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    Eversheds Sutherland
        (US) LLP

        700 Sixth Street, NW,
        Suite 700

        Washington, DC 20001-3980

        D: +1 202.383.0176

        F: +1 202.637.3593

        harrypangas@eversheds-sutherland.com

July 20, 2017

VIA EDGAR

James E. O’Connor

Kathy Churko

U.S. Securities and Exchange Commission

Division of Investment Management

100 F Street, N.E.

Washington, D.C. 20549

 Re: KCAP Financial, Inc.

  Registration Statement on Form N-2

  File No. 333-218596

Dear Mr. O’Connor and Ms. Churko:

On behalf of
KCAP Financial, Inc. (the “Company”), set forth below are the Company’s responses to the
oral comments provided by the staff of the Division of Investment Management (the “Staff”) of
the Securities and Exchange Commission (the “Commission”) to the Company on June 30, 2017, July 7,
2017 and July 18, 2017 relating to the Company’s Registration Statement on Form N-2 (File No. 333-218596) (the
“Registration Statement”) filed with the Commission on June 8, 2017.

The Staff’s comments
are set forth below in italics and are followed by the Company’s responses. Where revisions to the Registration Statement
are referenced in the responses set forth below, such revisions have been included in Pre-Effective Amendment No. 1 to the Registration
Statement (the “Amended Registration Statement”) filed concurrently with this letter.

Legal Comments

Comment
No. 1: Please confirm, if applicable, that an up-to-date power of attorney has been filed with the Registration
Statement.

Response:
The Company confirms that an up-to-date power of attorney was included on the signature page of the Registration Statement.

Comment
No. 2: Reference is made to footnote 7 to the “Calculation of Registration Fee” table on the cover page
of the Registration Statement. The Staff notes that the securities on the Company’s prior shelf registration statement were
registered on May 23, 2013 (the “Prior Effective Date”), thus exceeding the three-year limit on offerings and
sales of Rule 415(a)(5). Please confirm to us that no offers and sales have been made by the Company off such shelf registration
statement more than three years after the Prior Effective Date.

    U.S. Securities and Exchange
        Commission

        Division of Investment
        Management

        July 20, 2017

        Page 2

Response:
The Company confirms that no offers and sales were made pursuant to the Company’s prior shelf registration statement more
than three years after the Prior Effective Date.

Comment
No. 3: Reference is made to the “Prospectus Summary” on page 1 of the Registration Statement. Please
clearly and prominently disclose in the prospectus included in the Registration Statement that the Company’s investments
in the residual interests of CLO funds are riskier than direct investments in the non-investment grade loans held by the CLO funds.
In addition, please disclose the increased risks associated with the Company’s investments in the residual interests of CLO
funds given that highly leverage nature of the CLO funds in which the Company typically invests.

Response:
The Company has revised the above-referenced disclosure in response to the Staff’s comment. See pages 1, 47 and 73 of
the Amended Registration Statement.

Comment
No. 4: We note the reference to a “$710,000 tax return of capital” on page 6 and elsewhere in the Registration
Statement. Please delete the word “tax” when referring to such term in the Registration Statement. Please disclose
here the total distributions paid by the Company for each of its last three fiscal years and the amounts and/or percentages of
those distributions that were returns of capital. Please also explain why the book and tax accounting characterizations of the
Company’s distributions may differ. In addition, please provide all distribution information, including returns of capital,
on a book basis. See Item 4.1.c.3 of Form N-2.

Response:
The Company has replaced all references to “tax return of capital” in the Registration Statement with the words
“return of capital.” See pages 6 and 78 of the Amended Registration Statement. In addition, given that the
requested disclosure regarding the total distributions paid by the Company for each of the last three years, including the
amounts of those distributions that were returns of capital, and the reasons why book and tax accounting characterizations of
the Company’s distributions may differ are already contained in the section entitled “Price Range of Common Stock
and Distributions” and Note 8. “Distributable Taxable Income” to the Company’s audited financial
statements included in the Registration Statement, the Company does not believe that it is necessary to repeat such
information in the “Prospectus Summary” section. Finally, the Company confirms that all distribution information,
including returns of capital information, set forth in the Registration Statement are presented on a book basis.

Comment
No. 5: Reference is made to the mention of the Company’s previously identified “material weakness in
internal control over financial reporting” on page 6 of the Registration Statement. Please provide appropriately detailed
disclosure about this weakness in internal controls.

