Business Development Company (BDC)

Written By
Paul Tracy
Updated November 4, 2020

What is a Business Development Company (BDC)?

Business development company (BDC) is a designation specific to public firms that invest in small, upcoming businesses. BDCs hope their stakes in the businesses will increase in value as the business grows. BDCs also loan money to small enterprises and offer consulting for a fee.

How Does a Business Development Company (BDC) Work?

What makes them unique is that investors can buy shares of BDCs on the open market and participate in the formerly difficult to access world of venture capital.

When looking for prospective small business, a BDC does not invest in just any company -- its goal is to invest in and provide guidance to those that will one day grow large. As such, a BDC also looks for a business where it can exert significant control over the company's direction (which could include holding board seats or simply providing consulting guidance).

Most BDCs have regulated investment company (RIC) status, which means they must distribute at least 90% of their taxable income to shareholders every year. This RIC status also requires BDCs to stay diversified: they can't put more than 5% of their assets in any single security, they can't buy more than 10% of any issuer's voting securities, and they can't put more than a quarter of their assets into businesses that they control or businesses that are in the same industry. This does not apply to investments in U.S. government securities or other registered investment companies.

Why Does a Business Development Company (BDC) Matter?

BDCs are similar to venture capital (VC) or private equity (PE) funds since they provide investors with a way to invest in small companies and participate in the sale of those investments. However, VC and PE funds are often closed to all but wealthy investors. BDCs, on the other hand, allow anyone who purchases a share to participate in this market.

BDCs also offer more liquidity than VC and PE funds. Investors no longer have to wait for the investment managers to liquidate the BDC's investments in the underlying companies; they can simply sell their shares in the open market. This feature often attracts money to newly public BDCs, thereby giving them a faster way to raise capital for investments.

Activate your free account to unlock our most valuable savings and money-making tips
  • 100% FREE
  • Exclusive money-making tips before we post them to the live site
  • Weekly insights and analysis from our financial experts
  • Free Report - 25 Ways to Save Hundreds on Your Monthly Expenses
  • Free Report - Eliminate Credit Card Debt with these 10 Simple Tricks
Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Business Development Company (BDC).
Be the first to ask a question

If you have a question about Business Development Company (BDC), then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

If you have a question about Business Development Company (BDC), then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about Business Development Company (BDC)

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms