Business Development Companies (BDCs)

Business Development Companies facilitate the flow of capital to private U.S. companies and offer individuals access to institutional investments and strategies.

What is a Business Development Company?

Business development companies are closed-end funds that invest in private U.S. businesses. BDCs act as a lender to private companies, lending money similar to a bank. They are generally required to invest at least 70% of their assets in private U.S. companies or public U.S. companies with market values of less than $250 million.

What is a BDC

Why were BDCs created?

Congress created the BDC in 1980 through an amendment to the Investment Company Act of 1940 to help private U.S. companies raise money from individuals. BDCs have become an increasingly meaningful source of capital to help finance and grow private American businesses — and in the process have potentially created jobs and helped fuel the growth of the American economy.

Why were BDCs created


Why might an investor consider investing in a BDC?
BDCs provide individuals with access to private debt and equity investments, which have historically been available only to large institutions, such as pension funds and university endowments. Some BDCs focus primarily on providing loans to private companies. Because BDCs must distribute at least 90% of their earnings to investors to maintain qualification as a regulated investment company for tax purposes, BDCs may provide investors with a high level of current income. Plus, a BDC’s investments may be less correlated to traditional investments, like stocks and bonds. This may help to diversify an investor’s portfolio and smooth out volatility.

Why consider BDCs

 

Risks of investing in BDCs
An investment in a BDC involves a high degree of risk and may be considered speculative. Investors should consult with their financial advisor and carefully consider all of the information and risk factors contained in a BDC's publicly filed prospectus before deciding to invest.