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                                                                    EXHIBIT 10.8

                           ALLIED CAPITAL CORPORATION
                           DIVIDEND REINVESTMENT PLAN

COMPANY CONTACT:                                             PLAN ADMINISTRATOR:
Director, Shareholder Relations                          American Stock Transfer
Allied Capital Corporation                                     and Trust Company
1666 K Street, NW, 9th Floor                                      40 Wall Street
Washington, DC 20006                                          New York, NY 10005
(202) 331-1112                                                    (800) 937-5449

The following is the Allied Capital Corporation Dividend Reinvestment Plan (the
"Plan"). Further questions and correspondence should be directed to either of
the addresses listed above.


1.               WHAT IS THE PURPOSE OF THE PLAN?

                 The purpose of the Plan is to provide shareholders with a
                 simple and convenient method of investing cash dividends and
                 distributions in additional shares of Common Stock, $1 par
                 value, of Allied Capital Corporation (the "Company") at the
                 current market price.  Participants in the Plan may have cash
                 dividends and distributions automatically reinvested without
                 charges for record-keeping, and may take advantage of the
                 custodial and reporting services provided by the Plan
                 Administrator, at no additional cost.

2.               WHAT DOES THE PLAN ADMINISTRATOR DO AND WHAT ARE ITS
                 RESPONSIBILITIES?

                 The Plan Administrator administers the Plan for participants,
                 keeps records, sends statements of accounts to participants,
                 and performs other duties relating to the Plan.

                 The Plan Administrator will not be liable under the Plan for
                 any act done in good faith, or for any good faith omission to
                 act, including without limitation, any claim of liability (i)
                 arising out of any such act or omission to act which occurs
                 prior to the termination of participation, and (ii) with
                 respect to the prices at which shares are credited to a
                 participant's account.  Participants should recognize that
                 neither the Company nor the Plan Administrator can assure
                 participants of profits, or protect participants against
                 losses, on shares issued or held under the Plan.

3.               HOW DOES A SHAREHOLDER PARTICIPATE?

                 Allied Capital Corporation's Dividend Reinvestment Plan is an
                 "opt-in" plan.  Shareholders will receive cash dividends and
                 distributions with respect to all shares unless they choose to
                 enroll in the Plan.  Any person who has shares registered in
                 his name may become a participant by sending to the Company or
                 the Plan Administrator a properly completed and signed
                 Enrollment Status Card in time to be received not less than
                 five days before the dividend declaration date.

                 A dividend declaration date is a date on which the Board of
                 Directors of the Company declares a dividend or distribution
                 to be paid and specifies the amount of such dividend
                 or distribution.

                 An Enrollment Status Card received after the declaration date
                 for a particular dividend or distribution will not take effect
                 until the next dividend or distribution.  As a result, new
                 shareholders or shareholders who have previously terminated
                 participation in the Plan for all their shares, will receive a
                 particular dividend or distribution in cash unless the Company
                 receives an Enrollment Status Card before the declaration date
                 of that dividend or distribution.

4.               WHAT IF THE SHARES ARE HELD BY A BROKER, BANK OR NOMINEE?

                 If a shareholder's shares are held in the name of a broker,
                 bank or other nominee (a "nominee"), he can participate in the
                 Plan only to the extent that the nominee participates on his
                 behalf.  Many nominees do not provide that service and
                 routinely request dividends and distributions to be paid in
                 cash on all shares registered in their names.  Therefore, if
                 shares are held for a shareholder's account by a nominee, the
                 shareholder must either make appropriate arrangements for the
                 nominee to participate on his behalf, or he must become a
                 shareholder of record by having part or all of his shares
                 transferred into his own name.

5.               WHAT DO ENROLLMENT STATUS CARDS PROVIDE AND HOW DOES A
                 SHAREHOLDER USE THEM?

                 The Enrollment Status Card provides to the shareholder of
                 record the opportunity to elect either (i) to receive
                 dividends and distributions in shares with respect to all
                 shares registered in such shareholder's name (unlimited
                 participation), or (ii) to receive dividends and distributions
                 in shares with respect to all shares so registered except
                 those shares specified to be paid in cash (partial
                 participation).
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                 Enrollment Status Cards should be sent to the Company or the
                 Plan Administrator and will be given effect as to any
                 particular dividend or distribution (and all subsequent
                 dividends and distributions) if received not less than five
                 days before the declaration date for that dividend or
                 distribution.

