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[Letterhead of Sutherland Asbill & Brennan
LLP]

June 15, 2015

VIA EDGAR

Sheila Stout, Senior Staff Accountant

Division of Investment Management

U.S. Securities and Exchange Commission

100 F Street, N.E.

Washington, DC 20549

 RE: KCAP Financial, Inc. – Form 10-K for the year
ended December 31, 2014

Dear Ms. Stout:

On behalf of KCAP Financial, Inc. (the “Company”),
set forth below are the Company’s responses to the oral comments of the staff of the Division of Investment Management (the
“Staff”) of the Securities and Exchange Commission (the “SEC”) that you provided
to us on May 13, 2015, regarding the Company’s Form 10-K for the year ended December 31, 2014 (the “Form 10-K”).
The Staff’s comments are set forth below and are followed by the Company’s responses.

1.            Comment: We note that the Company holds
a number of investments in holding companies. In this regard, we refer the Company to the October 2014 IM Guidance Update, “Investment
Company Consolidation” which states, in part:

“In reviewing registration statements and
financial statements, the staff has observed a number of BDCs that have wholly owned subsidiaries, for example, in order to facilitate
investment in a portfolio company. Certain of these BDCs do not consolidate such subsidiaries, even though the design and purpose
of the subsidiary (e.g., a holding company) may be to act as an extension of the BDC’s investment operations and to facilitate
the execution of the BDC’s investment strategy. As part of the registration statement and financial statement review process,
the staff has generally suggested BDCs consolidate such subsidiaries because the staff believes that consolidation provides investors
with the most meaningful financial presentation in those statements.”

The Company should review the above-referenced IM Guidance
Update and confirm to the Staff that none of the Company’s holding company investments are an extension of the Company’s
investment operations nor are they designed to facilitate the execution of the Company’s investment strategy.

Response: The Company has
reviewed the October 2014 IM Guidance Update, “Investment Company Consolidation” (the “IM Guidance”)
and confirms that its holding company investments are not an extension of its investment operations nor are they designed to facilitate
the execution of its investment strategy, in each case as outlined in the IM Guidance. In this regard, none of the holding companies
of the Company’s holding company investments was created for or in contemplation of the Company’s investment therein
or a subsidiary thereof.

2.            Comment: Please inform us whether the Company
has assessed the implications of Rule 3-09 and Rule 4-08(g) of Regulation S-X. Also, please confirm to us that all entities that
the Company is required to consolidate under SEC rules and U.S. generally accepted accounting principles have been consolidated
in the financial statements included in the Form 10-K.

Response:  The Company has
undertaken an analysis related to Rules 3-09 or 4-08(g) of Regulation S-X and confirms that no additional financial disclosure
relating to its investment portfolio is required to be included as a result thereof. In addition, the Company confirms that all
entities that it is required to consolidate under SEC rules and U.S. generally accepted accounting principles have been consolidated
in the financial statements included in the Form 10-K.

3.            Comment: Please advise us whether there
is an overlap in the portfolio management team at the Company and the Asset Manager Affiliates.

Response: There is no overlap
in the portfolio management team at the Company and the Asset Manager Affiliates (i.e., the portfolio management team at the Asset
Manager Affiliates makes investment decisions independent from the Company). However, certain of the Company’s executive
officers also act in similar capacities for one or both of the Asset Manager Affiliates.

4.            Comment: We refer to the audited financial
statements for the year ended December 31, 2013 of Katonah X CLO Ltd. included in the Form 10-K in accordance with Rule 3-09 of
Regulation S-X. We also refer to the summarized financial information for the year ended December 31, 2014 of Katonah X CLO Ltd.
included in the Form 10-K. In light of the guidance set forth in Section 2405.3 of the Financial Reporting Manual of the SEC’s
Division of Corporation Finance, please advise us as to why the Company did not include unaudited financial statements for
the year ended December 31, 2014 of Katonah X CLO Ltd. in the Form 10-K (i.e., instead of the summarized financial information
for the year ended December 31, 2014 of Katonah X CLO Ltd. that was included in the Form 10-K).

