Business Development Company
A Business Development Company (BDCs) are closed-end investment companies that help small and medium-sized companies meet their capital needs and grow. Many BDCs are publicly traded companies, and are popular among income-seeking investors because of their high dividend yield, also venturing investment vehicles to mutual funds and exchange-traded funds (ETFs). As they are often compared to venture capital funds, BDC’s heavy use of leverage and targeting of small or distressed companies makes them relatively high-risk investments, making them available to all investors. BDCs are treated as regulated investment companies (RICs) and not taxable entities.
- BDCs are similar to banks -they make loans
- Typically have been able to write better (bigger spreads and better covenants) loans than banks
- Can borrower no more than the total of their equity (per 1940 Investment Company Act)
- Overturned in 2018 by the Small Business Credit Availability Act - now can borrower 2x equity