Series 22: 1.1.7.2. Business Development Companies

Taken from our Series 22 Top-off Online Guide

1.1.7.2.  Business Development Companies

A business development company (BDC) is a type of closed-end investment company that invests in the securities of struggling small to mid-size companies. The purpose of BDCs is to provide capital to businesses that cannot easily get financing elsewhere. BDCs are considered to be DPPs only if they are not traded on an exchange.

BDCs operate like venture capital firms, except that they are companies which trade openly on the secondary market. As such, they allow small, non-accredited investors to participate. BDCs must distribute at least 90% of their taxable income to shareholders every year. Unlike other closed-end companies and like venture capital firms, BDCs must register under the Securities Exchange Act. In addition, more than 70% of a BDC’s assets must be invested into certain kinds of investments, such as:

privately issued securities from issuers that are “eligible portfolio companies” or are subject to a bankruptcy proceeding or insolvency

securities from eligible portfolio companies that are controlled by a BDC

cash or cash equivalents

U.S. government securities

high-quality debt securi

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