arrangement with the lenders of the second
    amended and restated securitization revolving credit facility
    for repayment terms that do not require us to use all principal
    and interest collected from the debt investments secured by the
    facility to pay down amounts outstanding thereunder, however, we
    cannot provide any assurance that we will be able to do so. As a
    result, if the Company was unable to (i) renew the
    liquidity facility supporting our second amended and restated
    securitization revolving credit facility or (ii) negotiate
    an arrangement with the lenders of the second amended and
    restated securitization revolving credit facility for repayment
    terms that do not require us to use all principal and interest
    collected from the debt investments secured by the facility to
    pay down amounts outstanding thereunder there would be a
    significant adverse impact on our financial position and
    operating results.
  Moreover, because of the uncertainty surrounding the renewal
    of the liquidity facility, our independent registered public
    accounting firm has issued an opinion on our consolidated
    financial statements that states that the consolidated financial
    statements were prepared assuming we will continue as a going
    concern, however the opinion further states that the uncertainty
    regarding the renewal of the liquidity facility raises
    substantial doubt about our ability to continue as a going
    concern. In addition, our board of directors has postponed
    making a decision regarding the declaration of our first quarter
    2009 dividend until we have more information on whether the
    liquidity facility will be renewed.
  Finally, even if the liquidity facility is renewed and, as a
    result, the reason for the going concern qualification contained
    in the opinion of our independent registered public accounting
    firm is resolved, our ability to operate our business in the
    manner in which we have historically operated which is described
    in detail below, will be constrained until our ability to access
    the debt and equity capital markets improves.
  General




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Corporate
    History and Information
    U.S.-based
  (203) 429-2700. www.patcapfunding.com Form 10-K, Form 10-Q, Form 8-K Form 10-K Form 10-K.
 2




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Our
    Business Strategy
    
    Deliver a comprehensive suite of customized financing
    solutions in a responsive and efficient
    manner.Our goal is to provide a comprehensive
    suite of customized financing solutions in a responsive and
    efficient manner to private equity sponsors in connection with
    their proposed investments in small- to mid-sized companies.
    Private equity sponsors with whom we work require a high level
    of creativity and knowledge in structuring investment
    transactions. Our ability to provide financing across all levels
    of a companys capital structure appeals to private equity
    sponsors that typically seek to rely on a limited number of
    third party financing sources for their investment transactions
    in order to facilitate and ensure the timely closing of such
    transactions. We believe our ability to provide a comprehensive
    suite of customized financing solutions sets us apart from other
    lenders that focus on providing a limited number of financing
    solutions.
    Capitalize on our strong private equity sponsor
    relationships.We are committed to establishing,
    building and maintaining our private equity sponsor
    relationships. Our marketing efforts are focused on building and
    maintaining relationships with private equity sponsors that
    routinely make investments in the small- to mid-sized companies
    that we target. We believe that our relationships with private
    equity sponsors provide us with, in addition to potential
    investment opportunities, other significant benefits, including
    an additional layer of due diligence and additional monitoring
    capabilities. Private equity sponsors also provide our portfolio
    companies with significant benefits, including strategic
    guidance, and an additional potential source of capital and
    operational expertise. We have assembled a management team that
    has developed an extensive network of private equity sponsor
    relationships in our target market over the last 15 years.
    We believe that our management teams relationships with
    these private equity sponsors will provide us with significant
    investment opportunities.
    Employ disciplined underwriting policies and maintain
    rigorous portfolio monitoring.We have an
    extensive investment underwriting and monitoring process. We
    conduct a thorough analysis of each potential portfolio company
    and its prospects, competitive position, financial performance
    and industry dynamics. We stress the importance of credit and
    risk analysis in our underwriting process. We believe that our
    continued adherence to this disciplined process will permit us
    to mitigate loan losses, to continue to generate a stable and
    diversified revenue stream of current income from our debt
    investments and provide us with the ability to make
    distributions to our stockholders.
    Leverage the skills of our experienced management
    team.Our management team is led by our president
    and chief executive officer, Mr. Buckanavage, and our chief
    investment officer, Mr. Hassler, who combined have more
    than 35 years of experience in lending to, and investing
    in, small- to mid-sized companies. The members of our management
    team have broad investment backgrounds, with prior experience at
    specialty finance companies, middle market commercial banks and
    other financial services companies. We believe that the
    experience and contacts of our management team will continue to
    allow us to effectively implement the key aspects of our
    business strategy.  Investment
    Critera
    
    Established companies with positive cash
    flow.  We seek to invest in established companies
    with sound historical financial performance. We typically focus
    on companies with a history of profitability on an operating
    cash flow basis and that generate minimum annual EBITDA
    (Earnings Before Interest, Taxes, 3




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Depreciation and Amortization) of $2 million. We do not
    intend to invest in
    start-up
    companies or companies with speculative business plans.  
    Strong competitive position in industry.  We
    analyze the strengths and weaknesses of target companies
    relative to their competitors. The factors we consider include
    relative product pricing, product quality, customer loyalty,
    substitution risk, switching costs, patent protection, brand
    positioning and capitalization. We seek to invest in companies
    that have developed leading positions within their respective
    markets, are well positioned to capitalize on growth
    opportunities and operate businesses or in industries with
    significant barriers to entry. We seek companies that
    demonstrate advantages when compared to their competitors, which
    may help to protect their market position and profitability.
    Experienced management team.  We seek to invest
    in companies that have experienced management teams. We also
    seek to invest in companies that have proper incentives in
    place, including having significant equity interests, to
    motivate management to act in concert with our interests as
    investors.
    Diversified customer and supplier base.  We
    generally seek to invest in companies that have a diversified
    customer and supplier base. Companies with a diversified
    customer and supplier base are generally better able to endure
    economic downturns, industry consolidation, changing business
    preferences and other factors that may negatively impact their
    customers, suppliers and competitors.
    Private equity sponsorship.  We generally seek
    to invest in companies in conjunction with private equity
    sponsors who have proven capabilities in building value. We
    believe that a private equity sponsor can serve as a committed
    partner and advisor that will actively work with the company and
    its management team to meet company goals and create value. We
    assess a private equity sponsors commitment to a portfolio
    company by, among other things, the capital contribution it has
    made or will make in the portfolio company.
    Exit strategy.  We seek to invest in companies
    that we believe will provide a steady stream of cash flow to
    repay our debt investments and reinvest in their respective
    businesses. We expect that the primary means by which we exit
    our debt investments will be through the repayment of our
    investment by internally generated cash flow. In addition, we
    will seek to invest in companies whose business models and
    expected future cash flows may provide alternate methods of
    repaying our investment, such as through a strategic acquisition
    by other industry participants, an initial public offering, a
    recapitalization or another capital market transaction.  Underwriting
    Process and Investment Approval
    
    Transaction description;
    Company description, including product or service analysis,
    market position, market dynamics, customer and supplier analysis
    and evaluation of management;
    Quantitative and qualitative analysis of historical financial
    performance and financial projections;
    Competitive landscape;
    Business strengths and weaknesses;
    On-site
    visits with management and relevant employees;
    Quantitative and qualitative private equity sponsor
    analysis; and
    Potential investment structures, senior and total leverage
    multiples and investment pricing terms.  and/or and/or
 4




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
    Initial or additional
    on-site
    visits with management and relevant employees;
    Review of historical and projected financial statements,
    including reports from third-party accountants;
    Interviews with customers and suppliers;
    Research on products and services, market dynamics and
    competitive landscape;
    Management background checks;
    Review of material contracts;
    Review by legal, environmental or other industry consultants, if
    applicable; and
    Financial sponsor diligence, including portfolio company and
    lender reference checks.        Investments
  payment-in-kind payment-in-kind
  Debt
    Investments
    
    negotiating covenants that are designed to protect our
    investments while affording our portfolio companies as much
    flexibility in managing their businesses as possible. Such
    restrictions may include affirmative and negative covenants,
    default penalties, lien protection, change of control provisions
    and board rights; and 5




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
    requiring a total return on our investments (including both
    interest and potential equity appreciation) that compensates us
    for credit risk.  Senior
    Secured Loans
    Junior
    Secured Loans
    Subordinated
    Debt
  payment-in-kind,
  One-Stop
    Financing
    Broadly
    Syndicated Loans
    Equity
    Investments
  payment-in-kind
 6




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Portfolio
    Management
    
    Monthly review of actual financial performance versus the
    corresponding period of the prior year and financial projections;
    Monthly review of borrowing base, if applicable;
    Quarterly review of operating results, covenant compliance, and
    general business performance, including the preparation of a
    portfolio monitoring report which is distributed to members of
    our investment committee;
    Periodic face-to-face meetings with management teams and private
    equity sponsors of portfolio companies; and
    Attendance at portfolio company board meetings through board
    seats or observation rights.    
    Investment Rating 1  Investment that exceeds
    expectations
    and/or
    capital gain expected;
    Investment Rating 2  Investment generally performing
    in accordance with expectations;
    Investment Rating 3  Investment that requires closer
    monitoring;   Investment Rating 4 
    Investment performing below expectations where a higher risk of
    loss exists; and  
    Investment Rating 5  Investment performing
    significantly below expectations where we expect a loss.  and/or
  Regulations
  Regulation
    as a Business Development Company
    Qualifying
    Assets
     7




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Managerial
    Assistance to Portfolio Companies
   8




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Common
    Stock
    Senior
    Securities
    Code of
    Ethics
  Rule 17j-1
  Proxy
    Voting Policies and Procedures
  case-by-case
     9




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Other
          Taxation
    as a Regulated Investment Company
           10




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Determination
    of Net Asset Value
      Statement of Financial Standards
    No. 157  Fair Value Measurements
           11




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
    Our quarterly valuation process begins with each portfolio
    company or investment being initially valued by the investment
    professionals responsible for the portfolio investment;
    Valuation conclusions are documented and discussed with our
    investment committee;
    The valuation committee of our board of directors reviews the
    valuation conclusions prepared by our investment professionals;
    Duff & Phelps, an independent valuation firm, performs
    certain mutually agreed limited procedures that we have
    identified and asked them to perform on a selection of our
    portfolio company valuation conclusions; and
    Using the results of the above procedures, our board of
    directors determines the fair value of each investment in our
    portfolio in good faith.    Competition
   12




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Employees
    ITEM 1A.
    Risk
    Factors  Risk
    Factors
  Investing in our common stock involves a number of
    significant risks. We cannot assure you that we will achieve our
    investment objective. You should consider carefully the risks
    described below and all other information contained in this
    annual report on
    Form 10-K,
    including our financial statements and the related notes.
  There
    is substantial doubt about our ability to continue as a going
    concern.
    We are
    currently in a period of capital markets disruption and
    recession and we do not expect these conditions to improve in
    the near future. These conditions could adversely affect our
    financial position and operating results and impair our
    portfolio companies financial positions and operating
    results, which could, in turn, harm our financial position and
    operating results.
   13




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Because
    we must distribute at least 90% of our taxable income to our
    stockholders in connection with our election to be treated as a
    RIC, we will continue to need additional capital to finance our
    growth. If additional funds are unavailable or not available on
    favorable terms, our ability to grow will be
    impaired.
    Regulations
    governing our operation as a business development company will
    affect our ability to, and the way in which we, raise additional
    capital.
    Senior Securities and Other Indebtedness. and/or
  
    Under the provisions of the 1940 Act, we are permitted, as a
    business development company, to issue senior securities only in
    amounts such that our asset coverage, as defined in the 1940
    Act, equals at least 200% after each issuance of senior
    securities. If the value of our assets declines, we may be
    unable to satisfy this test. If that happens, we will not be
    permitted to issue additional debt securities or preferred stock
    and/or make
    additional borrowings from banks or other financial institutions
    until we are able to satisfy this test.
    Any amounts that we use to service our debt or make payments on
    preferred stock will not be available for dividends to our
    common stockholders. 14




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
    It is likely that any senior securities or other indebtedness we
    issue will be governed by an indenture or other instrument
    containing covenants restricting our operating flexibility.
    Additionally, some of these securities or other indebtedness may
    be rated by rating agencies, and in obtaining a rating for such
    securities and other indebtedness, we may be required to abide
    by operating and investment guidelines that further restrict
    operating and financial flexibility.
    We and, indirectly, our stockholders will bear the cost of
    issuing and servicing such securities and other indebtedness.
    Preferred stock or any convertible or exchangeable securities
    that we issue in the future may have rights, preferences and
    privileges more favorable than those of our common stock,
    including separate voting rights and could delay or prevent a
    transaction or a change in control to the detriment of the
    holders of our common stock.  Additional Common Stock.
  Securitization of Loans.
  Stockholders
    may incur dilution if we sell shares of our common stock in one
    or more offerings at prices below the then current net asset
    value per share of our common stock or issue securities to
    subscribe to, convert to or purchase shares of our common
    stock.
   15




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We are
    dependent upon our key investment personnel for our future
    success.
    Our
    business model depends to a significant extent upon strong
    referral relationships with private equity sponsors, and our
    inability to maintain or develop these relationships, or the
    failure of these relationships to generate investment
    opportunities, could adversely affect our
    business.
    We
    operate in a competitive market for investment
    opportunities.
   16




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The
    agreements governing our second amended and restated
    securitization revolving credit facility contain various
    covenants and provide for certain minimum financial
    covenants.
      We
    will be subject to corporate-level income tax if we fail to
    maintain our status as a RIC under Subchapter M of the
    Code.
    
