What is a Business Development Company?

Small to medium sized companies in the initial development stages receive investments and help to promote their grown by an organization known as a business development company (BDC). Closed-end investment funds as many BDCs are similarly set up, are also known as public companies that have shares which are traded on the top stock exchanges like American Stock Exchange (AMEX), Nasdaq and a few others.

What Qualifies as a Business Development Company?

In the United States, not all small and medium-sized companies can access funds from business development companies. There are certain requirements that qualify these companies for receiving capital from BDCs. The qualification fairness are as follows;

• The firm must be a domestic company or domicile in the region.
• The firm must be registered with the Securities and Exchange Commission.
• Domestic companies in dire need of financing can access BDCs.
• Private or public firms with a market value below $250 million can access funds from BDCs. BDC can invest the minimum of 70% of its holdings in such firms.

Investing in a Business Development Company

Usually, BDC investors are non-accredited investors who want to invest in startup companies. Investing in a BDC grants these investors investment access to private companies and a few companies. Private firms are typically hard to invest in but BDCs create this platform for investors. BDCs typically invest in illiquid securities. BDCs are registered according to section 54 of the Investment Company Act of 1940, they are thereby regulated. Over 90% of the profit that a BDC makes must be distributed among shareholders who are also its investors. This is why BDCs are quite attractive to investors, they have high yield of dividends.

Difference Between Venture Capital Funds and BDCs

There is a distinction between venture capital funds and BDCs. While venture capital funds contain a limited number of investors who are usually accredited and high-ranking investors, BDCs are made up of unaccredited investors. BDCs serve as alternative capital funding to venture capital funds. Venture capital funds are often available to wealthy individuals while BDCs are accessible by small and medium-sized private and public firms that are struggling with finances. BDCs are also traded on major stock exchanges and are regulated.