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High Yield Business Development Companies (BDCs)

Business Development Companies (BDCs) were created under the Investment Company Act of 1940 and categorized as Regulated Investment Companies (RIC). BDCs are similar to Venture Capital or Private Equity funds in that they invest in small, privately held companies that offer outstanding growth and profit potential. As RICs, BDCs must conform to the following regulations:

  • Must distribute at least 90% of taxable income to shareholders annually.
  • Must be diversified. No more than 5% of the BDC’s assets may be invested in any one security.
  • Cannot buy more than 10% of any issuer’s voting securities.
  • Cannot put more than 25% of assets into companies the BDC controls or companies in the same industry.

BDCs lend money to small, rapidly growing companies that need capital regardless of cost. Average yields are about 14%. Because BDCs are not subject to many regulations that govern traditional lending institutions, they can be more nimble in closing attractive deals quickly. Because the U.S. Government holds small businesses to be vital to the health of the U.S. economy, the income received by BDCs is never taxed as long as 90% of that income is distributed to investors each quarter. Because BDCs do not use a great deal of leverage (debt), they offer less risk than more highly leveraged investments.

BDCs take an active role in the management of the companies in which they are invested. Typically, the BDC will have seats on the company’s Board of Directors and assume an active role in the operational management of the company. BDCs may also offer consulting services for a fee to emerging companies.

BDCs offer investors access to the area of venture capital investment that has been traditionally limited to institutional and wealthy, well-connected individual investors. Unlike venture capital funds, BDCs are traded as shares on the major stock exchanges providing the investor with excellent liquidity.

The investor who seeks the security of portfolio diversification, the opportunity for gains associated with young, growing companies, and extraordinary current income should discuss BDCs with their APS Financial representative.

Contact your APS Financial Representative for ideas on High Yield Business Development Companies at 1-888-422-0633.




Investors in high-yield products should keep in mind that there is no such thing as a free lunch. The price of receiving above-average income potential is above-average risk of substantial price declines. Even though returns on high-yield securities historically have compensated the investor for the additional risk, there is no guarantee this will be true in the future.