    The annual distribution requirement for a RIC will be satisfied
    if we distribute to our stockholders on an annual basis at least
    90% of our net ordinary income and realized net short-term
    capital gains in excess of realized net long-term capital
    losses, if any. Because we use debt financing, we are subject to
    certain asset coverage ratio requirements under the 1940 Act and
    financial covenants under loan and credit agreements that could,
    under certain circumstances, restrict us from making
    distributions necessary to satisfy the distribution requirement.
    If we are unable to obtain cash from other sources, we could
    fail to qualify for RIC tax treatment and thus become subject to
    corporate-level income tax.
    The income source requirement will be satisfied if we obtain at
    least 90% of our income for each year from dividends, interest,
    gains from the sale of stock or securities or similar sources.
    The asset diversification requirement will be satisfied if we
    meet certain asset diversification requirements at the end of
    each quarter of our taxable year. Failure to meet those
    requirements may result in our having to dispose of certain
    investments quickly or delay the closing of new investments in
    order to prevent the loss of RIC status and could result in a
    loss of business. Because most of our investments will be in
    private companies, and therefore will be relatively illiquid,
    any such dispositions could be made at disadvantageous prices
    and could result in substantial losses.   17




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We may
    in the future choose to pay dividends in our own stock, in which
    case you may be required to pay tax in excess of the cash you
    receive.
  non-U.S. stockholders,
  We may
    have difficulty paying our required distributions if we
    recognize income before or without receiving cash representing
    such income.
  payment-in-kind, payment-in-kind
  and/or
  We
    borrow money, which magnifies the potential for gain or loss on
    amounts invested and may increase the risk of investing in
    us.
   18




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Changes
    in interest rates may affect our cost of capital and net
    investment income.
    A
    significant portion of our investment portfolio is and will
    continue to be recorded at fair value as determined in good
    faith by our board of directors and, as a result, there is and
    will continue to be uncertainty as to the value of our portfolio
    investments.
       19




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The
    lack of liquidity in our investments may adversely affect our
    business.
  We generally make investments in private
    companies.
  We may
    experience fluctuations in our quarterly results.
    Changes
    in laws or regulations governing our operations may adversely
    affect our business.
    Our
    board of directors may change our operating policies and
    strategies without prior notice or stockholder approval, the
    effects of which may be adverse.
    Our
    investments in portfolio companies may be risky, and we could
    lose all or part of our investment.
    
    may have limited financial resources and may be unable to meet
    their obligations under their debt instruments that we hold,
    which may be accompanied by a deterioration in the value of any
    collateral and a reduction in the likelihood of us realizing any
    guarantees that we may have obtained in connection with our
    investment;
    may have shorter operating histories, narrower product lines and
    smaller market shares than larger businesses, which tend to
    render them more vulnerable to competitors actions and
    market conditions, as well as general economic downturns; 20




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
    are more likely to depend on the management talents and efforts
    of a small group of persons; therefore, the death, disability,
    resignation or termination of one or more of these persons could
    have a material adverse impact on our portfolio company and, in
    turn, on us;
    generally have less predictable operating results, may from time
    to time be parties to litigation, may be engaged in rapidly
    changing businesses with products subject to a substantial risk
    of obsolescence, and may require substantial additional capital
    to support their operations, finance expansion or maintain their
    competitive position. In addition, our executive officers and
    directors may, in the ordinary course of business, be named as
    defendants in litigation arising from our investments in the
    portfolio companies; and
    generally have less publicly available information about their
    businesses, operations and financial condition. We are required
    to rely on the ability of our management team and investment
    professionals to obtain adequate information to evaluate the
    potential returns from investing in these companies. If we are
    unable to uncover all material information about these
    companies, we may not make a fully informed investment decision,
    and may lose all or part of our investment.  Our
    portfolio is and may continue to be concentrated in a limited
    number of portfolio companies and industries, which will subject
    us to a risk of significant loss if any of these companies
    defaults on its obligations under any of its debt instruments or
    by a downturn in the particular industry.
    Price
    declines and illiquidity in the large corporate leverage loan
    market have adversely affected, and may continue to adversely
    affect, the fair value of our syndicated loan portfolio,
    reducing our net asset value through increased net unrealized
    depreciation.
    Our
    portfolio companies may incur debt that ranks equally with, or
    senior to, our investments in such companies.
   21




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Second
    priority liens on collateral securing loans that we make to our
    portfolio companies may be subject to control by senior
    creditors with first priority liens. If there is a default, the
    value of the collateral may not be sufficient to repay in full
    both the first priority creditors and us.
      There
    may be circumstances where our debt investments could be
    subordinated to claims of other creditors or we could be subject
    to lender liability claims.
    We may
    not control any of our portfolio companies.
    Defaults
    by our portfolio companies will harm our operating
    results.
   22




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Prepayments
    of our debt investments by our portfolio companies could
    adversely impact our results of operations and reduce our return
    on equity.
    We may
    not realize gains from our equity investments.
    There
    is a risk that you may not receive dividends or that our
    dividends may not grow over time.
    Investing
    in our shares may involve an above average degree of
    risk.
    The
    market price of our common stock may fluctuate
    significantly.
    
    significant volatility in the market price and trading volume of
    securities of business development companies or other companies
    in our sector, which are not necessarily related to the
    operating performance of these companies;
    changes in regulatory policies, accounting pronouncements or tax
    guidelines, particularly with respect to RICs or business
    development companies;
    loss of RIC status;
    changes in earnings or variations in operating results; 23




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
    changes in the value of our portfolio of investments;
    any shortfall in revenue or net income or any increase in losses
    from levels expected by investors or securities analysts;
    departure of our key personnel;
    operating performance of companies comparable to us;
    general economic trends and other external factors; and
    loss of a major funding source.  Shares
    of closed-end investment companies, including BDCs, may trade at
    a discount to their net asset value.
      Our
    common stock could be delisted from the Nasdaq Global Select
    Market if we are unable to maintain our compliance with Nasdaq
    listing requirements.
         24




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Terrorist
    attacks, acts of war or natural disasters may affect any market
    for our common stock, impact the businesses in which we invest
    and harm our business, operating results and financial
    condition.
    Certain
    provisions of our restated certificate of incorporation and
    restated bylaws as well as the Delaware General Corporation Law
    could deter takeover attempts and have an adverse impact on the
    price of our common stock.
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder
    Matters, and Issuer Purchases of Equity Securities  Price
    Range of Common Stock
   25




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High


LowFiscal year 2008First quarter

$
11.61


$
9.57Second quarter

$
10.99


$
6.25Third quarter

$
7.83


$
5.55Fourth quarter

$
6.03


$
2.12Fiscal year 2007First quarter

$
14.57


$
13.15Second quarter

$
15.65


$
14.04Third quarter

$
15.24


$
12.13Fourth quarter

$
13.35


$
10.09     Sales of
    Unregistered Securities
    Dividends
       26




---



##### 



Date Declared

Record Date

Payment Date

Amount2008October 30, 2008

December 22, 2008

January 15, 2009

$
0.25July 30, 2008

September 12, 2008

October 15, 2008

$
0.33May 2, 2008

June 5, 2008

July 16, 2008

$
0.33February 27, 2008

March 14, 2008

April 16, 2008

$
0.33Total  2008





$
1.242007November 1, 2007

December 14, 2007

January 16, 2008

$
0.33August 2, 2007

September 14, 2007

October 17, 2007

$
0.32April 30, 2007

June 15, 2007

July 17, 2007

$
0.32February 23, 2007

March 15, 2007

April 18, 2007

$
0.32Total  2007





$
1.29    27




---



##### 



Stock
    Performance Graph
      COMPARISON
    OF 42 MONTH CUMULATIVE TOTAL RETURN*
 
  
  
  Company/Index


7-28-05(1)


2005


2006


2007


2008Patriot Capital Funding, Inc.


$
100



$
90



$
117



$
90



$
39Nasdaq Composite Index


$
100



$
108



$
122



$
133



$
77Patriot Capital Funding Peer Group(2)


$
100



$
93



$
118



$
102



$
65     (1)
    
    From July 28, 2005, the date our common stock began to
    trade on the Nasdaq National Market (now known as the Nasdaq
    Global Select Market) in connection our initial public offering.(2)
    
    The Patriot Capital Funding Peer Group consists of the following
    investment companies that have elected to be regulated as
    business development companies under the 1940 Act: Ares Capital
    Corporation, Gladstone Capital Corporation, Gladstone Investment
    Corporation, Hercules Technology Growth Capital, Inc., MVC
    Capital, Inc., NGP Capital Resources Company, Prospect Energy
    Corporation, and TICC Capital Corp. 28




---



##### 



Item 6.
    Selected
    Financial Data  Form 10-K.
  Year Ended December 31,Income Statement Data:

2008


2007


2006


2005


2004Investment Income:Interest income

$
40,140,087


$
37,147,275


$
25,387,709


$
13,035,673


$
4,616,665Fees


1,409,613



1,280,361



270,176



366,830



241,870Other investment income


749,704



534,901



848,449



46,839



Total Investment Income


42,299,404



38,962,537



26,506,334



13,449,342



4,858,535Expenses:Compensation expense


3,973,030



5,410,075



3,877,525



2,481,761



1,326,576Consulting fees(1)














554,796



1,000,000Interest expense(2)


8,158,473



7,421,596



4,332,582



3,517,989



1,504,998Professional fees


1,635,519



887,021



1,045,613



730,550



192,938Prepayment penalty(3)














3,395,335



General and administrative expense


2,807,113



2,498,724



2,229,970



1,041,030



227,208Total Expenses


16,574,135



16,217,416



11,485,690



11,721,461



4,251,720Net investment income (loss)


25,725,269



22,745,121



15,020,644



1,727,881



606,815Net realized gain (loss) on investments


(882,588
)


91,601



(3,262,966
)






Net unrealized appreciation (depreciation) on investments


(39,992,921
)


(3,637,706
)


3,817,931



(2,965,175
)


(876,021
)Net unrealized gain (loss) on interest rate swaps


(2,335,019
)


(775,326
)


12,961







Net income (loss)

$
(17,485,259
)

$
18,423,690


$
15,588,570


$
(1,237,294
)

$
(269,206
)Earnings (loss) per share, basic

$
(0.84
)

$
0.99


$
1.10


$
(0.17
)

$
(0.07
)Earnings (loss) per share, diluted

$
(0.84
)

$
0.98


$
1.10


$
(0.17
)

$
(0.07
)Weighted average shares outstanding, basic


20,713,540



18,670,904



14,145,200



7,253,632



3,847,902Weighted average shares outstanding, diluted


20,713,540



18,830,213



14,237,952



7,253,632



3,847,902Balance Sheet Data:Total investments

$
322,370,748


$
384,725,753


$
257,812,235


$
138,302,852


$
65,766,667Total assets


354,262,646



398,378,808



271,086,364



151,007,186



72,201,700Total debt outstanding


162,600,000



164,900,000



98,380,000



21,650,000



42,645,458Stockholders equity


180,117,170



221,597,684



164,108,629



127,152,365



27,311,918Net asset value per common share

$
8.65


$
10.73


$
10.37


$
10.48


$
7.10Other Data:Weighted average yield on debt investments(4)


12.1
%


12.4
%


13.4
%


13.5
%


12.6
%Number of portfolio companies


35



36



26



15



9Number of employees


13



14



11



9



6     (1)
    
    On July 27, 2005, we
    terminated the consulting agreements pursuant to which we
    incurred these fees. 29




---



##### 



(2)
    
    Our capital structure at
    December 31, 2004 reflected a higher percentage of leverage
    than we are permitted to maintain as a business development
    company. We used a portion of the net proceeds we received from
    our initial public offering to repay all of our outstanding
    indebtedness, including the $3.4 million prepayment
    penalty, at the time of our initial public offering. We are
    generally only allowed to borrow amounts such that our asset
    coverage, as defined in the 1940 Act, equals at least 200% after
    such borrowing.(3)
    
    The prepayment penalty was incurred
    in connection with the repayment in full and termination of our
    $120.0 million financing agreement.(4)
    
    Computed using actual interest
    income earned for the fiscal year, including amortization of
    deferred financing fees and original issue discount, divided by
    the weighted average fair value of debt investments.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Form 10-K.
  Form 10-K
  Form 10-K Form 10-K, Form 10-K, Form 10-Q Form 8-K.
  General
    U.S.-based
   30




---



##### 



Going
    Concern
    Portfolio
    Composition
  newly-originated
    December 31,


December 31,2008


2007Beginning portfolio at fair value

$
384,725,753


$
257,812,235Investments in debt securities


79,096,786



191,391,250Investments in equity securities


3,245,937



8,925,000Investment repayments


(95,018,988
)


