what is a business development company bdc 
a business development company bdc is an organization that invests in small and medium sized companies as well as distressed companies a bdc helps these firms grow in the initial stages of their development with distressed businesses the bdc helps the companies regain sound financial footing similar to closed end investment funds many bdcs are public companies whose shares trade on major stock exchanges such as the american stock exchange amex nasdaq and others as investments they are high risk but offer higher rewards understanding business development companies bdcs the u s congress created business development companies in 1980 to fuel job growth and assist emerging u s businesses in raising funds bdcs are closely involved in mentoring and developing the companies in their portfolios because it is in a bdc s best interest to help them become successful bdcs invest in private companies and small public firms that have low trading volumes or are in financial distress they raise capital through initial public offerings or by issuing corporate bonds and equities or forms of hybrid investment instruments to investors the raised capital is then used to provide funding for the struggling companies bdcs can use different financial instruments to provide capital but in general most issue loans or purchase stocks or convertible securities from the companies some business development companies are publicly traded entities others are not publicly traded and are known as non traded bdcs to qualify as a bdc a company must be registered in compliance with section 54 of the investment company act of 1940 in addition it must be a domestic company whose class of securities is registered with the securities and exchange commission sec the bdc must invest at least 70 of its assets in private or public u s firms with market values of less than us 250 million these companies are often young businesses seeking financing or firms suffering or emerging from financial difficulties also the bdc must provide managerial assistance to the companies in its portfolio business development companies avoid corporate income taxes by distributing at least 90 of their income to shareholders bdcs vs venture capitalif bdcs sound similar to venture capital funds they are however there are some key differences one relates to the nature of the investors each seeks venture capital funds are primarily available to large institutions and wealthy individuals through private placements in contrast bdcs allow smaller nonaccredited investors to invest in them and by extension in small growth companies venture capital funds keep a limited number of investors and must meet specific asset related tests to avoid being classified as regulated investment companies on the other hand bdc shares are typically traded on stock exchanges and are constantly available as investments for the public bdcs that decline to list on an exchange must follow the same regulations as listed bdcs however less stringent provisions for the amount of borrowing related party transactions and equity based compensation make the bdc an appealing form of incorporation to venture capitalists who were previously unwilling to assume the burdensome regulation of an investment company advantages and disavantages of bdc investmenthigh dividend yieldsopen to retail investorsliquiddiversityhigh risksensitive to interest rate spikesilliquid opaque holdingscan magnify lossesdividends taxed as income