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Business Development Companies (BDCs)

A business development company (BDC) offers potentially high dividend yields that come with equally high risks. Savvy investors might consider this option if they have a high level of risk tolerance and a deep understanding of the investment structure.

  • Potentially high yield

    Favorable taxation may lead to higher dividend yields.
  • Flexible investments

    Gain access to private companies without lockups.
  • Good diversification

    BDC rules require certain levels of diversification.

What Is A Business Development Company?

BDCs mainly make purchases into the debt and equity of mostly private companies.

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They help provide small to middle-sized companies with the needed financing to continue business as usual.

Common types of BDCs include:

  • Common and preferred stock
  • Senior secured debt
  • Subordinated or unsecured debt

 

Structure
A BDC is structured very similarly to a Real Estate Investment Trust (REIT) in the fact that it’s a closed-end investment. BDCs are technically Regulated Investment Companies (RIC) and investors can’t withdraw money from the fund like they would with, say, a mutual fund investment.

Payouts
Instead, BDCs can be non-traded or may trade on a public exchange and have unique liquidity requirements. BDCs are regulated investment companies and must distribute over 90% of their profits to shareholders in the form of dividends.

Navigation Tip:

BDCs are typically invested in illiquid securities, which can lead to good diversification opportunities but also liquidity risk.

How To Invest in BDCs

Investors are encouraged to do adequate research or contact a broker/financial advisor, attorney or CPA to determine if BDCs are an appropriate investment.

Once you have determined that a BDC investment is suitable for you, it can be purchased with your Self-Directed IRA or other retirement account at Mainstar Trust. Click below to find out how to use a Mainstar Trust account to invest in a BDC.

Investors Also Consider

REITs

Stocks

Private Lending

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