(67,332,023
)Increase in
    payment-in-kind
    interest/dividends


5,452,124



3,928,159Sale of investments


(15,267,401
)


(5,374,749
)Change in unearned revenue


129,458



(986,413
)Decrease in fair value of investments


(39,992,921
)


(3,637,706
)Ending portfolio at fair value

$
322,370,748


$
384,725,753    31




---



##### 



December 31, 2008


December 31, 2007Investments at


Percentage of


Investments at


Percentage ofFair Value


Total Portfolio


Fair Value


Total PortfolioSenior secured revolving lines of credit

$
10,266,191



3.2
%

$
14,841,169



3.9
%Senior secured term loans


146,372,476



45.4



174,367,981



45.3Junior secured term loans


58,076,196



18.0



84,583,227



22.0Senior subordinated debt


93,365,112



29.0



97,468,645



25.3Investments in equity securities


14,290,773



4.4



13,464,731



3.5Totals

$
322,370,748



100.0
%

$
384,725,753



100.0
%         December 31, 2008


December 31, 2007Cost


%(1)


Fair Value


%(1)


Cost


%(1)


Fair Value


%(1)Machinery

$
51,384,711



14.0
%

$
39,527,874



12.3
%

$
52,844,315



13.6
%

$
54,030,773



14.1
%Health Care, Education & Childcare


39,749,005



10.9



39,501,102



12.2



33,686,998



8.7



33,779,798



8.8Personal & Nondurable Consumer Products


39,609,196



10.8



39,247,796



12.2



51,070,705



13.2



51,280,805



13.3Automobile


33,276,374



9.1



26,487,272



8.2



34,044,318



8.8



33,957,022



8.8Electronics


31,033,364



8.5



30,033,495



9.3



42,296,015



10.9



42,470,710



11.0Textiles & Leather


29,557,681



8.1



29,368,566



9.1



12,970,522



3.3



13,077,422



3.4Printing & Publishing


26,302,411



7.2



18,159,998



5.6



19,172,972



4.9



16,303,220



4.2Metals & Minerals


23,049,480



6.3



22,453,909



7.0



22,972,190



5.9



22,972,190



6.0 32




---



##### 



December 31, 2008


December 31, 2007Cost


%(1)


Fair Value


%(1)


Cost


%(1)


Fair Value


%(1)Mining, Steel, Iron & Nonprecious Metals


18,092,545



4.9



17,245,764



5.3



10,796,410



2.8



10,785,664



2.8Chemicals, Plastic & Rubber


16,659,410



4.6



9,347,006



2.9



10,733,851



2.8



10,730,842



2.8Housewares & Durable Consumer Products


11,005,810



3.0



9,333,052



2.9



9,673,177



2.5



9,686,477



2.5Retail Stores


10,978,984



3.0



10,872,284



3.4



10,656,911



2.7



10,637,911



2.8Ecological


8,556,102



2.3



8,164,902



2.5



15,593,790



4.0



14,393,840



3.7Grocery


8,156,189



2.2



8,278,569



2.6



23,149,458



6.0



23,287,658



6.1Insurance


5,000,000



1.4



4,048,200



1.3



5,000,000



1.3



4,500,000



1.2Buildings & Real Estate


4,613,182



1.3



4,613,182



1.4



4,780,826



1.2



4,780,826



1.2Oil & Gas


3,840,677



1.1



3,840,677



1.2



3,837,555



1.0



3,837,555



1.0Personal, Food & Miscellaneous Services


3,000,000



0.8



1,050,000



0.3



3,000,000



0.8



2,910,000



0.8Diversified/Conglomerate Service


1,570,736



0.4



623,500



0.2



9,516,840



2.4



9,245,940



2.4Aerospace & Defense


463,168



0.1



173,600



0.1



463,168



0.1



161,600



0.1Beverage, Food & Tobacco






0.0







0.0



9,000,000



2.3



9,000,000



2.3Containers, Packaging & Glass






0.0







0.0



2,985,000



0.8



2,895,500



0.7Total

$
365,899,025



100.0
%

$
322,370,748



100.0
%

$
388,245,021



100.0
%

$
384,725,753



100.0
%     (1)
    
    Represents percentage of total portfolio.      Asset
    Quality  Debt Portfolio
  and/or
 33




---



##### 



December 31, 2008


December 31, 2007Debt





DebtInvestments at


Percentage of


Investments at


Percentage ofInvestment Rating

Fair Value


Total Portfolio


Fair Value


Total Portfolio1

$
82,179,735



26.7
%

$
46,466,323



12.5
%2


184,507,897



59.9



252,730,493



68.13


21,275,475



6.9



57,510,986



15.54


8,477,320



2.7



14,553,220



3.95


11,639,548



3.8







Totals

$
308,079,975



100.0
%

$
371,261,022



100.0
%   Loans and
    Debt Securities on Non-Accrual Status
    Results
    of Operations
    Comparison
    of the year ended December 31, 2008 and December 31,
    2007
  Total
    Investment Income
    payment-in-kind payment-in-kind
   34




---



##### 



Expenses
    Statement of
    Financial Standards No. 157  Fair Value
    Measurements
  Realized
    Gain (Loss) on Sale of Investments
    Net
    Change in Unrealized Appreciation or Depreciation on
    Investments
   35




---



##### 



36




---



##### 



Unrealized
    Appreciation (Depreciation) on Interest Rate Swaps
    Net
    Income (Loss) from Operations
    Comparison
    of the year ended December 31, 2007 and December 31,
    2006
  Total
    Investment Income
    payment-in-kind
 37




---



##### 



payment-in-kind
    Expenses
    Sarbanes-Oxley
  Realized
    Gain (Loss) on Sale of Investments
    Net
    Change in Unrealized Appreciation or Depreciation on
    Investments
   38




---



##### 



Unrealized
    Appreciation (Depreciation) on Interest Rate Swaps
    Net
    Income from Operations
    Financial
    Condition, Liquidity and Capital Resources
  Cash,
    Cash Equivalents and Restricted Cash
     39




---



##### 



Liquidity
    and Capital Resources
               40




---



##### 



Borrowings
  Securitization Revolving Credit Facility. wholly-owned, 364-days
  364-day
  24-month
   41




---



##### 



Regulated
    Investment Company Status and Dividends
         42




---



##### 



Off-Balance
    Sheet Arrangements
      Contractual
    Obligations
    Payments Due by YearMore thanContractual Obligations

2009


2010


2011


2012


2013


5 YearsLong-term debt obligations (1)

$



$



$
162,600,000


$



$



$
Capital lease obligations






















Operating lease obligations


241,000



247,000



21,000











Purchase obligations






















Other long-term liabilities reflected on the balance sheet under
    GAAP






















Unused lending commitments (2)


23,830,000



















Total

$
24,071,000


$
247,000


$
162,621,000


$



$




     (1)
    
    Our second amended and restated securitization credit facility
    permits draws under the facility until April 10, 2009,
    unless the Lenders extend the Liquidity Facility underlying the
    securitization credit facility for an additional 364 day
    period. If the Liquidity Facility is not extended, the
    securitization credit facility enters into a
    24-month
    amortization period whereby all principal, interest and fee
    payments received by the Company in conjunction with collateral
    pledged under the securitization credit facility, less a monthly
    servicing fee payable to us, are required to be used to repay
    outstanding borrowings under the securitization credit facility.
    Any remaining outstanding borrowings would be due and payable on
    the commitment termination date, which is currently
    April 11, 2011.(2)
    
    Represents the unfunded commitment to extend credit to 17 of our
    portfolio companies. 43




---



##### 



Recent
    Developments
    Critical
    Accounting Policies
    Going
    Concern
  Form 10-K
  Valuation
    of Portfolio Investments
       44




---



##### 



Fee
    Income Recognition
  00-21 (EITF 00-21). EITF 00-21 EITF 00-21 states
  Payment-in-Kind
    or PIK Interest and Dividends
  payment-in-kind
    Fiscal YearEndedDecember 31,2008Beginning PIK balance

$
4,714,356PIK interest and dividends earned during the year


5,452,124PIK conversion to equity


(1,519,567
)PIK payments received during the year


(2,041,719
)Ending PIK balance

$
6,605,194  45




---



##### 



Interest
    and Dividend Income Recognition
    New
    Accounting Pronouncements
    Item 7A.
    Quantitative
    and Qualitative Disclosure About Market Risk     46




---



##### 



Item 8.
    Financial
    Statements and Supplementary Data  Index to
    Consolidated Financial Statements
  Documents

PageReports of Independent Registered Public
    Accounting Firm


48Consolidated Balance Sheets at December 31,
    2008 and 2007


50Consolidated Statements of Operations for the
    years ended December 31, 2008, 2007 and 2006


51Consolidated Statements of Cash Flows for the
    years ended December 31, 2008, 2007 and 2006


52Consolidated Statements of Changes in Net Assets
    for the years ended December 31, 2008, 2007 and 2006


53Consolidated Schedule of Investments at
    December 31, 2008 and 2007


54Notes to Consolidated Financial Statements


60  47




---



##### 



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM             Fair
    Value Measurements.
      48




---



##### 



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     Internal Control 
    Integrated Fram
        Internal Control  Integrated
    Framework
  Fair
    Value Measurements
    49




---



##### 



PATRIOT
    CAPITAL FUNDING, INC.
 Consolidated
    Balance Sheets  December 31,2008


2007ASSETSInvestments at fair value:Non-control/non-affiliate investments (cost of
    $269,577,008  2008, $294,686,727  2007)

$
240,486,620


$
290,225,759Affiliate investments (cost of $53,129,533  2008,
    $86,577,905  2007)


51,457,082



85,171,605Control investments (cost of $43,192,484  2008,
    $6,980,389  2007)


30,427,046



9,328,389Total investments


322,370,748



384,725,753Cash and cash equivalents


6,449,454



789,451Restricted cash


22,155,073



10,487,202Interest receivable


1,390,285



1,758,954Other assets


1,897,086



617,448TOTAL ASSETS

$
354,262,646


$
398,378,808LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIESBorrowings

$
162,600,000


$
164,900,000Interest payable


514,125



821,124Dividends payable


5,253,709



6,814,650Accounts payable, accrued expenses and other


5,777,642



4,245,350TOTAL LIABILITIES


174,145,476



176,781,124STOCKHOLDERS EQUITYPreferred stock, $0.01 par value, 1,000,000 shares
    authorized; no shares issued and outstanding






Common stock, $0.01 par value, 49,000,000 shares
    authorized; 20,827,334 and 20,650,455 shares issued and
    outstanding at December 31, 2008 and 2007, respectively


208,274



206,504Paid-in-capital


234,385,063



233,722,593Accumulated net investment loss


(1,912,061
)


(1,912,061
)Distributions in excess of net investment income


(1,758,877
)


(2,824,651
)Net realized loss on investments


(4,053,953
)


(3,171,365
)Net unrealized depreciation on interest rate swaps


(3,097,384
)


(762,365
)Net unrealized depreciation on investments


(43,653,892
)


(3,660,971
)TOTAL STOCKHOLDERS EQUITY


180,117,170



221,597,684TOTAL LIABILITIES AND STOCKHOLDERS EQUITY

$
354,262,646


$
398,378,808NET ASSET VALUE PER COMMON SHARE

$
8.65


$
10.73    50




---



##### 



PATRIOT
    CAPITAL FUNDING, INC.
 Consolidated
    Statements of Operations  Year Ended December 31,2008


2007


2006INVESTMENT INCOMEInterest and dividends:Non-control/non-affiliate investments

$
29,261,759


$
31,729,397


$
25,011,993Affiliate investments


8,504,451



4,947,294



375,716Control investments


2,373,877



470,584



Total interest and dividend income


40,140,087



37,147,275



25,387,709Fees:Non-control/non-affiliate investments


809,113



1,080,929



260,289Affiliate investments


432,435



93,419



9,887Control investments


168,065



106,013



Total fee income


1,409,613



1,280,361



270,176Other investment income:Non-control/non-affiliate investments


300,076



534,901



848,449Affiliate investments


307,245







Control investments


142,383







Total other investment income


749,704



534,901



848,449Total Investment Income


42,299,404



38,962,537



26,506,334EXPENSESCompensation expense


3,973,030



5,410,075



3,877,525Interest expense


8,158,473



7,421,596



4,332,582Professional fees


1,635,519



887,021



1,045,613General and administrative expense


2,807,113



2,498,724



2,229,970Total Expenses


16,574,135



16,217,416



11,485,690Net Investment Income


25,725,269



22,745,121



15,020,644NET REALIZED GAIN AND (LOSS) AND NET UNREALIZED APPRECIATION
    (DEPRECIATION)Net realized gain (loss) on investments 
    non-control/non-affiliate investments


(990,993
)


91,601



(3,262,966
)Net realized gain on investments  affiliate
    investments


458,405







Net realized loss on investments  control investments


(350,000
)






Net unrealized appreciation (depreciation) on
    investments  non-control/non-affiliate investments


(22,894,683
)


(4,620,406
)


