Business Development Company Definition (BDC)

Business Development Company Definition: a Business Development Company (BDC) is a U.S. investment company created by Congress in 1980 under amendments to the Investment Company Act of 1940. It is a publicly traded closed-end fund designed to provide capital and managerial support to small- and mid-sized private U.S. companies, including those in financial distress.

Key Features:

  • Objective: To provide financing—primarily in the form of senior secured loans, but also equity and convertible securities—to small and medium-sized enterprises (SMEs) that have limited access to traditional bank lending. BDCs are also required to offer managerial assistance to their portfolio companies.
  • Regulatory Rules: At least 70% of assets must be invested in “qualifying” U.S. companies: private firms or publicly traded companies with a small market capitalization (typically under $250 million) or that are thinly traded.
  • Tax Advantages & Income Focus: Following a model similar to REITs, BDCs avoid corporate income tax by distributing at least 90% of taxable income as dividends. This structure, funded largely by interest income from their loan portfolios, generates high dividend yields (the sector average has often ranged between 10-11%), making BDCs a cornerstone for income-seeking investors.
  • Accessibility: Unlike private equity or venture capital funds restricted to accredited investors, BDCs are listed on major exchanges (e.g., NYSE, NASDAQ) and are freely tradable by retail investors.

Prominent Examples (as of late 2025):

  • Ares Capital (ARCC): The largest BDC by assets, a leader in middle-market lending.
  • Blue Owl Capital (OBDC): A major force in private credit, known for high quarterly dividends plus supplemental payouts.
  • Main Street Capital (MAIN): Noted for its monthly dividend and frequent special dividends. Its total effective yield (including supplements) is typically 6-8%. It often trades at a premium to its Net Asset Value (NAV), reflecting market perception of its superior track record and distribution stability.

Risks to Consider:
BDCs offer attractive income but carry significant risks: credit/default risk within their portfolios, interest rate sensitivity (many loans are floating-rate), potential illiquidity of underlying investments, and the amplifying effect of leverage on losses. They generally perform best in stable or declining interest rate environments.

Terminology: The term Business Development Company (BDC) is used consistently in English and is recognized in international finance