Response: Please be advised
that the Company’s investment in Katonah X CLO Ltd. only triggered the summary financial information requirement of
Rule 4-08(g) of Regulation S-X for the year ended December 31, 2013 and not the separate audited financial statement requirement
of Rule 3-09 of Regulation S-X. However, the Company elected to satisfy the requirement to include summary financial information
for the year ended December 31, 2013 of Katonah X CLO Ltd. in its Form 10-K for the year ended December 31, 2013 (the “2013
Form 10-K”) by the inclusion of separate audited financial statements of Katonah X CLO Ltd. in the 2013 Form 10-K.
The Company re-assessed this approach in connection with the Form 10-K filing and ultimately decided to only provide summary financial
information of Katonah X CLO Ltd. for the year ended December 31, 2014 in accordance with Rule 4-08(g) of Regulation S-X given
that the Company’s investment therein again only triggered the summary financial information requirement of Rule 4-08(g)
of Regulation S-X.

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5.            Comment: We refer to the statement in
the Form 10-K that “[a]lthough there was no effect on net income or total shareholders’ equity as a result of this
error, the Company has nevertheless determined that these errors are material and, as a result, previously issued financial statements
have been restated to correct for the error.” Please advise us as to why the Company believes it is not misleading to use
the term “net income” in the foregoing sentence given the potential confusion by investors of such term with the term
“net investment income.”

Response: Net income, which
is often referred to as “the bottom line” since it is listed at the bottom of the income statement, is generally understood
to mean the residual of all revenues and gains over all expenses and losses for the period. Given such fact, the Company used to
the term “net income” in the sentence referenced by the Staff to indicate that the accounting errors did not impact
the Company’s “bottom line” numbers for the prior periods, but instead impacted other offsetting line items on
the income statement. Moreover, the Company does not believe that investors will confuse the term “net income” with
the term “net investment income” given that the immediately preceding sentence states that the accounting errors resulted
in net investment income being overstated for the applicable periods. Finally, the Company notes that other business development
companies (“BDCs”) and research analysts covering BDCs use the term “net income” in the same
manner as the Company used it in the Form 10-K.

6.            Comment: We refer to the adjustments
disclosed in various locations in the Form 10-K. Please explain to us why the adjustments resulted in an increase in investment
income from “CLO Fund Securities managed by non-affiliates,” but a decrease in investment income from “CLO Fund
Securities managed by affiliates.”

Response: As set forth on
Exhibit A attached hereto, the application of the effective interest method in accounting for the investment income from
the Company’s equity investments in collateralized loan obligation funds (“CLOs”) resulted in increases
as well as decreases in the adjusted investment income recognized from the individual CLO equity investments included within
the “CLO Fund Securities managed by affiliates” category. However, because such decreases exceeded such increases on
an aggregate basis, the adjustment line item in the Form 10-K referenced by the Staff only discloses the net decrease in investment
income from “CLO Fund Securities managed by affiliates” and not the variability therein.

Similarly, the application of the effective
interest method in accounting for the investment income from the Company’s CLO equity investments resulted in increases
as well as a decrease in the adjusted investment income recognized from the individual CLO equity investments included within
the “CLO Fund Securities managed by non-affiliates” category. However, because such increases exceeded such decrease
on an aggregate basis, the adjustment line item in the Form 10-K referenced by the Staff only discloses the net increase in investment
income from “CLO Fund Securities managed by non-affiliates” and not the variability therein.

The above-discussed variability in connection
with the application of the effective interest method to the Company’s CLO equity investments is the result of the varying
inputs, particularly, changes in expected future cash flows, applicable to each of the Company’s CLO equity investments.
As a result, the reason for the difference between adjusted investment income recognized under the effective interest method from
the “CLO Fund Securities managed by non-affiliates” and the “CLO Fund Securities managed by affiliates”
is a function of the above-described netting as well as the varying inputs applicable to each of the Company’s CLO equity
investments used in connection therewith.

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7.            Comment: Unfunded commitments, which
are contractual obligations of the Company to make loans up to a specified amount at future dates, may subject the Company to risks
similar to those created by standby commitment agreements. Unfunded commitments, like standby commitment agreements, may be senior
securities under Section 18(g) (“any … obligation or instrument constituting a security and evidencing indebtedness”).
See Investment Company Act Release 10666, “Securities Trading Practices of Registered Investment Companies” (April
18, 1979). We consider unfunded commitments that specify an interest rate to be senior securities subject to the coverage requirements
of Sections 18 and 61 unless the Company has segregated liquid assets, or does it have borrowing capacity within its 200% asset
coverage limitation, equal to the market value of its unfunded commitments. Does the Company currently treat its unfunded commitments
as senior securities? If not, why not? Does the Company currently segregate liquid assets sufficient to cover its unfunded commitments?