3,858,931Net unrealized depreciation on investments  affiliate
    investments


(9,613,047
)


(1,365,300
)


(41,000
)Net unrealized appreciation (depreciation) on
    investments  control investments


(7,485,191
)


2,348,000



Net unrealized appreciation (depreciation) on interest rate swaps


(2,335,019
)


(775,326
)


12,961Net Realized Gain (Loss) and Net Unrealized Appreciation
    (Depreciation)


(43,210,528
)


(4,321,431
)


567,926NET INCOME (LOSS)

$
(17,485,259
)

$
18,423,690


$
15,588,570Income (loss) per share, basic

$
(0.84
)

$
0.99


$
1.10Income (loss) per share, diluted

$
(0.84
)

$
0.98


$
1.10Weighted average shares outstanding, basic


20,713,540



18,670,904



14,145,200Weighted average shares outstanding, diluted


20,713,540



18,830,213



14,237,952    51




---



##### 



PATRIOT
    CAPITAL FUNDING, INC.
 Consolidated
    Statements of Cash Flows  Year Ended December 31,2008


2007


2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)

$
(17,485,259
)

$
18,423,690


$
15,588,570Adjustments to reconcile net income (loss) to net cash provided
    by (used for) operating activities:Depreciation and amortization


606,606



411,860



456,289Change in interest receivable


368,669



462,046



(1,353,525
)Net realized loss (gain) on sale of investments


882,588



(91,601
)


3,262,966Unrealized depreciation (appreciation) on investments


39,992,921



3,637,706



(3,817,931
)Unrealized depreciation (appreciation) on interest rate swaps


2,335,019



775,326



(12,961
)Payment-in-kind
    interest and dividends


(5,452,124
)


(3,928,159
)


(2,424,927
)Stock based compensation expense


757,783



675,822



505,785Change in unearned income


(129,458
)


986,413



152,200Change in interest payable


(306,999
)


297,415



463,375Change in other assets


(86,612
)


93,868



(9,663
)Change in accounts payable, accrued expenses and other


(1,565,092
)


1,076,142



1,024,721Net cash provided by operating activities


19,918,042



22,820,528



13,834,899CASH FLOWS FROM INVESTING ACTIVITIES:Funded investments


(82,342,723
)


(200,316,250
)


(157,951,595
)Principal repayments on investments


95,018,988



67,332,023



37,627,269Proceeds from sale of investments


14,384,813



5,466,351



3,642,634Purchases of furniture and equipment


(6,295
)


(47,832
)


(269,436
)Net cash provided by (used for) investing activities


27,054,783



(127,565,708
)


(116,951,128
)CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings


110,204,117



188,177,000



353,580,000Repayments on borrowings


(112,504,117
)


(121,657,000
)


(276,850,000
)Deferred offering costs










(159,620
)Net proceeds from sale of common stock


(23,585
)


60,517,044



36,652,098Dividends paid


(26,290,394
)


(20,217,670
)


(10,885,371
)Decrease (increase) in restricted cash


(11,667,871
)


(5,373,396
)


2,692,522Deferred financing costs


(1,030,972
)


(122,990
)


(73,598
)Net cash provided by (used for) financing activities


(41,312,822
)


101,322,988



104,956,031NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS


5,660,003



(3,422,192
)


1,839,802CASH AND CASH EQUIVALENTS AT:Beginning of year


789,451



4,211,643



2,371,841End of year

$
6,449,454


$
789,451


$
4,211,643Supplemental information:Interest paid

$
8,465,472


$
7,124,181


$
3,869,208Non-cash investing activities:Conversion of debt to equity

$
5,734,567


$



$
Non-cash financing activities:Dividends reinvested in common stock

$
1,065,246


$
2,212,996


$
1,054,090Dividends declared but not paid

$
5,253,709


$
6,814,650


$
4,904,818    52




---



##### 



PATRIOT
    CAPITAL FUNDING, INC.
 Consolidated
    Statements of Changes in Net Assets  Year Ended December 31,2008


2007


2006Operations:Net investment income

$
25,725,269


$
22,745,121


$
15,020,644Net realized gain (loss) on investments


(882,588
)


91,601



(3,262,966
)Net unrealized appreciation (depreciation) on investments


(39,992,921
)


(3,637,706
)


3,817,931Net unrealized appreciation (depreciation) on interest rate swaps


(2,335,019
)


(775,326
)


12,961Net increase (decrease) in net assets from operations


(17,485,259
)


18,423,690



15,588,570Shareholder transactions:Distributions to stockholders from net investment income


(25,725,269
)


(22,745,121
)


(15,020,644
)Tax return of capital


(1,135,204
)


(1,592,314
)


(2,484,892
)Distributions in excess of net investment income


1,065,774



(3,063
)


661,257Net decrease in net assets from shareholder distributions


(25,794,699
)


(24,340,498
)


(16,844,279
)Capital share transactions:Issuance of common stock


(23,585
)


60,517,045



36,652,098Issuance of common stock under dividend reinvestment plan


1,065,246



2,212,996



1,054,090Stock based compensation


757,783



675,822



505,785Net increase in net assets from capital share transactions


1,799,444



63,405,863



38,211,973Total increase (decrease) in net assets


(41,480,514
)


57,489,055



36,956,264Net assets at beginning of period


221,597,684



164,108,629



127,152,365Net assets at end of period

$
180,117,170


$
221,597,684


$
164,108,629Net asset value per common share

$
8.65


$
10.73


$
10.37Common shares outstanding at end of period


20,827,334



20,650,455



15,821,994    53




---



##### 



PATRIOT
    CAPITAL FUNDING, INC.
    Consolidated Schedule of Investments
    December 31, 2008  Company(1)

Company(Industry)

Description

Investment

Principal


Cost


ValueControl investments:Encore Legal Solutions, Inc. (Printing & Publishing)

Legal document management services

Junior Secured Term Loan A (6.2%, Due 12/10) (2) (3)
    Junior Secured Term Loan B (9.2%, Due 12/10) (2) (3)
    Common Stock (4)

$
4,020,456
    7,390,687


$
4,007,366
    7,355,975
    5,159,567


$
3,537,910
    6,492,888
    326,900Fischbein, LLC (Machinery)

Designer and manufacturer of packaging equipment

Senior Subordinated Debt (16.5%, Due 5/13) (2) (3)
    Membership Interest  Class A (4)


3,492,760



3,471,147
    2,800,000



3,540,987
    3,876,000Nupla Corporation (Home & Office Furnishings, Housewares
    & Durable Consumer Products)

Manufacturer and marketer of professional high-grade
    fiberglass-handled striking and digging tools

Revolving Line of Credit (7.3%, Due 9/12) (3)
    Senior Secured Term Loan A (8.0%, Due 9/12) (3)
    Senior Subordinated Debt (15.0%, Due 3/13) (2) (3)
    Preferred Stock  Class A (2)
    Preferred Stock  Class B (2)
    Common Stock (4)


870,000
    5,354,688
    3,123,084



856,425
    5,315,741
    3,102,059
    550,584
    1,101,001
    80,000



856,425
    5,166,852
    2,192,375
    15,900
    1,101,500
    Sidumpr Trailer Company, Inc. (Automobile)

Manufacturer of side dump trailers

Revolving Line of Credit (7.3%, Due 1/11) (3)
    Senior Secured Term Loan A (7.3%, Due 1/11) (3)
    Senior Secured Term Loan B (8.8%, Due 1/11) (3)
    Senior Secured Term Loan C (16.5%, Due 7/11) (2) (3)
    Senior Secured Term Loan D (7.3%, Due 7/11)
    Preferred Stock (2)
    Common Stock (4)


950,000
    2,047,500
    2,320,625
    2,406,374
    1,700,000



934,432
    2,036,677
    2,301,926
    2,253,829
    1,700,000
    165,730
    25



934,432
    2,036,677
    
    
    348,200
    
    Total Control investments (represents 9.4% of total
    investments at fair value)





$
43,192,484


$
30,427,046Affiliate investments:Boxercraft Incorporated (Textiles & Leather)

Supplier of spiritwear and campus apparel

Senior Secured Term Loan A (8.0%, Due 9/13) (3)
    Senior Secured Term Loan B (8.5%, Due 9/13) (3)
    Senior Subordinated Debt (16.8%, Due 3/14) (2) (3)
    Preferred Stock (4)
    Common Stock (4)


5,328,125
    5,486,250
    6,591,375



5,273,766
    5,429,567
    6,524,347
    1,029,722
    100



5,273,766
    5,429,567
    6,524,347
    849,500
    KTPS Holdings, LLC (Textiles & Leather)

Manufacturer and distributor of specialty pet products

Revolving Line of Credit (5.0%, Due 1/12) (3)
    Senior Secured Term Loan A (5.1%, Due 1/12) (3)
    Senior Secured Term Loan B (12.0%, Due 1/12) (3)
    Junior Secured Term Loan (15.0%, Due 3/12) (2) (3)
    Membership Interest  Class A (4)
    Membership Interest  Common (4)


1,000,000
    4,996,875
    465,000
    4,207,806



986,840
    4,950,978
    460,265
    4,172,076
    730,020
    



986,840
    4,951,005
    460,265
    4,172,076
    721,200
    Smart, LLC (5) (Diversified/Conglomerate Service)

Provider of tuition management services

Membership Interest  Class B (4)
    Membership Interest  Class D (4)






1,280,403
    290,333



311,500
    312,000Sport Helmets Holdings, LLC (5)(Personal & Nondurable Consumer Products)

Manufacturer of protective headgear

Senior Secured Term Loan A (5.9%, Due 12/13) (3)
    Senior Secured Term Loan B (6.4%, Due 12/13) (3)
    Senior Subordinated Debt - Series A (15.0%, Due 6/14) (2) (3)
    Senior Subordinated Debt - Series B (15.0%, Due 6/14) (2)
    Common Stock (4)


4,500,000
    7,500,000
    7,000,000
    1,258,488



4,445,614
    7,400,148
    6,896,866
    1,258,488
    2,000,000



4,282,314
    7,128,048
    6,896,866
    1,258,488
    1,899,300Total Affiliate investments (represents 16.0% of total
    investments at fair value)





$
53,129,533


$
51,457,082Non-control/non-affiliate investments:ADAPCO, Inc. (Ecological)

Distributor of specialty chemicals and contract application
    services

Senior Secured Term Loan A (11.5%, Due 6/11) (3)
    Common Stock (4)

$
8,103,125


$
8,056,102
    500,000


$
8,056,102
    108,800Aircraft Fasteners International, LLC (Machinery)

Distributor of fasteners and related hardware for use in
    aerospace, electronics and defense industries

Senior Secured Term Loan (4.1%, Due 11/12) (3)
    Junior Secured Term Loan (14.0%, Due 5/13) (2) (3)
    Convertible Preferred Stock (2)


5,528,000
    5,306,249



5,446,932
    5,242,761
    273,397



5,208,632
    5,242,761
    503,600Allied Defense Group, Inc. (Aerospace & Defense)

Diversified defense company

Common Stock (4)






463,168



173,600Arrowhead General Insurance Agency, Inc. (6) (Insurance)

Insurance agency and program specialist

Junior Secured Term Loan (7.7%, Due 2/13) (3)


5,000,000



5,000,000



4,048,200Aylward Enterprises, LLC (5) (Machinery)

Manufacturer of packaging equipment

Revolving Line of Credit (10.0%, Due 2/12) (3)
    Senior Secured Term Loan A (11.6%, Due 2/12) (3)
    Senior Subordinated Debt (22.0%, Due 8/12) (2)
    Subordinated Member Note (8.0%, Due 2/13) (2)
    Membership Interest (4)

$
3,700,000
    8,085,938
    7,328,591
    151,527


$
3,647,158
    7,999,958
    6,747,301
    148,491
    1,250,000


$
3,647,158
    3,572,320
    
    
     54




---



##### 



Company(1)

Company(Industry)

Description

Investment

Principal


Cost


ValueBorga, Inc. (Mining, Steel, Iron & Nonprecious
    Metals)

Manufacturer of pre-fabricated metal building systems

Revolving Line of Credit (4.9%, Due 5/10) (3)
    Senior Secured Term Loan A (5.4%, Due 5/09) (3)
    Senior Secured Term Loan B (8.4%, Due 5/10) (3)
    Senior Secured Term Loan C (16.0%, Due 5/10) (2) (3)
    Common Stock Warrants (4)


800,000
    328,116
    1,635,341
    8,117,266



793,950
    325,903
    1,617,095
    8,074,916
    14,805



793,950
    325,903
    1,617,095
    8,074,916
    Caleel + Hayden, LLC (5) (Personal & Nondurable Consumer
    Products)

Provider of proprietary branded professional skincare and
    cosmetic products to physicians and spa communities

Junior Secured Term Loan B (4.7%, Due 11/11) (3)
    Senior Subordinated Debt (14.5%, Due 11/12) (3)
    Common Stock (4)


10,771,562
    6,250,000



10,668,072
    6,190,008
    750,000



10,668,072
    6,252,608
    862,100CDW Corporation (6) (Electronics)

