A Business Development Company (BDC) is a regulated investment company that deploys capital into private and small public businesses — frequently through loans, mezzanine structures, or equity co-investments.

How it works

Created under U.S. legislation in 1980, BDCs must invest at least 70% of assets in qualifying private or thinly traded companies. Many BDCs focus on middle-market lending: senior secured loans, unitranche facilities, and second-lien debt to companies too small for large syndicated markets but too mature for classic venture equity.

Some BDCs are publicly traded, giving shareholders daily liquidity on an exchange — unlike closed-end private funds with multi-year lockups. BDC managers earn fees similar to other asset managers; yields come from interest income, origination fees, and occasional equity upside.

Startups rarely meet BDC credit boxes at seed stage. BDC capital more often appears at growth or PE-backed companies needing venture debt alternatives, recapitalizations, or add-on financing.

Why it matters

• Founders: If you are scaling with revenue and seeking non-dilutive capital, a BDC-backed lender may sit alongside traditional venture debt providers — compare covenants, warrants, and maturity structures.
• Investors: BDCs bridge retail access to private credit. Due diligence should cover portfolio quality, fee load, leverage at the BDC level, and mark-to-market practices.

Common mistake

Assuming all BDC capital is “cheap debt.” Pricing and covenants vary widely; public BDC shareholders also care about dividend coverage, which can push lenders toward conservative structures.

Related ideas

Venture debt, private credit, middle market, bullet maturity, and buyout.