Small to medium sized companies represent a significant portion of the growth segment of the U.S. economy, and often require substantial capital investment to scale their businesses. Due to a general reduction in the supply of credit and the broad-based consolidation in the financial services industry, many of these smaller companies are having difficulty accessing capital for growth. Franklin Square Capital Partners believes the underserved nature of this market presents a compelling investment opportunity.

In the past, only institutional investors or very wealthy investors have been able to access this segment of the U.S. economy through private equity companies. However, there is a practical alternative available to individual investors that offers diversification and the opportunity for income. The investment vehicle is a Business Development Company (BDC) which was created by the U.S. government in 1980 to boost investment in small private companies.

Created by the Small Business Investment Incentive Act of 1980, a separate regulatory framework under the Investment Act of 1940, a Business Development Company (BDC) is a close-end fund that accommodates investments in private companies.

A BDC is a hybrid between an operating company and an investment company, and like an operating company, it must file periodic SEC reports such as 10K’s and 10Q’s, and comply with the Sarbanes-Oxley Act of 2002. In addition, in order to avoid corporate tax, it must distribute at least 90% of its investment income to investors. It also must be supervised by an Independent Board of Directors.