BDC Basics
Business Development Companies (BDCs) are closed-end investment funds created by Congress in 1980 to provide capital to small and mid-sized U.S. businesses. They’ve grown into a critical part of private credit, offering investors high dividends and exposure to private company debt and equity.
← Back to GuidesWhat Is a BDC?
A BDC is a publicly traded vehicle that invests primarily in debt and equity of private U.S. companies. They combine features of private credit funds with access to retail investors via stock exchanges.
Regulatory Framework
- Governed under the Investment Company Act of 1940, with modifications for BDCs.
- Must invest at least 70% of assets in U.S. private companies or small public firms.
- Leverage limited by regulatory asset coverage requirements (e.g., 150% debt-to-equity cap after 2018 reforms).
Dividend Mechanics
BDCs are structured as regulated investment companies (RICs). To maintain RIC status and avoid corporate taxes, they must distribute at least 90% of taxable income as dividends. This makes them attractive to income-focused investors.
Portfolio Construction
- Senior secured loans to middle-market companies form the core of most BDC portfolios.
- Mezzanine debt and equity co-investments add yield and potential upside.
- Diversification across industries and sponsors reduces concentration risk.
Many BDCs are externally managed by large credit firms (e.g., Ares Capital, FS KKR), while some are internally managed.
The BDC Market Today
The U.S. BDC sector has grown to $250B+ in assets, providing vital financing to thousands of companies. For investors, listed BDCs offer liquidity, transparency, and high dividend yields relative to traditional credit.
Future of BDCs
- Continued growth as private credit expands.
- More institutional partnerships with large credit managers.
- Potential retail expansion via ETFs and new products.
- Technology improving reporting, monitoring, and investor access.
BDCs are now core players in U.S. private credit — bridging capital markets and private lending.