Direct marketer of computer and peripheral equipment

Senior Secured Term Loan (6.7%, Due 10/14)


2,000,000



1,780,924



920,000CS Operating, LLC (5) (Buildings & Real Estate)

Provider of maintenance, repair and replacement of HVAC,
    electrical, plumbing, and foundation repair

Revolving Line of Credit (6.8%, Due 1/13) (3)
    Senior Secured Term Loan A (6.6%, Due 7/12) (3)
    Senior Subordinated Debt (16.5%, Due 1/13) (2) (3)


200,000
    1,855,064
    2,616,863



194,564
    1,832,122
    2,586,496



194,564
    1,832,122
    2,586,496Copernicus Group (Healthcare, Education & Childcare)

Provider of clinical trial review services

Revolving Line of Credit (8.8%, Due 10/13) (3)
    Senior Secured Term Loan A (9.0%, Due 10/13) (3)
    Senior Subordinated Debt (16.0%, Due 4/14) (3)
    Preferred Stock  Series A


150,000
    8,043,750
    12,112,000



130,753
    7,917,470
    11,926,408
    1,000,000



130,753
    7,917,470
    11,926,408
    1,033,000Copperhead Chemical Company, Inc. (Chemicals, Plastics &
    Rubber)

Manufacturer of bulk pharmaceuticals

Senior Subordinated Debt (21.0%, Due 1/13) (2) (3)


3,693,195



3,664,655



3,664,655Custom Direct, Inc. (6) (Printing & Publishing)

Direct marketer of checks and other financial products and
    services

Senior Secured Term Loan (4.2%, Due 12/13) (3)
    Junior Secured Term Loan (7.5%, Due 12/14) (3)


1,847,386
    2,000,000



1,603,118
    2,000,000



1,330,100
    880,000Dover Saddlery, Inc. (Retail Stores)

Equestrian products catalog retailer

Common Stock (4)






148,200



41,500Employbridge Holding Company (5) (6) (Personal, Food &
    Miscellaneous Services)

A provider of specialized staffing services

Junior Secured Term Loan (10.4%, Due 10/13) (3)


3,000,000



3,000,000



1,050,000EXL Acquisition Corp. (Electronics)

Manufacturer of lab testing supplies

Senior Secured Term Loan A (6.6%, Due 3/11) (3)
    Senior Secured Term Loan B (6.9%, Due 3/12) (3)
    Senior Secured Term Loan C (7.4%, Due 3/12) (3)
    Senior Secured Term Loan D (15.0%, Due 3/12) (3)
    Common Stock  Class A (4)
    Common Stock  Class B (2)


3,278,998
    4,499,911
    2,775,439
    6,557,997



3,258,757
    4,452,650
    2,737,602
    6,501,063
    2,475
    279,222



3,072,159
    4,196,539
    2,579,563
    6,501,063
    269,000
    281,900Fairchild Industrial Products, Co. (Electronics)

Manufacturer of industrial controls and power transmission
    products

Senior Secured Term Loan A (5.8%, Due 7/10) (3)
    Senior Secured Term Loan B (7.7%, Due 1/11) (3)
    Senior Subordinated Debt (14.8%, Due 7/11) (3)
    Preferred Stock  Class A (2)
    Common Stock  Class B (4)


1,690,402
    4,477,500
    5,460,000



1,678,459
    4,448,975
    5,418,066
    353,573
    121,598



1,652,157
    4,379,475
    5,418,066
    353,573
    410,000Hudson Products Holdings, Inc. (6) (Mining, Steel, Iron
    & Nonprecious Metals)

Manufactures and designs air-cooled heat exchanger equipment

Senior Secured Term Loan (8.0%, Due 8/15) (3)


7,481,250



7,265,876



6,433,900Impact Products, LLC (Machinery)

Distributor of janitorial supplies

Junior Secured Term Loan (7.0%, Due 9/12) (3)
    Senior Subordinated Debt (15.0%, Due 9/12) (3)


8,893,750
    5,547,993



8,839,775
    5,517,791



8,418,625
    5,517,791Keltner Enterprises, LLC (5) (Oil & Gas)

Distributor of automotive oils, chemicals and parts

Senior Subordinated Debt (14.0%, Due 12/11) (3)


3,850,000



3,840,677



3,840,677Label Corp Holdings, Inc. (6) (Printing & Publishing)

Manufacturer of prime labels

Senior Secured Term Loan (8.0%, Due 8/14) (3)


6,483,750



6,176,385



5,592,200L.A. Spas, Inc. (Chemicals, Plastics & Rubber)

Manufacturer of above ground spas

Revolving Line of Credit (8.8%, Due 12/09) (3)
    Senior Secured Term Loan (8.8%, Due 12/09) (3)
    Senior Subordinated Debt (17.5%, Due 1/10) (2) (3)
    Common Stock (4)
    Common Stock Warrants (4)


1,000,000
    4,165,430
    8,011,600



990,794
    4,092,364
    7,907,534
    100
    3,963



990,794
    4,092,364
    599,193
    
     55




---



##### 



Company(1)

Company(Industry)

Description

Investment

Principal


Cost


ValueLHC Holdings Corp. (Healthcare, Education &
    Childcare)

Provider of home healthcare services

Senior Secured Term Loan A (4.5%, Due 11/12) (3)
    Senior Subordinated Debt (14.5%, Due 5/13) (3)
    Membership Interest (4)


4,100,403
    4,565,000



4,057,774
    4,517,936
    125,000



3,927,171
    4,517,936
    159,500Mac & Massey Holdings, LLC (Grocery)

Broker and distributor of ingredients to manufacturers of food
    products

Senior Subordinated Debt (16.5%, Due 2/13) (2) (3)
    Common Stock (4)


7,942,142



7,913,369
    242,820



7,913,369
    365,200Northwestern Management Services, LLC (Healthcare, Education
    & Childcare)

Provider of dental services

Senior Secured Term Loan A (4.5%, Due 12/12) (3)
    Senior Secured Term Loan B (5.0%, Due 12/12) (3)
    Junior Secured Term Loan (15.0%, Due 6/13) (2) (3)
    Common Stock (4)


5,580,000
    1,237,500
    2,839,310



5,531,693
    1,226,436
    2,815,535
    500,000



5,531,693
    1,226,436
    2,815,535
    315,200Prince Mineral Company, Inc. (Metals & Minerals)

Manufacturer of pigments

Junior Secured Term Loan (5.5%, Due 12/12) (3)
    Senior Subordinated Debt (14.0%, Due 7/13) (2) (3)


11,275,000
    12,034,071



11,131,129
    11,918,351



10,750,129
    11,703,780Quartermaster, Inc. (Retail Stores)

Retailer of uniforms and tactical equipment to law enforcement
    and security professionals

Revolving Line of Credit (6.7%, Due 12/10) (3)
    Senior Secured Term Loan A (6.8%, Due 12/10) (3)
    Senior Secured Term Loan B (8.1%, Due 12/10) (3)
    Senior Secured Term Loan C (15.0%, Due 12/11) (2) (3)


1,750,000
    3,225,250
    2,543,750
    3,399,818



1,731,275
    3,197,369
    2,526,377
    3,375,763



1,731,275
    3,197,369
    2,526,377
    3,375,763R-O-M Corporation (Automobile)

Manufacturer of doors, ramps and bulk heads for fire trucks and
    food transportation

Senior Secured Term Loan A (3.4%, Due 2/13) (3)
    Senior Secured Term Loan B (4.9%, Due 5/13) (3)
    Senior Subordinated Debt (15.0%, Due 8/13) (3)


6,640,000
    8,379,000
    9,100,000



6,582,627
    8,290,058
    9,011,070



6,266,127
    7,890,766
    9,011,070Total Non-control/non-affiliate investments (represents 74.6%
    of total investments at fair value)





$
269,577,008


$
240,486,620Total Investments





$
365,899,025


$
322,370,748   (1)
    
    Affiliate investments are generally
    defined under the Investment Company Act of 1940, as amended
    (the 1940 Act), as companies in which the Company
    owns at least 5% but not more than 25% of the voting securities
    of the company. Control investments are generally defined under
    the 1940 Act as companies in which the Company owns more than
    25% of the voting securities of the company or has greater than
    50% representation on its board.(2)
    
    Amount includes
    payment-in-kind
    (PIK) interest or dividends.(3)
    
    Pledged as collateral under the
    Companys Securitization Facility. See Note 6 to
    Consolidated Financial Statements.(4)
    
    Non-income producing.(5)
    
    Some of the investments listed are
    issued by an affiliate of the listed portfolio company.(6)
    
    Syndicated investment which has
    been originated by another financial institution and broadly
    distributed.   56




---



##### 



PATRIOT
    CAPITAL FUNDING, INC.
    Consolidated Schedule of Investments
    December 31, 2007
  Company(1)

Company(Industry)

Description

Investment

Principal


Cost


ValueControl investments:Fischbein, LLC (Machinery)

Designer and manufacturer of packaging equipment

Senior Subordinated Debt (16.5%, Due 5/13) (2) (3)
    Membership Interest  Class A (4)

$
4,211,988


$
4,180,389
    2,800,000


$
4,180,389
    5,148,000Total Control investments (represents 2.4% of total
    investments at fair value)





$
6,980,389


$
9,328,389Affiliate investments:Aylward Enterprises, LLC (5) (Machinery)

Manufacturer of packaging equipment

Revolving Line of Credit (8.7%, Due 2/12) (3)
    Senior Secured Term Loan A (9.5%, Due 2/12) (3)

$
3,700,000
    8,292,188


$
3,630,012
    8,162,724


$
3,630,012
    8,162,724Senior Subordinated Debt (14.5%, Due 8/12) (2)


6,424,702



6,335,464



6,335,464Membership Interest (4)






1,250,000



KTPS Holdings, LLC (Textiles & Leather)

Manufacturer and distributor of specialty pet products

Revolving Line of Credit (8.2%, Due 1/12) (3)
    Senior Secured Term Loan A (8.4%, Due 1/12) (3)
    Senior Secured Term Loan B (12.0%, Due 1/12) (3)
    Junior Secured Term Loan (15.0%, Due 3/12)(2) (3)
    Membership Interest  Class A (4)
    Membership Interest  Common (4)


300,000
    6,012,500
    1,985,000
    4,081,878



282,562
    5,941,886
    1,960,952
    4,035,122
    730,020
    19,980



282,562
    5,941,886
    1,960,952
    4,035,122
    769,000
    87,900Nupla Corporation (Home & Office Furnishings, Housewares
    & Durable Consumer Products)

Manufacturer and marketer of professional high-grade
    fiberglass-handled striking and digging tools

Revolving Line of Credit (9.5%, Due 9/12) (3)
    Senior Secured Term Loan A (8.8%, Due 9/12) (3)
    Senior Subordinated Debt (14.0%, Due 3/13) (2)
    Preferred Stock (2)
    Common Stock (4)


550,000
    5,678,125
    3,019,688



532,725
    5,628,411
    2,993,614
    493,427
    25,000



532,725
    5,628,411
    2,993,614
    493,427
    38,300Smart, LLC(5) (Diversified/Conglomerate Service)

Provider of tuition management services

Revolving Line of Credit (12.3%, Due 8/11) (3)
    Senior Secured Term Loan A (12.3%, Due 8/11) (3)
    Senior Secured Term Loan B (19.0%, Due 2/12) (2) (3)
    Convertible Subordinated Note (22.0%, Due 8/12)
    Membership Interest   Class B (4)


870,000
    3,862,500
    3,668,965
    250,000



822,799
    3,817,733
    3,626,308
    250,000
    1,000,000



822,799
    3,817,733
    3,626,308
    250,000
    729,100Sport Helmets Holdings, LLC(5) (Personal &
    Nondurable Consumer Products)

Manufacturer of protective headgear

Senior Secured Term Loan A (9.0%, Due 12/13)
    Senior Secured Term Loan B (9.5%, Due 12/13)
    Senior Subordinated Debt (15.0%, Due 6/14) (2)
    Common Stock (4)


4,500,000
    7,500,000
    8,011,333



4,431,440
    7,385,336
    7,889,250
    2,000,000



4,431,440
    7,385,336
    7,889,250
    1,901,500Vince & Associates Clinical Research, Inc.
    (Healthcare, Education & Childcare)

Provider of clinical testing services

Senior Secured Term Loan (10.0%, Due 11/12) (2) (3)
    Senior Subordinated Debt (15.0%, Due 5/13) (2)
    Convertible Preferred Stock (4)


7,500,000
    5,521,561



7,391,657
    5,441,483
    500,000



7,391,657
    5,441,483
    592,900Total Affiliate investments (represents 22.1% of total
    investments at fair value)





$
86,577,905


$
85,171,605Non-control/non-affiliate investments:ADAPCO, Inc. (Ecological)

Distributor of specialty chemicals and contract application
    services

Revolving Line of Credit (9.0%, Due 7/11) (3)
    Senior Secured Term Loan A (10.5%, Due 6/11) (3)
    Common Stock (4)

