As filed with the Securities and Exchange Commission on May  , 2007

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE TO

Tender Offer Statement under Section 14(d)(1) or 13(e)(1)

of the Securities Exchange Act of 1934

ALLIED CAPITAL CORPORATION

(Name of Subject Company (issuer))

Certain Options to Purchase Common Stock,

Par Value $0.0001 per share

(Title of Class of Securities)

01903Q 10 8

(CUSIP Number of Class of Securities)

(Underlying Common Stock)

William L. Walton, Chairman and Chief Executive Officer

Allied Capital Corporation

1919 Pennsylvania Avenue, N.W.

Washington, D.C. 20006-3434

(Name, address and telephone number of person authorized to receive

notices and communications on behalf of filing person)

Copies to:

Cynthia M. Krus, Esq.

Steven B. Boehm, Esq.

Sutherland Asbill & Brennan LLP

1275 Pennsylvania Avenue, N.W.

Washington, DC 20004-2415

CALCULATION OF FILING FEE

o Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify persons filing by registration statement number, or the Form or Schedule and the date of its filing.

þ Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer.

      Check the appropriate boxes below to designate any transactions to which the statement relates:

      Check the following box if the filing is a final amendment reporting the results of the tender offer:     o

      The information set forth in the Offer to Exchange Options, dated                     , 2007 (the “Offer to Exchange Options”), attached hereto as Exhibit 99(a)(1)(A), and under the “Summary of Terms,” attached hereto as Exhibit 99(a)(1)(C), is incorporated herein by reference.

      (a) Name and Address. The name of the issuer is Allied Capital Corporation, a Maryland corporation (the “Company”), the address of its principal executive office is 1919 Pennsylvania Avenue, N.W., Washington, D.C. 20006-3434 and the telephone number of its principal executive office is (202) 721-6100.

      (b) Securities. This Tender Offer Statement on Schedule TO relates to an offer by the Company to certain of its officers and directors (the “Eligible Holders”) to exchange all Eligible Options (as defined below) for an option cancellation payment (the “OCP”). The OCP will represent the right to receive an amount equal to the difference between the Weighted Average Market Price (as defined below) multiplied by the number of shares of the Company’s common stock underlying the Eligible Options, less the aggregate exercise price of the Eligible Options, and will be payable one-half in cash and one-half in shares of the Company’s common stock, all upon the terms and subject to the conditions described in the Offer to Exchange Options, the Summary of Terms and the related Letter of Transmittal attached hereto as Exhibit 99.(1)(B) (the “Letter of Transmittal,” and together with the Offer to Exchange Options and the Summary of Terms, the “Offer”). “Eligible Options” means all outstanding and vested options that were issued under the Amended Stock Option Plan (the “Plan”), and which have, as of the first day of the offer period, an exercise price of less than the Weighted Average Market Price.

      An option holder is an “Eligible Holder” if he or she (i) holds Eligible Options, (ii) is currently an officer or director of the Company, and (iii) remains an officer or director of the Company through expiration of the offer period.

      The “Weighted Average Market Price” is equal to the volume weighted average price of the Company’s common stock on the New York Stock Exchange (“NYSE”) over the fifteen trading days preceding the first day of the offer period.

      As of                   , 2007, there were                     Eligible Options.

      The information set forth in the Summary of Terms and in the Offer to Exchange is incorporated herein by reference.

      (c) Trading Market and Price. The information set forth in the Offer to Exchange Options under Section 7 (“Price Range of Common Stock”) is incorporated herein by reference.

      (a) Name and Address. The information set forth under Item 2(a) above is incorporated herein by reference.

      (a) Material Terms. The information set forth in the Offer to Exchange Options under the “Summary of Terms”, Section 1 (“Exchange of Options and Expiration Date”), Section 3 (“Procedures”), Section 5 (“Acceptance of Options for Exchange”), Section 6 (“Conditions of the Offer”), Section 8 (“Terms of Amended Stock Option Plan”), Section 9 (“Accounting Consequences of the Offer”), Section 10 (“Legal Matters; Regulatory Approvals”), Section 11 (“Material U.S. Federal Income Tax Consequences”) and Section 12 (“Extension of Offer; Termination; Amendment”) is incorporated herein by reference.

      (b) Purchases. The information set forth in the Offer to Exchange Options under Section 1 (“Exchange of Options and Expiration Date”) is incorporated herein by reference.

      (e) Agreements Involving the Subject Company’s Securities. The information set forth in the Offer to Exchange Options under Section 8 (“Terms of the Amended Stock Option Plan”) is incorporated herein by reference.

      (a) Purposes. The information set forth in the Offer to Exchange Options under Section 2 (“Purpose of the Offer”) is incorporated herein by reference.

      (b) Use of Securities Acquired. The information set forth in the Offer to Exchange Options under Section 5 (“Acceptance of Options for Exchange”) and Section 9 (“Accounting Consequences of the Offer”) is incorporated herein by reference.

      (c) Plans. The information set forth in the Summary of Terms and the Offer to Exchange Options under Section 2 (“Purpose of the Offer”), Section 8 (“Terms of Amended Stock Option Plan”) and Section 15 (“Risk Factors”) is incorporated herein by reference.

      (a) Source of Funds. The Company intends to use available working capital to fund the offer. The cash portion of the OCP will be paid to the optionee net of required payroll and income tax withholding amounts related to the entire OCP. The Company has elected to make one-half of the OCP payable in cash so that officers and directors would not be required to sell shares of the Company’s common stock in order to satisfy income tax liabilities resulting from the exchange. In addition, option holders electing to participate in the offer will not have to pay brokerage or other transactional fees typically associated with option exercises in the market.

      (b) Conditions. The information set forth in the Offer to Exchange Options under Section 6 (“Conditions of the Offer”) is incorporated herein by reference.

      (d) Borrowed Funds. Not applicable.

      (a) Securities Ownership. The information set forth in the Offer to Exchange Options under Section 8 (“Terms of Amended Stock Option Plan”) is incorporated herein by reference.

      (b) Securities Transactions. The information set forth in the Offer to Exchange Options under Section 8 (“Terms of Amended Stock Option Plan”) is incorporated herein by reference.

      (a) Solicitations or Recommendations. Not applicable.

      (a) Financial Information. Item 8 (“Financial Statements and Supplementary Data”) of Part II of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (filed on March 1, 2007) and Item 1 (“Financial Statements (Unaudited)”) of Part I of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2007 (filed on May 8, 2007) are incorporated herein by reference.

      (b) Pro Forma Financial Information. Not applicable.

      (a) Agreements, Regulatory Requirements and Legal Proceedings. The information set forth in the Offer to Exchange Options under Section 10 (“Legal Matters; Regulatory Approvals”) is incorporated herein by reference.

      (b) Other Material Information. The entire text of the Offer to Exchange Options and the related Letter of Transmittal, attached hereto as Exhibit 99(a)(1)(B), are incorporated herein by reference.

* To be filed by amendment.

      Not applicable.

SIGNATURE

      After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

Dated: May 22, 2007