Response: As of March 31,
2015 and December 31, 2014, the Company had no outstanding commitments to extend credit to any of its portfolio companies. Currently,
the Company only has an outstanding commitment to extend credit to one portfolio company, Trimaran Advisors, LLC (“Trimaran”),
pursuant to the terms of a $23 million senior revolving credit facility. Trimaran borrows under the facility from time to time
to facilitate the warehousing of loans in connection with the formation of new CLOs to be managed by the Asset Manager Affiliates.
However, because the Company controls the Asset Manager Affiliates, they would not enter into a warehouse and Trimaran would not
borrow under the facility without the Company’s prior consent. As a result, the Company believes that this arrangement differs
significantly from the other arrangements that the Staff is currently focusing on in connection with its review of SEC filings
by other BDCs given that these BDCs are contractually obligated to fund these other instruments if certain objective criteria
set forth therein were satisfied. Thus, the Company does not treat the Trimaran senior revolving credit facility as a “senior
security” for purposes of the Investment Company Act of 1940 and, accordingly, does not “cover” such arrangement
by earmarking and holding unencumbered liquid assets equal in value to the amounts outstanding under the Trimaran senior revolving
credit facility.

Notwithstanding the foregoing, the Company
understands that the Staff is in discussions with a number of other BDCs with respect to this issue and, as a result, undertakes
to comply with any industry-wide position taken by the Staff resulting therefrom with respect to unfunded commitments other than
the Trimaran senior revolving credit facility and similar arrangements with entities controlled by the Company.

8.            Comment: We refer to the disclosure under the
heading entitled “Management’s Report on Internal Control over Financial Reporting” on pages 74 and 75 of the
Form 10-K. Please advise us why the disclosure therein does not discuss the error relating to the Company’s accounting for
its equity investments in collateralized loan obligation funds discussed elsewhere in the Form 10-K.

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Response: The Company determined
that the error relating to the Company’s accounting for its equity investments in collateralized loan obligation funds resulted
in a significant deficiency in its internal control over financial reporting and that the error relating to the distributions received
by it from the Asset Manager Affiliates resulted in a material weakness in its internal control over financial reporting. As a
result and in conformance with guidance issued by the Office of Chief Accountant of the SEC’s Division of Corporation Finance,
the Company only disclosed the material weaknesses in its internal control over financial reporting relating to the distributions
received by it from the Asset Manager Affiliates in the management’s report on internal control over financial reporting
included in the Form 10-K.1

9.            Comment: On a going-forward basis, please
include the schedule required by Rule 12-14 of Regulation S-X in an appropriate location in the Company’s SEC filings. Similarly,
please separately identify each investment in the Company’s schedule of investments as a controlled investment, an affiliate
investment or a non-controlled/non-affiliate investment.

Response: The Company will
comply with the Staff’s comment regarding Rule 12-14 of Regulation S-X with its next Form 10-K filing. In addition, the Company
will comply with the Staff’s comment regarding categorizing its investments in its schedule of investments in one of the
three categories noted above in its SEC filings starting with its Form 10-Q for the quarter ending June 30, 2015.

10.            Comment: We refer to the borrowings
table on page F-54 of the Form 10-K. Please identify the applicable LIBOR rate associated with each debt security described therein.
Similarly, please identify the floating rate associated with each of the CLO rated notes set forth on page S-36 of the Form 10-K.

Response: The Company will
comply with this comment in connection with its next filing with the SEC.

11.            Comment: We refer to footnote 9 of the
Company’s schedule of investments which identifies those securities that are qualifying assets for purposes of Section 55(a)
of the Investment Company Act of 1940 (the “1940 Act”).  Consider disclosing the percentage of qualifying
assets at the reporting period date.

Response: The Company advises
the Staff that information regarding the percentage of qualifying assets at the reporting period date is disclosed in Note 4 –
Investments to the notes accompanying the financial statements. Specifically, Note 4 discloses that “[a]t December 31, 2014
and December 31, 2013, the total amount of non-qualifying assets was approximately 21% and 19% of total assets, respectively.”
As a result, the Company respectfully does not believe it is necessary to make the requested change.

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See Question 11