$
2,200,000
    13,016,250


$
2,177,697
    12,916,093
    500,000


$
2,177,697
    12,216,143
    Aircraft Fasteners International, LLC (Machinery)

Distributor of fasteners and related hardware for use in
    aerospace, electronics and defense industries

Senior Secured Term Loan (8.3%, Due 11/12) (3)
    Junior Secured Term Loan (14.0%, Due 5/13) (2) (3)
    Convertible Preferred Stock (2)


6,800,000
    5,200,000



6,697,869
    5,121,815
    253,342



6,697,869
    5,121,815
    341,800Allied Defense Group, Inc. (Aerospace & Defense)

Diversified defense company

Common Stock (4)






463,168



161,600Arrowhead General Insurance Agency, Inc.(6) (Insurance)

Insurance agency and program specialist

Junior Secured Term Loan (12.1%, Due 2/13) (3)


5,000,000



5,000,000



4,500,000Borga, Inc. (Mining, Steel, Iron & Nonprecious
    Metals)

Manufacturer of pre-fabricated metal building systems

Senior Secured Term Loan A (8.8%, Due 3/09) (3)
    Senior Secured Term Loan B (11.8%, Due 5/10) (3)
    Senior Secured Term Loan C (16.0%, Due 5/10) (2) (3)
    Common Stock Warrants (4)


1,321,000
    1,785,250
    7,794,323



1,309,581
    1,755,679
    7,720,404
    10,746



1,309,581
    1,755,679
    7,720,404
    Caleel + Hayden, LLC(5) (Personal & Nondurable
    Consumer Products)

Provider of proprietary branded professional skincare and
    cosmetic products to physicians and spa communities

Junior Secured Term Loan B (9.6%, Due 11/11) (3)
    Senior Subordinated Debt (14.5%, Due 11/12) (3)
    Common Stock (4)


10,879,062
    6,250,000



10,745,564
    6,174,425
    750,000



10,745,564
    6,174,425
    1,058,600 57




---



##### 



Company(1)

Company(Industry)

Description

Investment

Principal


Cost


ValueCheeseworks, Inc. (Grocery)

Distributor of specialty cheese and food products

Revolving Line of Credit (7.6%, Due 6/11) (3)
    Senior Secured Term Loan (10.7%, Due 6/11) (3)


5,080,219
    10,648,560



4,984,386
    10,512,576



4,984,386
    10,512,576CS Operating, LLC(5) (Buildings & Real Estate)

Provider of maintenance, repair and replacement of HVAC,
    electrical, plumbing, and foundation repair

Senior Secured Term Loan A (9.1%, Due 7/12) (3)
    Senior Subordinated Debt (14.5%, Due 1/13) (2) (3)


2,325,000
    2,527,328



2,290,500
    2,490,326



2,290,500
    2,490,326Copperhead Chemical Company, Inc. (Chemicals,
    Plastics & Rubber)

Manufacturer of bulk pharmaceuticals

Senior Subordinated Debt (15.3%, Due 1/13) (2) (3)


3,540,943



3,505,378



3,505,378Custom Direct, Inc.(6) (Printing & Publishing)

Direct marketer of checks and other financial products and
    services

Junior Secured Term Loan (10.8%, Due 12/14) (3)


2,000,000



2,000,000



1,750,000Dover Saddlery, Inc. (Retail Stores)

Equestrian products catalog retailer

Common Stock (4)






148,200



129,200Eight OClock Coffee Company(6) (Beverage,
    Food & Tobacco)

Manufacturer, distributor, and marketer of coffee

Junior Secured Term Loan (11.4%, Due 7/13) (3)


9,000,000



9,000,000



9,000,000Employbridge Holding Company(5)(6) (Personal,
    Food & Miscellaneous Services)

A provider of specialized staffing services

Junior Secured Term Loan (11.8%, Due 10/13) (3)


3,000,000



3,000,000



2,910,000Encore Legal Solutions, Inc. (Printing &
    Publishing)

Legal document management services

Junior Secured Term Loan A (10.7%, Due 6/10) (2) (3)
    Junior Secured Term Loan B (10.8%, Due 6/10) (2) (3)
    Senior Subordinated Debt (15.0%, Due 6/10) (2) (3)
    Common Stock Warrants (4)


3,949,437
    7,193,143
    5,926,861



3,925,802
    7,138,192
    5,889,187
    219,791



3,925,802
    7,138,192
    3,489,226
    EXL Acquisition Corp. (Electronics)

Manufacturer of lab testing supplies

Senior Secured Term Loan A (8.4%, Due 3/11) (3)
    Senior Secured Term Loan B (8.9%, Due 3/12) (3)
    Senior Secured Term Loan C (9.4%, Due 3/12) (3)
    Senior Secured Term Loan D (15.0%, Due 3/12) (3)
    Common Stock  Class A (4)
    Common Stock  Class B (2)


4,800,000
    4,851,840
    2,992,500
    7,000,000



4,761,933
    4,792,326
    2,944,981
    6,925,241
    2,475
    254,057



4,761,933
    4,792,326
    2,944,981
    6,925,241
    123,900
    255,325Fairchild Industrial Products, Co. (Electronics)

Manufacturer of industrial controls and power transmission
    products

Senior Secured Term Loan A (8.3%, Due 7/10) (3)
    Senior Secured Term Loan B (10.0%, Due 7/11) (3)
    Senior Subordinated Debt (14.8%, Due 7/11)
    Preferred Stock  Class A (2)
    Common Stock  Class B (4)


5,580,000
    9,325,000
    5,460,000



5,531,331
    9,239,973
    5,401,721
    327,879
    121,598



5,531,331
    9,239,973
    5,401,721
    327,879
    293,200Impact Products, LLC (Machinery)

Distributor of janitorial supplies

Junior Secured Term Loan (9.5%, Due 9/12) (3)
    Senior Subordinated Debt (13.5%, Due 9/12) (2) (3)


8,968,750
    5,547,996



8,903,106
    5,509,594



8,903,106
    5,509,594Innovative Concepts in Entertainment, Inc.
    (Personal & Nondurable Consumer Products)

Manufacturer of coin operated games

Junior Secured Term Loan A (9.0%, Due 2/11) (3)
    Junior Secured Term Loan B (9.5%, Due 2/11) (3)
    Junior Secured Term Loan C (13.0%, Due 8/11) (3)


4,312,500
    3,537,000
    3,900,000



4,292,854
    3,519,896
    3,881,940



4,292,854
    3,519,896
    3,881,940Keltner Enterprises, LLC(5) (Oil & Gas)

Distributor of automotive oils, chemicals and parts

Senior Subordinated Debt (14.0%, Due 12/11) (3)


3,850,000



3,837,555



3,837,555L.A. Spas, Inc. (Chemicals, Plastics & Rubber)

Manufacturer of above ground spas

Senior Subordinated Debt (15.5%, Due 1/10) (2) (3)
    Common Stock Warrants (4)


7,271,249



7,225,464
    3,009



7,225,464
    LHC Holdings Corp. (Healthcare, Education &
    Childcare)

Provider of home healthcare services

Revolving Line of Credit (8.8%, Due 11/12) (3)
    Senior Secured Term Loan A (8.8%, Due 11/12) (3)
    Senior Subordinated Debt (14.5%, Due 5/13)
    Membership Interest (4)


300,000
    5,100,000
    4,565,000



287,369
    5,035,888
    4,507,250
    125,000



287,369
    5,035,888
    4,507,250
    120,500Mac & Massey Holdings, LLC (Grocery)

Broker and distributor of ingredients to manufacturers of food
    products

Senior Subordinated Debt (16.5%, Due 2/13) (2)
    Common Stock (4)


7,438,280



7,402,496
    250,000



7,402,496
    388,200Metrologic Instruments, Inc.(6) (Electronics)

Manufacturer of imaging and scanning equipment

Senior Secured Term Loan (7.8%, Due 4/14) (3)
    Junior Secured Term Loan (11.1%, Due 12/15)


992,500
    1,000,000



992,500
    1,000,000



942,900
    930,000 58




---



##### 



Company(1)

Company(Industry)

Description

Investment

Principal


Cost


ValueNice-Pak Products, Inc.(6) (Containers, Packaging &
    Glass)

Manufacturer of pre-moistened wipes

Senior Secured Term Loan (8.5%, Due 6/14) (3)


2,985,000



2,985,000



2,895,500Northwestern Management Services, LLC (Healthcare,
    Education & Childcare)

Provider of dental services

Senior Secured Term Loan A (8.9%, Due 12/12) (3)
    Senior Secured Term Loan B (9.4%, Due 12/12) (3)
    Junior Secured Term Loan (15.0%, Due 6/13) (2)
    Common Stock (4)


6,000,000
    1,250,000
    2,754,125



5,936,612
    1,236,744
    2,724,995
    500,000



5,936,612
    1,236,744
    2,724,995
    504,400Prince Mineral Company, Inc. (Metals & Minerals)

Manufacturer of pigments

Junior Secured Term Loan (9.9%, Due 12/12) (3)
    Senior Subordinated Debt (14.0%, Due 7/13) (2) (3)


11,375,000
    11,913,159



11,203,941
    11,768,249



11,203,941
    11,768,249Quartermaster, Inc. (Retail Stores)

Retailer of uniforms and tactical equipment to law enforcement
    and security professionals

Revolving Line of Credit (9.5%, Due 12/10) (3)
    Senior Secured Term Loan A (9.4%, Due 12/10) (3)
    Senior Secured Term Loan B (10.6%, Due 12/10) (3)
    Senior Secured Term Loan C (15.0%, Due 12/11) (2) (3)


500,000
    4,276,250
    2,568,750
    3,298,069



471,887
    4,228,116
    2,542,846
    3,265,862



471,887
    4,228,116
    2,542,846
    3,265,862R-O-M Corporation (Automobile)

Manufacturer of doors, ramps and bulk heads for fire trucks and
    food transportation

Senior Secured Term Loan A (8.0%, Due 2/13) (3)
    Senior Secured Term Loan B (9.3%, Due 5/13) (3)
    Senior Subordinated Debt (15.0%, Due 8/13) (2)


7,440,000
    8,464,500
    9,100,000



7,359,023
    8,359,596
    8,991,761



7,359,023
    8,359,596
    8,991,761Sidumpr Trailer Company, Inc. (Automobile)

Manufacturer of side dump trailers

Revolving Line of Credit (9.8%, Due 1/11) (3)
    Senior Secured Term Loan A (8.5%, Due 1/11) (3)
    Senior Secured Term Loan B (11.5%, Due 1/11) (3)
    Senior Secured Term Loan C (15.0%, Due 7/11) (2) (3)
    Senior Subordinated Debt (12.0%, Due 1/12) (3)
    Preferred Stock (2)
    Common Stock (4)


1,675,000
    2,047,500
    2,320,625
    3,230,074
    75,000



1,651,732
    2,028,320
    2,294,336
    3,197,254
    75,000
    87,271
    25



1,651,732
    2,028,320
    2,294,336
    3,197,254
    75,000
    
    Total Non-control/non-affiliate investments (represents 75.5%
    of total investments at fair value)





$
294,686,727


$
290,225,759Total Investments









$
388,245,021


$
384,725,753   (1)
    
    Affiliate investments are generally
    defined under the Investment Company Act of 1940, as amended
    (the 1940 Act), as companies in which the Company
    owns at least 5% but not more than 25% of the voting securities
    of the company. Control investments are generally defined under
    the 1940 Act as companies in which the Company owns more than
    25% of the voting securities of the company or has greater than
    50% representation on its board.(2)
    
    Amount includes
    payment-in-kind
    (PIK) interest or dividends.(3)
    
    Pledged as collateral under the
    Companys Securitization Facility. See Note 6 to
    Consolidated Financial Statements.(4)
    
    Non-income producing.(5)
    
    Some of the investments listed are
    issued by an affiliate of the listed portfolio company.(6)
    
    Syndicated investment which has
    been originated by another financial institution and broadly
    distributed.   59




---



##### 



Patriot
    Capital Funding, Inc.
  Notes
    to Consolidated Financial Statements
  Note 1.
    Organization      Note 2.
    Going
    Concern       60




---



##### 



Patriot
    Capital Funding, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Note 3.
    Summary
    of Significant Accounting Policies  Basis
    of Presentation
  Form 10-K Regulation S-X.
  Use of
    Estimates
    Cash
    and Cash Equivalents
    Restricted
    Cash
    Concentration
    of Credit Risk
    Investment
    Valuation
  Statement of Financial Standards
    No. 157  Fair Value Measurements
   61




---



##### 



Patriot
    Capital Funding, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Property,
    Equipment and Leasehold Improvements
    Fair
    Value of Financial Instruments
    Debt
    Issuance Costs
    Interest
    Income Recognition
     62




---



##### 



Patriot
    Capital Funding, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Fee
    Income Recognition
    00-21 (EITF 00-21). EITF 00-21
    Payment
    in Kind Interest/Dividends
      2008


2007Beginning PIK balance

$
4,714,356


$
2,891,565PIK interest and dividends earned during the year


5,452,124



3,928,159PIK conversion to equity


(1,519,567
)


Payments received during the year


(2,041,719
)