                 A letter to the Company or the Plan Administrator clearly
                 stating a shareholder's intent to enroll or to increase or
                 decrease participation in the Plan may be used instead of an
                 Enrollment Status Card.

6.               WHAT IS THE EFFECT OF UNLIMITED PARTICIPATION?
                 An unlimited participant will receive all dividends and
                 distributions in shares with respect to (i) all shares
                 registered in that participant's name for which the
                 participant holds certificates (including shares so registered
                 subsequent to initial enrollment), and (ii) all shares
                 credited to that participant's account on the books of the
                 Plan Administrator on any applicable record date.  Thus, if an
                 unlimited participant wants to continue to receive his
                 dividends and distributions in shares, he need take no further
                 action.

7.               WHAT IS THE EFFECT OF PARTIAL PARTICIPATION?

                 If an initially or subsequently enrolled participant has
                 indicated on his Enrollment Status Card or other notice that
                 he wants to participate in the Plan with respect to all shares
                 except those specified, he will be considered a partial
                 participant.  A partial participant will receive dividends and
                 distributions in cash only with respect to the number of
                 shares that he has specified.  With respect to any other
                 shares registered in his name, and with respect to shares
                 credited to his account on the books of the Plan Administrator
                 (see question 10), the corresponding dividends and
                 distributions will be paid in shares.  The number of shares on
                 which dividends and distributions are paid in cash may be
                 changed at any time simply by writing to the Company or the
                 Plan Administrator.

8.               HOW DOES THE DIVIDEND REINVESTMENT PLAN WORK AND HOW ARE
                 SHARES ALLOCATED UNDER THE PLAN?

                 When the Board of Directors declares a dividend or
                 distribution, all non-participants will receive such dividend
                 or distribution in cash.  The number of shares allocated to a
                 participant's account will be arrived at as follows.  Except
                 under the circumstances outlined in Question 9, the Plan
                 Administrator will buy shares of Allied Capital Corporation in
                 the open market, on NASDAQ or elsewhere, beginning on or
                 before the payment date of the dividend or distribution, until
                 it has expended for such purchases all of the cash that would
                 otherwise be payable to the participants.  The number of
                 shares that will then be credited to the participants' Plan
                 accounts will be based on the average cost of the shares so
                 purchased, including brokerage commissions.  Each
                 participant's account will be credited with a number of
                 shares, including fractional shares, equal to the total amount
                 of cash dividend or distribution, net of any applicable
                 withholding taxes, otherwise due to the participant, divided
                 by the price of the shares.

9.               WILL NEWLY ISSUED SHARES EVER BE PAID TO PARTICIPANTS IN THE
                 PLAN?

                 The Company's Board of Directors may (but is not required to)
                 declare a dividend or distribution to be paid to Plan
                 participants in newly issued shares of Allied Capital
                 Corporation.  In that situation, the price of newly issued
                 shares credited to a participant's account will be equal to
                 the average of the closing sales prices reported for the
                 shares in The Wall Street Journal NASDAQ National Market
                 System listings for the five days on which trading of shares
                 takes place immediately prior to the dividend payment date
                 (but not less than 95% of the opening sales price on that
                 date).

                 Even if the Board of Directors has declared the dividend or
                 distribution to be payable to Plan participants in newly
                 issued shares, the Plan Administrator will be under standing
                 instructions not to credit newly issued shares, and instead to
                 buy shares in the market, if (i) the price at which newly
                 issued shares are to be credited does not exceed 110% of the
                 last determined net asset value of the Allied Capital
                 Corporation shares or (ii) the Company has advised the Plan
                 Administrator that since such net asset value was last
                 determined it has become aware of events that indicate the
                 possibility of a change in per share net asset value as a
                 result of which the net asset value of the Allied Capital
                 Corporation shares on the payment date might be higher than
                 the price at which the Plan Administrator would credit newly
                 issued shares to the participants' Plan accounts.