Response:
The Company advises the Staff that the above-referenced material weakness related to the 2014 fiscal year and that since such time
the Company has received two “clean” internal control audit opinions from its independent registered public accounting
firm (i.e., for the fiscal years ended December 31, 2015 and 2016). As a result, the Company has removed the stale reference to
it from the Registration Statement.

Comment
No. 6: Reference is made to the “Fees and Expenses” table on page 12 of the Registration Statement.
As per the disclosure on page 122 of the Registration Statement, please include the $15.00 DRIP shares sale transaction fee referenced
therein in the “Other expenses” line item to the “Fees and Expenses” table and add the following information
regarding the DRIP to footnote 3 to the “Fees and Expenses” table:

        U.S. Securities and Exchange
        Commission

        Division of Investment
        Management

        July 20, 2017

        Page 3

The expenses
of the dividend reinvestment plan are included in “other expenses.” The plan administrator’s fees will be paid
by us. There will be no brokerage charges or other charges to stockholders who participate in the plan except that, if a participant
elects by written notice to the plan administrator to have the plan administrator sell part or all of the shares held by the plan
administrator in the participant’s account and remit the proceeds to the participant, the plan administrator is authorized
to deduct a $15.00 transaction fee plus a $0.10 per share brokerage commission from the proceeds. For additional information, see
“Distribution Reinvestment Plan.”

See
instruction 4 to Item 3 of Form N-2.

Response:
The Company has revised the disclosure in the Amended Registration Statement to include the above-referenced footnote. The
Company has not included the $15 transaction fee in the line item disclosure under “Dividend reinvestment plan fees,”
however, because it believes that such line-item disclosure would only confuse investors. The $15 transaction fee is assessed
on the aggregate proceeds sold by the plan administrator on behalf of a given stockholder who instructs the sale in the future
and not on a per share basis. So the impact of the $15 transaction fee could vary significantly depending on the number of
shares sold by the stockholder in the future and the price of that sale, and may bear little to no relationship to the price
in the offering. For example, disclosing a $15 transaction fee as a shareholder transaction expense on a $10 per share offering
price may lead investors to believe that the $15 transaction fee is assessed on a per share basis. This disclosure would be
particularly confusing to an investor, say, who purchased 1,000 shares in the offering and later sold those shares for $10,000
in aggregate proceeds pursuant to the DRIP. The impact of the $15 transaction fee to this investor would be 1.5% per share
(or 0.15% of the sale proceeds), but not the 150% per share seemingly presented in the line-item disclosure. As a result,
instead of including the $15 transaction fee in the line-item disclosure, the Company will reference the fee in the footnote
disclosure so investors will have the information and context they need to understand how the fee would apply to the aggregate
proceeds in a future sale pursuant to the DRIP.

Comment
No. 7: Reference is made to the “Selected Financial and Other Data” table on page 14 of the Registration
Statement. Please disclose how “weighted average yield of income producing debt investments” is calculated and that
it is higher than what investors will receive from the Company in the form of distributions on the shares of the Company’s
common stock because such figure does not reflect expenses incurred by the Company or the sales load paid by the Company’s
stockholders. Please also disclose, immediately below this line item, the Company’s “total return based on net asset
value” and “total return based on market value.” Please also describe briefly how these two numbers are calculated
and that they do not reflect any sales load that may be paid by the Company’s investors. The Staff notes that this comment
applies globally throughout the document where “weighted average yield of income producing debt investments” is referenced.

Response:
The Company has added disclosure in the Amended Registration Statement relating to how it calculates the “weighted
average interest rate on income producing debt investments” and that such figure is higher than what investors will
receive from the Company in form of distributions on the shares of the Company’s common stock because it does not
reflect expenses incurred by the Company or the sales load paid by the Company’s stockholders. In addition, the Company
has included the additional requested disclosure. See pages 4, 14, 50, 55,  59 and 76 of the Amended
Registration Statement.

Comment
No. 8: Reference is made to the section entitled “Risk Factors” on page 16 of the Registration Statement.
Is the risk factor entitled “Uncertainty about the financial stability of the United States, China and several countries
in the European Union could have a significant adverse effect on our business, financial condition and results of operations”
a principal risk for a business development company such as the Company?

Response:
The Company has deleted the above-referenced risk factor.

    U.S. Securities and Exchange
        Commission

        Division of Investment
        Management

        July 20, 2017

        Page 4

Comment
No. 9: Reference is made to the section entitled “Risk Factors” on page 19 of the Registration Statement.
In the risk factor entitled, “Our Asset Manager Affiliates may incur losses . . . ,” please strike the words “if
applicable” from the last sentence thereof.

Response:
The Company has complied with this comment. See page 18 in the Amended Registration Statement.

Comment
No. 10: Reference is made to the section entitled “Risk Factors” on page 21 of the Registration Statement.
Does the Company intend to take any steps to increase the cited asset coverage ratio of 203% as of March 31, 2017?

Response:
The Company advises the Staff that it is managing its asset coverage ratio through the maintenance of sufficient liquidity to enable
it to redeem, repurchase or otherwise retire its debt securities as necessary to remain in compliance with the 200% asset coverage
requirement under the Investment Company Act of 1940. In this regard, during the second quarter of 2017 we redeemed $6.5 million of the Company’s debt securities.  In addition, the Company is seeking to enter into an arrangement with a third party pursuant to which the parties would seek to securitize their existing loan investments to generate cash.  The Company would use the cash proceeds from the securitization transaction to reduce its outstanding indebtedness.

Comment
No. 11: Reference is made to the section entitled “Risk Factors” on page 22 of the Registration Statement.
Under the risk regarding pending legislation, please strike “assets” in the third line and replace it with the words
“gross assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities.”

Response:
The Company has revised the disclosure accordingly. See page 22 of the Amended Registration Statement.

Comment No. 12:
Reference is made to the final risk factor on page 26 of the Registration Statement, which is entitled, “We will be subject
to corporate-level U.S. federal income taxes if we are unable to qualify as a RIC under Subchapter M of the Code.” The last
sentence of the first bullet provides: “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 U.S. federal income taxes.” The Staff notes that a RIC does
not lose qualification as a RIC by failing to satisfy the distribution requirement – it loses the ability to deduct the amount
distributed.

Response:
The Company respectfully believes the disclosure is accurate as it states that the Company would fail to qualify for
“RIC tax treatment,” not that it would fail to qualify as a RIC. Notwithstanding such fact, the Company has
revised the disclosure to clarify that it “could fail to qualify for taxation as a RIC under subchapter M of the
Code” if it were unable to obtain cash from other sources. See page 26 of the Amended Registration Statement. The
Company also notes that the consequences of failing to satisfy the minimum distribution requirement are much broader than
merely losing the ability to deduct the amount distributed.

Comment
No. 13: Reference is made to the risk factor on page 27 of the Registration Statement, which is entitled, “Proposed
regulations may impact our ability to qualify as a RIC if we do not receive timely distributions from our CLO investments.”
Please make clear and prominent that, as appears to be the case, most of the CLOs in which the fund invests will be in tax haven
foreign countries and that the CLOs themselves will be subject to the complicated PFIC tax regime. In addition, the Staff notes
that the Code provides no basis for a conclusion that non-distributed Subpart F income is qualifying income, so please update the
disclosure accordingly.

Response:
The Company has added the requested disclosure as an additional risk factor except as noted in the
following sentences. The Company respectfully notes that the location of the CLOs in so-called “tax haven foreign
jurisdictions” is irrelevant to the determination of whether such CLOs are PFICs or CFCs and is therefore irrelevant
from a disclosure standpoint. In light of the foregoing, the Company has not added the requested disclosure. Further, as noted in the
response to Comment No. 14 below, the Company believes that the Code does provide a basis for a conclusion that
non-distributed Subpart F income is qualifying income and, as a result, the Company has not added this disclosure.

    U.S. Securities and Exchange
        Commission

        Division of Investment
        Management

        July 20, 2017

        Page 5

Comment
No. 14: The same risk factor on page 27 of the Registration Statement includes a statement that, under current law,
the Company believes that the income inclusions from a CLO that is a QEF or a CFC would be “good income.” The Staff
notes that this belief does not appear to be valid. As you note, the Treasury and IRS have recently published proposed regulations
(REG-123600-15) concerning corporations seeking to qualify as a “regulated investment company,” as defined in Subchapter
M of the Intern