(2,105,368
)Ending PIK balance

$
6,605,194


$
4,714,356  63




---



##### 



Patriot
    Capital Funding, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Realized
    Gain or Loss and Unrealized Appreciation or Depreciation of
    Investments
    Stock
    Compensation Plans
    Federal
    Income Taxes
    Dividends
    Paid
     64




---



##### 



Patriot
    Capital Funding, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Recent
    Accounting Pronouncements
    Reclassifications
    Note 4.
    Investments  157-3, (FSP 157-3) FSP 157-3
    December 31, 2008


December 31, 2007Cost


Fair Value


Cost


Fair ValueInvestments in debt securities

$
344,683,219


$
308,079,975


$
375,410,033


$
371,261,022Investments in equity securities


21,215,806



14,290,773



12,834,988



13,464,731Total

$
365,899,025


$
322,370,748


$
388,245,021


$
384,725,753        65




---



##### 



Patriot
    Capital Funding, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      December 31, 2008


December 31, 2007Cost


%(1)


Fair Value


%(1)


Cost


%(1)


Fair Value


%(1)Senior Secured Debt

$
171,889,470



47.0
%

$
156,638,667



48.6
%

$
190,048,200



49.0
%

$
189,209,150



49.2
%Junior Secured Debt


64,232,689



17.5



58,076,196



18.0



85,493,227



22.0



84,583,227



22.0Subordinated Debt


108,561,060



29.7



93,365,112



29.0



99,868,606



25.7



97,468,645



25.3Warrants / Equity


21,215,806



5.8



14,290,773



4.4



12,834,988



3.3



13,464,731



3.5Total

$
365,899,025



100.0
%

$
322,370,748



100.0
%

$
388,245,021



100.0
%

$
384,725,753



100.0
%     (1)
    
    Represents percentage of total portfolio.    December 31, 2008


December 31, 2007Cost


%(1)


Fair Value


%(1)


Cost


%(1)


Fair Value


%(1)Machinery

$
51,384,711



14.0
%

$
39,527,874



12.3
%

$
52,844,315



13.6
%

$
54,030,773



14.1
%Health Care, Education & Childcare


39,749,005



10.9



39,501,102



12.2



33,686,998



8.7



33,779,798



8.8Personal & Nondurable Consumer Products


39,609,196



10.8



39,247,796



12.2



51,070,705



13.2



51,280,805



13.3Automobile


33,276,374



9.1



26,487,272



8.2



34,044,318



8.8



33,957,022



8.8Electronics


31,033,364



8.5



30,033,495



9.3



42,296,015



10.9



42,470,710



11.0Textiles & Leather


29,557,681



8.1



29,368,566



9.1



12,970,522



3.3



13,077,422



3.4Printing & Publishing


26,302,411



7.2



18,159,998



5.6



19,172,972



4.9



16,303,220



4.2Metals & Minerals


23,049,480



6.3



22,453,909



7.0



22,972,190



5.9



22,972,190



6.0Mining, Steel, Iron & Nonprecious Metals


18,092,545



4.9



17,245,764



5.3



10,796,410



2.8



10,785,664



2.8Chemicals, Plastic & Rubber


16,659,410



4.6



9,347,006



2.9



10,733,851



2.8



10,730,842



2.8Housewares & Durable Consumer Products


11,005,810



3.0



9,333,052



2.9



9,673,177



2.5



9,686,477



2.5Retail Stores


10,978,984



3.0



10,872,284



3.4



10,656,911



2.7



10,637,911



2.8Ecological


8,556,102



2.3



8,164,902



2.5



15,593,790



4.0



14,393,840



3.7Grocery


8,156,189



2.2



8,278,569



2.6



23,149,458



6.0



23,287,658



6.1Insurance


5,000,000



1.4



4,048,200



1.3



5,000,000



1.3



4,500,000



1.2Buildings & Real Estate


4,613,182



1.3



4,613,182



1.4



4,780,826



1.2



4,780,826



1.2Oil & Gas


3,840,677



1.1



3,840,677



1.2



3,837,555



1.0



3,837,555



1.0Personal, Food & Miscellaneous Services


3,000,000



0.8



1,050,000



0.3



3,000,000



0.8



2,910,000



0.8Diversified/Conglomerate Service


1,570,736



0.4



623,500



0.2



9,516,840



2.4



9,245,940



2.4Aerospace & Defense


463,168



0.1



173,600



0.1



463,168



0.1



161,600



0.1Beverage, Food & Tobacco






0.0







0.0



9,000,000



2.3



9,000,000



2.3Containers, Packaging & Glass






0.0







0.0



2,985,000



0.8



2,895,500



0.7Total

$
365,899,025



100.0
%

$
322,370,748



100.0
%

$
388,245,021



100.0
%

$
384,725,753



100.0
%     (1)
    
    Represents percentage of total portfolio. 66




---



##### 



Patriot
    Capital Funding, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
     Note 5.
    Fair
    Value Measurements           67




---



##### 



Patriot
    Capital Funding, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    As of December 31, 2008Internal Models with


Internal Models with


Total Fair ValueQuoted Market Prices


Significant Observable


Significant Unobservable


Reported inin Active Markets


Market Parameters


Market Parameters


Consolidated(Level 1)


(Level 2)


(Level 3)


Balance SheetNon-affiliate investments

$
215,100


$
20,254,400


$
220,017,120


$
240,486,620Affiliate investments










51,457,082



51,457,082Control investments










30,427,046



30,427,046Total investments at fair value

$
215,100


$
20,254,400


$
301,901,248


$
322,370,748     Fair value measurements using unobservable inputs (Level
    3)Non-affiliate


Affiliate


ControlInvestments


Investments


Investments


TotalFair Value December 31, 2007

$
267,006,559


$
85,171,605


$
9,328,389


$
361,506,553Total realized gains (losses)






458,405



(350,000
)


108,405Change in unrealized depreciation


(20,557,568
)


(1,961,258
)


(12,333,998
)


(34,852,824
)(a)Purchases, issuances, settlements and other, net


(26,431,871
)


(32,211,670
)


33,782,655



(24,860,886
)Transfers in (out) of Level 3














Fair value as of December 31, 2008

$
220,017,120


$
51,457,082


$
30,427,046


$
301,901,248     (a)
    
    Relates to assets held at December 31, 2008     68




---



##### 



Patriot
    Capital Funding, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Note 6.
    Borrowings  364-days
  364-day
   69




---



##### 



Patriot
    Capital Funding, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  24-month
  364-days
      Year Ended December 31,2008


2007


2006Interest charges

$
7,495,021


$
7,044,208


$
3,753,153Amortization of debt issuance costs


454,088



261,614



365,855Unused facility fees


209,364



115,774



213,574Total

$
8,158,473


$
7,421,596


$
4,332,582    70




---



##### 



Patriot
    Capital Funding, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Note 7.
    Stock
    Option Plan and Restricted Stock Plan       71




---



##### 



Patriot
    Capital Funding, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Note 8.
    Employee
    Benefit Plan    Note 9.
    Common
    Stock Transactions       72




---



##### 



Patriot
    Capital Funding, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Date Declared

Record Date

Payment Date

Amount2008October 30, 2008

December 22, 2008

January 15, 2009

$
0.25July 30, 2008

September 12, 2008

October 15, 2008


0.33May 2, 2008

June 5, 2008

July 16, 2008


0.33February 27, 2008

March 14, 2008

April 16, 2008


0.33Total  2008





$
1.242007November 1, 2007

December 14, 2007

January 16, 2008

$
0.33August 2, 2007

September 14, 2007

October 17, 2007


0.32April 30, 2007

June 15, 2007

July 17, 2007


0.32February 23, 2007

March 15, 2007

April 18, 2007


0.32Total  2007





$
1.292006November 10, 2006

December 15, 2006

January 17, 2007

$
0.31August 7, 2006

September 15, 2006

October 17, 2006


0.31May 9, 2006

June 2, 2006

July 17, 2006


0.29February 28, 2006

March 21, 2006

April 11, 2006


0.29Total  2006





$
1.20   Note 10.
    Share
    Data    Year Ended December 31,2008


2007


2006Weighted average common shares outstanding, basic


20,713,540



18,670,904



14,145,200Effect of dilutive stock options






159,309



92,752Weighted average common shares outstanding, diluted


20,713,540



18,830,213



14,237,952     Note 11.
    Commitments
    and Contingencies   73




---



##### 



Patriot
    Capital Funding, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
       Note 12.
    Concentrations
    of Credit Risk      Note 13.
    Income
    Taxes      August 1, 2007


August 1, 2006Year Ended


to


toDecember 31, 2008


December 31, 2007


July 31, 2007GAAP Net Investment Income

$
25,725,000


$
10,224,000


$
19,407,000Tax timing differences of:Origination fees, net


(998,000
)


1,223,000



883,000Stock compensation expense, bonus accruals, original issue
    discount and depreciation and amortization


(67,000
)


(37,000
)


846,000Tax Distributable Income

$
24,660,000


$
11,410,000


$
21,136,000  74




---



##### 



Patriot
    Capital Funding, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      August 1, 2007


August 1, 2006Year Ended


to


toDecember 31, 2008


December 31, 2007


July 31, 2007Distributions paid from:Ordinary income

$
24,660,000


$
11,410,000


$
21,136,000Long-term capital gains










Subtotal


24,660,000



11,410,000



21,136,000Tax return of capital


1,135,000



1,258,000



335,000Total distributions

$
25,795,000


$
12,668,000


$
21,471,000   Form 1099-DIV. Form 1099-DIV. Form 1099-DIV.
      Distributable ordinary income

$
5,022,000Other book/tax temporary differences


(4,170,000
)Unrealized depreciation


(46,751,000
)Accumulated capital and other losses


(4,054,000
)   Form 1099-DIV,
 75




---



##### 



Patriot
    Capital Funding, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Note 14.
    Financial
    Highlights  For the Year Ended December 31,2008


2007


2006Per Share Data:Net asset value at beginning of year

$
10.73


$
10.37


$
10.48Net investment income


1.24



1.22



1.06Net realized gain (loss) on investments


(.04
)


.01



(.23
)Net change in unrealized appreciation (depreciation) on
    investments


(1.93
)


(.20
)


.27Net change in unrealized depreciation on swaps


(.11
)


(.04
)


Tax return of capital


(.05
)


(.08
)


(.18
)Distributions from net investment income


(1.24
)


(1.22
)


(1.06
)Distributions in excess of net investment income


.05







.05Stock based compensation expense


.03



.03



.03Effect of issuance of common stock


(.03
)


.64



(.05
)Net asset value at end of year

$
8.65


$
10.73


$
10.37Total Net Asset Value Return(1)


(7.8
)%


16.1
%


10.4
%Per share market value, beginning of period

$
10.09


$
14.49


$
12.20Per share market value, end of period

$
3.64


$
10.09


$
14.49Total Market Value Return(2)


(51.6
)%


(21.4
)%


28.6
%Shares outstanding at end of year


20,827,334



20,650,455



15,821,994Ratios and Supplemental Data:Net assets at end of year

$
180,117,000


$
221,598,000


$
164,109,000Average net assets


207,482,000



202,531,000



149,790,000Ratio of operating expenses to average net assets


8.0
%


8.0
%


7.7
%Ratio of net investment income to average net assets


12.4
%


11.2
%


10.0
%Weighted average borrowings outstanding

$
141,457,000


$
106,034,000


$
55,469,000Average amount of borrowings per share

$
6.79


$
5.13


$
3.51     (1)
    
    The total net asset value return reflects the change in net
    asset value of a share of stock plus dividends from beginning of
    year to end of year.(2)
    
    The total market value return reflects the change in the ending
    market value per share plus dividends, divided by the beginning
    market value per share. 76




---



##### 



Patriot
    Capital Funding, Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   Note 15.  Selected
    Quarterly Data (Unaudited)
    Year Ended December 31, 2008Quarter


Quarter


Quarter


QuarterEnded


Ended


Ended


EndedDecember 31


September 30


June 30


March 31Total Investment Income

$
10,170,880


$
10,229,420


$
10,654,419


$
11,244,685Net Investment Income


5,962,888



6,557,783



6,418,698



6,785,900Net Realized and Unrealized Gains (Losses) on Investments and
    Interest Rate Swaps


(22,900,157
)


(6,873,878
)


(2,742,818
)


(10,693,675
)Net Income (Loss)


(16,937,269
)


(316,095
)


3,675,880



(3,907,775
)Net Income (Loss) Per Share, Basic and Diluted

$
(0.81
)

$
(0.02
)

$
0.18


$
(0.19
)Weighted Average Shares Outstanding, Basic and Diluted


20,806,978



20,702,485



20,693,337



20,650,455   Year Ended December 31, 2007Quarter


Quarter


Quarter


QuarterEnded


Ended


Ended


EndedDecember 31


September 30


June 30


March 31Total Investment Income

$
11,142,679


$
9,752,882


$
9,089,653


$
8,977,323Net Investment Income


6,507,150



5,500,985



5,391,708



5,345,278Net Realized and Unrealized Gains (Losses) on Investments and
    Interest Rate Swaps


(3,146,414
)


(1,494,112
)


291,156



27,939Net Income


3,360,736



4,006,873



5,682,864



5,373,217Net Income Per Share, Basic

$
0.16


$
0.22


$
0.31


$
0.31Net Income Per Share, Diluted

$
0.16


$
0.22


$
0.31


$
0.30Weighted Average Shares Outstanding, Basic


20,589,650



18,284,737



18,246,987



17,532,896Weighted Average Shares Outstanding, Diluted


20,748,959



18,476,049



18,466,510



17,724,026   Note 16.
    Subsequent
    Events (Unaudited)   77




---



##### 



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosures    Item 9A.
    Controls
    and Procedures  Disclosure
    Controls and Procedures.
  Form 10-K), Rule 13a-15(e) 15d-15(e)
  Managements
    Annual Report on Internal Control Over Financial
    Reporting.
    