                 If the Plan Administrator buys shares on the market, it is
                 possible that by the time the Plan Administrator has completed
                 its purchases, the average per share purchase price paid by
                 the Plan Administrator may exceed the price at which the newly
                 issued shares would have been credited, or the shares' current
                 net asset value.  As a result, there would be credited to the
                 participants' Plan accounts a smaller number of shares than
                 would have been credited if the dividend or distribution had
                 been paid in newly issued shares.
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10.              WHAT ACCOUNTS ARE MAINTAINED FOR PARTICIPANTS AND WHAT
                 REPORTS ON THESE ACCOUNTS DO PARTICIPANTS RECEIVE?

                 The Plan Administrator will maintain a separate account for
                 each participant.  All shares issued to a participant under
                 the Plan will be credited to the participant's account.  The
                 Plan Administrator will mail to each participant a statement
                 confirming the issuance of shares within fifteen days after
                 the allocation of shares is made.  The statement will show the
                 amount of the dividend or distribution, the price at which
                 shares were credited, the number of full and fractional shares
                 credited, the number of shares previously credited and the
                 cumulative total of shares credited.  In addition, each
                 participant will receive copies of the Company's annual and
                 quarterly reports to shareholders, proxy statements and
                 dividend income information for tax purposes.

11.              WILL CERTIFICATES BE ISSUED FOR SHARES ISSUED UNDER THE PLAN?

                 No. Certificates for shares issued under the Plan will not be
                 furnished until an account is terminated or unless a
                 participant requests certificates in writing for a
                 specified number of shares credited to his Plan Account.  All
                 written requests for certificates should be directed to the
                 Plan Administrator, allowing two weeks for processing.  The
                 issuance of certificates for shares credited to a Plan account
                 will not terminate his participation in the Plan.

                 No certificate for a fractional share will be issued.  If a
                 shareholder terminates participation in the Plan (see Question
                 14), the Plan Administrator will sell for his account any
                 fractional share and send him a check for the proceeds.

12.              IN WHOSE NAME WILL CERTIFICATES BE REGISTERED WHEN ISSUED?

                 Accounts under the Plan are maintained in the name in which
                 share certificates of the participant were registered at the
                 time the participant entered the Plan.  Certificates for whole
                 shares issued at the request of a participant will be
                 similarly registered.

13.              WHAT HAPPENS IF THE COMPANY ISSUES A STOCK DIVIDEND OR
                 DECLARES A STOCK SPLIT?

                 Any stock dividends or split shares distributed by the Company
                 on shares held by the Plan Administrator for the participant
                 will be credited to the participant's account.

14.              WHAT HAPPENS IF A PARTICIPANT WISHES TO TERMINATE
                 PARTICIPATION?

                 A participant may terminate his enrollment in the Plan at any
                 time by notifing the Company or the Plan Administrator in
                 writing.  Within twenty days, and according to the
                 participant's instructions, the Plan Administrator will either
                 (i) issue certificates for the whole shares credited to the
                 participant's Plan account and send a check representing the
                 value of any fractional shares or (ii) sell all full and       
                 fractional shares in the market.  The proceeds of the sale,
                 less any brokerage commissions that may be incurred, will be
                 remitted to the shareholder at the address of record at the
                 time of liquidation.  The address of record may not be changed
                 per telephone instruction, but rather must be changed in
                 writing to the Company or to the Plan Administrator. 
                 Notification for termination must be received no later than
                 five business days prior to the record date of any impending
                 distribution in order for it to take effect for that
                 distribution.

                 Please note: If a participant sells or transfers all of the
                 shares registered in his name on the books of the Plan
                 Administrator, participation in the Plan will continue with
                 respect to any shares credited to the participant's Plan
                 account unless and until termination is requested.

15.              HOW WILL A PARTICIPANT'S SHARES BE VOTED AT MEETINGS OF
                 SHAREHOLDERS?

                 The participant will receive a proxy card covering the total
                 number of shares held by the participant of record, including
                 shares credited to the participant's Plan account.  If a proxy
                 card is returned properly signed, but without indicating
                 instructions as to the manner in which shares are to be voted
                 with respect to any item thereon, the corresponding shares
                 will be voted in accordance with the recommendation of the
                 Company's Board of Directors.  If the proxy card is not
                 returned, or it is returned unexecuted or improperly executed,
                 the corresponding shares will not be voted unless the
                 participant or the participant's duly appointed representative
                 votes in person at the meeting.

