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Third Supplemental Indenture

THIRD SUPPLEMENTAL INDENTURE

SUPPLEMENTAL INDENTURE (this Third Supplemental Indenture), dated as of March 28, 2007, between ALLIED CAPITAL CORPORATION, a corporation duly organized and existing under the laws of the State of Maryland (the Company), having its principal office at 1919 Pennsylvania Avenue, N.W., Washington, D.C. 20006, and The Bank of New York, a banking corporation duly organized and existing under the laws of the State of New York, as Trustee (the Trustee). All capitalized terms used herein shall have the meaning set forth in the Base Indenture (as defined below).

RECITALS OF THE COMPANY

The Company and the Trustee executed and delivered an Indenture, dated as of June 16, 2006 (the Base Indenture, and as supplemented by this Third Supplemental Indenture dated March 28, 2007, the Indenture), to provide for the issuance by the Company from time to time of the Companys unsecured debentures, notes or other evidences of indebtedness (the Securities), to be issued in one or more series as provided in the Indenture.

The Company desires to issue and sell $200,000,000 aggregate principal amount (or up to $230,000,000 aggregate principal amount if the underwriters overallotment option is exercised) of the Companys 6.875% Notes due April 15, 2047 (the Notes).

Sections 901(5) and 901(7) of the Base Indenture provide that without the consent of Holders of the Securities of any series issued under the Indenture, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental to the Base Indenture to (i) add to, change or eliminate any of the provisions of the Indenture in respect to one or more series of the Securities when there is no such series of the Securities Outstanding and (ii) establish the form or terms of the Securities of any series as permitted by Section 201 and Section 301 of the Base Indenture.

The Company desires to establish the form and terms of the Notes and to modify, alter, supplement and change certain provisions of the Base Indenture for the benefit of the Holders of the Notes (except as may be provided in a future supplemental indenture to the Indenture (Future Supplemental Indenture)).

The Company has duly authorized the execution and delivery of this Supplemental Indenture to provide for the issuance of the Notes and all things necessary to make this Supplemental Indenture a valid and binding obligation of the Company and to constitute a valid agreement of the Company, in accordance with its terms, have been done.

Now, Therefore, This Indenture Witnesseth:

For and in consideration of the premises and the purchase of the Notes by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Notes, as follows:

ARTICLE I

TERMS OF THE NOTES

Section 1.01. Terms of the Notes.

The following terms relating to the Notes are hereby established:

(a) The Notes shall constitute a series of Securities having the title 6.875% Notes due 2047.

(b) The aggregate principal amount of the Notes that may be initially authenticated and delivered under the Indenture (except for Notes authenticated and delivered upon registration of, transfer of, or in exchange for, or in lieu of, other Notes pursuant to Sections 304, 305, 306, of the Base Indenture) shall be $200,000,000 (or up to $230,000,000 aggregate principal amount if the underwriters overallotment option is exercised). Under a Board Resolution, Officers Certificate pursuant to Board Resolutions or an indenture supplement, the Company may from time to time, without the consent of the Holders of Notes, issue additional Notes (in any such case Additional Notes) having the same ranking and the same interest rate, maturity and other terms as the Notes. Any Additional Notes and the existing Notes will constitute a single series under the Indenture and all references to the relevant Notes herein shall include the Additional Notes unless the context otherwise requires.

(d) The rate at which the Notes shall bear interest shall be 6.875% per annum; the date from which interest shall accrue on the Notes shall be March 28, 2007, or the most recent Interest Payment Date to which interest has been paid or provided for; the Interest Payment Dates for the Notes shall be January 15, April 15, July 15, and October 15 of each year, commencing July 15, 2007; the interest so payable, and punctually paid or duly provided for, on any Interest Payment Date, will be paid to the Person in whose name the Note (or one or more predecessor Notes) is registered at the close of business on the Regular Record Date for such interest, which shall be January 1, April 1, July 1, and October 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date.

Payment of principal of (and premium, if any) and any such interest on the Notes will be made at the Corporate Trust Office of the Trustee in New York City, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be

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