    Pertain to the maintenance of records that in reasonable detail
    accurately and fairly reflect the transactions and the
    dispositions of assets;
    Provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with generally accepted accounting principles, and
    that receipts and expenditures of the company are being made
    only in accordance with appropriate authorizations; and
    Provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use or disposition of the
    companys assets that could have a material effect on our
    financial statements.      Attestation
    Report of Independent Registered Public Accounting Firm on
    Internal Control Over
    Financial Reporting.
  Form 10-K.
 78




---



##### 



Change in
    Internal Control Over Financial Reporting
    Item 9B.
    Other
    Information   PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance    http://www.patcapfunding.com. Form 8-K.
  Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence     79




---



##### 



Item 14.
    Principal
    Accounting Fees and Services   PART IV  Item 15.
    Exhibits,
    Financial Statement Schedules.                  2.
    The following financial statement schedules is filed herewith:
    Schedule 12-14 
    Patriot Capital Funding, Inc. Schedule of Investments In and
    Advances to Affiliates.  Regulation S-K.
  Regulation S-K):
  ExhibitNumber

Description of Document3.1

Restated Certificate of Incorporation (Incorporated by reference
    to Exhibit 3.1 of Patriot Capital Fundings Form 10-Q filed
    with the SEC on August 10, 2006).3.2

Form of Certificate of Amendment to Restated Certificate of
    Incorporation (Incorporated by reference to Exhibit (a)(2) filed
    with Patriot Capital Fundings Form N-2 filed with the SEC
    on July 27, 2005).3.3

Restated Bylaws (Incorporated by reference to Exhibit (b) filed
    with Patriot Capital Fundings Form N-2 filed with the SEC
    on July 13, 2005).4.1

Form of Stock Certificate (Incorporated by reference to Exhibit
    (d) filed with Patriot Capital Fundings Form N-2 filed
    with the SEC on July 13, 2005).10.1

Dividend Reinvestment Plan (Incorporated by reference to Exhibit
    10.1 filed with Patriot Capital Fundings Form 10-K for the
    year ended December 31, 2007).10.2

Patriot Capital Funding, Inc. Amended Stock Option Plan
    (Incorporated by reference to Appendix B to Patriot Capital
    Fundings definitive proxy statement filed with the SEC on
    April 24, 2007).10.3

Form of Stock Option Agreement for Officers (Incorporated by
    reference to Exhibit (i)(2) filed with Patriot Capital
    Fundings Form N-2 filed with the SEC on July 13, 2005).10.4

Custodian Agreement with Wells Fargo, National Association
    (Incorporated by reference to Exhibit (k)(9) filed with Patriot
    Capital Fundings Form N-2 filed with the SEC on August 1,
    2005).10.5

Employment Agreement between Patriot Capital Funding and Richard
    P. Buckanavage (Incorporated by reference to Exhibit 10.1 filed
    with Patriot Capital Fundings Form 8-K filed with the SEC
    on January 9, 2009). 80




---



##### 



ExhibitNumber

Description of Document10.6

Employment Agreement between Patriot Capital Funding and Timothy
    W. Hassler (Incorporated by reference to Exhibit 10.2 filed with
    Patriot Capital Fundings Form 8-K filed with the SEC on
    January 9, 2009).10.7

Employment Agreement between Patriot Capital Funding and William
    E. Alvarez, Jr. (Incorporated by reference to Exhibit 10.1 filed
    with Patriot Capital Fundings Form 10-Q filed with the SEC
    on August 7, 2007).10.8

Employment Agreement between Patriot Capital Funding and Matthew
    R. Colucci (Incorporated by reference to Exhibit 10.3 filed with
    Patriot Capital Fundings Form 8-K filed with the SEC on
    January 9, 2009).10.9

Second Amended and Restated Loan Funding and Servicing Agreement
    by and among the Patriot Capital Funding, Inc., Patriot Capital
    Funding LLC I, Fairway Finance Company, LLC, BMO Capital
    Markets Corp., Branch Banking and Trust Company and Wells Fargo
    Bank, National Association (Incorporated by reference to Exhibit
    10.1 filed with Patriot Capital Fundings Form 8-K filed
    with the SEC on April 16, 2008).10.10

Purchase and Sale Agreement by and between the Registrant and
    Patriot Capital Funding LLC I (Incorporated by reference to
    Exhibit (k)(10) filed with Patriot Capital Fundings
    Post-Effective Amendment No. 1 to Form N-2 filed with the SEC on
    August 1, 2005).10.11

Securities Account Control Agreement by and among the
    Registrant, Patriot Capital Funding LLC I, Harris Nesbitt
    Corp. and Wells Fargo Bank, National Association (Incorporated
    by reference to Exhibit (k)(11) filed with Patriot Capital
    Fundings Post-Effective Amendment No. 1 to Form N-2 filed
    with the SEC on August 1, 2005).10.12

Intercreditor and Concentration Account Administration Agreement
    by and among the Registrant, U.S. Bank National Association and
    Wells Fargo, National Association (Incorporated by reference to
    Exhibit (k)(12) filed with Patriot Capital Fundings
    Post-Effective Amendment No. 1 to Form N-2 filed with the SEC on
    August 1, 2005).10.13

Patriot Capital Funding, Inc. Employee Restricted Stock Plan
    (Incorporated by reference to Appendix A to Patriot Capital
    Funding, Inc.s definitive proxy statement filed with the
    SEC on April 10, 2008).10.14**

Form of Restricted Stock Award Agreement for Executive Officers.21

Subsidiaries of Patriot Capital Funding and jurisdiction of
    incorporation/organizations:Patriot Capital Funding LLC I  Delaware23**

Consent of Grant Thornton LLP, independent registered public
    accounting firm.31.1**

Certification of Chief Executive Officer Pursuant to Rule
    13a-14(a) under the Securities Exchange Act of 1934.31.2**

Certification of Chief Financial Officer Pursuant to Rule
    13a-14(a) under the Securities Exchange Act of 1934.32.1**

Certification of Chief Executive Officer Pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002 (18 U. S. C. 1350).32.2**

Certification of Chief Financial Officer Pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002 (18 U. S. C. 1350).     **
    
    Filed Herewith 81




---



##### 



SIGNATURES      By:
    /s/  Richard
    P. Buckanavage   Chief Executive Officer and President
  By:
    /s/  William
    E. Alvarez, Jr.   Executive Vice President, Chief
 Financial Officer and Secretary
    Signature

Title (Capacity)

Date/s/  RICHARD
    P. BUCKANAVAGERichard
    P. Buckanavage

Chief Executive Officer and Director (Principal Executive
    Officer)

March 16, 2009/s/  WILLIAM
    E. ALVAREZ, JR.William
    E. Alvarez, Jr.

Chief Financial Officer (Principal Financial and Accounting
    Officer)

March 16, 2009/s/  TIMOTHY
    W. HASSLERTimothy
    W. Hassler

Chief Investment Officer and Director

March 16, 2009/s/  MEL
    P. MELSHEIMERMel
    P. Melsheimer

Chairman and Director

March 16, 2009/s/  STEVEN
    DROGINSteven
    Drogin

Director

March 16, 2009/s/  DENNIS
    C. ODOWDDennis
    C. ODowd

Director

March 16, 2009/s/  RICHARD
    A. SEBASTIAORichard
    A. Sebastiao

Director

March 16, 2009  82




---



##### 



Exhibit Index  Exhibit

Description10
.14

Form of Restricted Stock Award Agreement for Executive Officers23


Consent of Grant Thornton LLP, independent registered public
    accounting firm.31
.1

Certification of Chief Executive Officer Pursuant to Rule
    13a-14(a) under the Securities Exchange Act of 1934.31
.2

Certification of Chief Financial Officer Pursuant to Rule
    13a-14(a) under the Securities Exchange Act of 1934.32
.1

Certification of Chief Executive Officer Pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002 (18 U. S. C.
    1350).32
.2

Certification of Chief Financial Officer Pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002 (18 U. S. C. 1350).  83




---



##### 



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
   Patriot Capital Funding, Inc.
  Form 10-K.
      84




---



##### 



Schedule 12-14
  PATRIOT
    CAPITAL FUNDING, INC.
    SCHEDULE OF INVESTMENTS IN AND ADVANCES TO
    AFFILIATES
  Amount of Interestor Dividends


December 31,








December 31,Credited


2007


Gross


Gross


2008Portfolio Company

Investment(1)

to Income


Fair Value


Additions(2)


Reductions(3)


Fair ValueCompanies More Than 25% Owned:Encore Legal Solutions

Junior Debt

$
1,040,181


$
11,063,994


$
358,260


$
(1,391,456
)

$
10,030,798LLC

Subordinated Debt


230,237



3,489,226



2,670,341



(6,159,567
)


Common Stock Warrants










350,000



(350,000
)


Common Stock (4)










5,159,567



(4,832,667
)


326,900Fischbein, LLC

Subordinated Debt


674,445



4,180,389



265,500



(904,902
)


3,540,987Membership Interest (4)






5,148,000







(1,272,000
)


3,876,000Nupla Corporation

Senior Debt


524,506



6,161,136



964,466



(1,102,325
)


6,023,277Subordinated Debt


447,666



2,993,614



108,445



(909,684
)


2,192,375Preferred Stock


113,157



493,427



1,158,656



(534,683
)


1,117,400Common Stock (4)






38,300



55,000



(93,300
)


Sidumpr Trailer Co.

Senior Debt


801,969



9,171,642



3,299,740



(9,152,073
)


3,319,309Subordinated Debt


4,525



75,000







(75,000
)


Preferred Stock


3,459







78,459



(78,459
)


Common Stock (4)


















Total companies more than 25% owned

$
3,840,145


$
42,814,728


$
14,468,434


$
(26,856,116
)

$
30,427,046Companies 5% to 25% Owned:Aylward Enterprises,

Senior Debt

$
1,016,009


$
11,792,736


$
60,631


$
(4,633,889
)

$
7,219,478
(5)LLC

Subordinated Debt


915,123



6,335,464



634,942



(6,970,406
)


Membership Interest (4)


















Boxercraft Inc.

Senior Debt


279,853







11,550,000



(846,667
)


10,703,333Subordinated Debt


325,284







6,591,375



(67,028
)


6,524,347Preferred Stock


29,722







1,029,722



(180,222
)


849,500Common Stock (4)










100



(100
)


KTPS Holdings, LLC

Senior Debt


597,377



8,185,400



1,811,997



(3,599,287
)


6,398,110Junior Debt


629,695



4,035,122



139,728



(2,774
)


4,172,076Membership Interest (4)






856,900







(135,700
)


721,200Smart, LLC

Senior Debt


1,030,989



8,266,840



550,807



(8,817,647
)


Subordinated Note


67,375



250,000



250,000



(500,000
)


Membership Interest (4)






729,100



592,403



(698,003
)


623,500Sport Helmets

Senior Debt


912,418



11,816,776



28,986



(435,400
)


11,410,362Holdings, LLC

Subordinated Debt


1,235,876



7,889,250



1,266,104



(1,000,000
)


8,155,354Common Stock (4)






1,901,500







(2,200
)


1,899,300Vince & Associates

Senior Debt


359,366



7,391,657



433,343



(7,825,000
)


Clinic Research, Inc

Subordinated Debt


571,102



5,441,483



193,822



(5,635,305
)


Preferred Stock (4)






592,900







(592,900
)


Total companies 5% to 25% owned

$
7,970,189


$
75,485,128


$
25,133,961


$
(41,942,528
)

$
58,676,560  85




---



##### 



(1)
    
    All investments listed are restricted securities
    within the meaning of Rule 144 under the Securities Act of
    1933.(2)
    
    Gross additions include increases in investments resulting from
    new portfolio company investments and
    paid-in-kind
    interest or dividends. Gross additions also include net
    increases in unrealized appreciation or net decreases in
    unrealized depreciation.(3)
    
    Gross reductions include decreases in investments resulting from
    principal collections related to investment repayments. Gross
    reductions also include net increases in unrealized depreciation
    or net decreases in unrealized appreciation.(4)
    
    Non-income producing.(5)
    
    At December 31, 2008, the Company owned less than 5% of the
    voting securities of the company. 86