16.              WHAT IS THE TAX STATUS OF REINVESTED DIVIDENDS?

                 The automatic reinvestment of dividends and distributions will
                 not relieve a participant of any income tax liability
                 associated with such dividends or distributions.  A
                 participant in the Plan will be treated for Federal income tax
                 purposes as having received, on the dividend payment date, a
                 dividend or distribution in an equal amount to the cash that
                 the participant could have received instead of shares.  The
                 tax basis of such shares will equal the amount of such cash.

                 A participant will not realize any taxable income upon receipt
                 of certificates for whole shares credited to the participant's
                 account either upon
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                 the participant's request for a specified number of shares, 
                 or upon termination of enrollment in the Plan.

                 Each participant in the Plan will receive early in each year a
                 Form 1099 regarding the Federal income tax status of all
                 dividends and distributions taxable during the previous year.

17.              ARE THERE ANY CHARGES FOR PARTICIPATING IN THE PLAN?

                 No. The Plan Administrator's fees for administering Allied
                 Capital Corporation's Dividend Reinvestment Plan are included
                 in the fees paid by the Company to the Plan Administrator for
                 acting as its transfer agent. The price at which shares are
                 credited to a participant's acount will, however, include his
                 share of any brokerage commissions incurred in connection with
                 the open market purchases of such shares. There will be no
                 brokerage charges in connection with any credit of newly
                 issued shares.

18 .             MAY THE PLAN BE CHANGED OR DISCONTIUNUED?

                 The Company and the Plan Administrator each reserves the right
                 to amend, suspend or terminate the Plan at any time.  Notice
                 of any such amendment, suspension or termination will be sent
                 to all participants at least fifteen days prior to the
                 dividend declaration date for which the amendment, suspension
                 or termination is to be effective.

19.              CAN A SUCCESSOR PLAN ADMINISTRATOR BE NAMED?

                 The Company may from time to time designate another bank or
                 trust company as successor Plan Administrator under the Plan.





             ALLIED CAPITAL CORPORATION DIVIDEND REINVESTMENT PLAN
                             ENROLLMENT STATUS CARD

The undersigned shareholder of record of Allied Capital Corporation elects to:

                 [ ]       PARTICIPATE in the Dividend Reinvestment Plan and
                           receive dividends and distributions in additional
                           shares with respect to ALL Allied Capital Corporation
                           shares held of record or credited to the
                           undersigned's Plan account.

                 [ ]       TERMINATE enrollment in the Dividend Reinvestment
                           Plan and receive dividends and distributions in cash
                           with respect to all shares of Allied Capital
                           Corporation held of record or credited to the
                           undersigned's Plan account.  CHECK ONE OF THE
                           FOLLOWING: [ ] Liquidate all Plan account shares and
                           remit proceeds, or [ ] Send certificate for whole
                           shares in Plan account and liquidate fractional
                           shares.

                 [ ]       PARTIALLY PARTICIPATE in the Dividend Reinvestment
                           Plan with respect to all Allied Capital Corporation
                           shares held of record, including the shares
                           subsequently credited to the undersigned's Plan
                           account, except _____ shares on which dividends
                           and distributions are to be paid in cash.

Termination and partial participation instructions will take effect on the
record date following receipt of this card by the Plan Administrator.
Enrollment instructions will take effect on the declaration date following
receipt of this card by the Plan Administrator.


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Tax identification number                            Signature




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Type or print name exactly as it appears on your     Signature
share certificate(s).

                      Please fold and staple for mailing.
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                                                            --------------------
                                                                Post office will
                                                                  not deliver   
                                                                 without stamp  
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                        AMERICAN STOCK TRANSFER & TRUST
                                 40 Wall Street
                               New York, NY 10005

                          ATTN: Dividend Reinvestment
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Shareholder Relations
Allied Capital
1666 K Street, NW, 9th Floor
Washington, DC 20006