Business Development Company: An Alternative Blueprint for Maximum Gains
Forged as a 1980 Congress amendment to U.S. Investment Company Act of 1940, the business development company (BDC) has evolved into an alternative financial instrument whose sector has, as of late 2015, been valued at about $65 billion in assets, and whose yield has been measured at an average of 9.1 percent. Still, many are still not privy to the advantages that this type of investment can bring to one’s portfolio.
What is a BDC?
Business development companies are closed-end investment vehicles engineered to facilitate capital formation for small, middle-market, or upcoming American firms, both private and public. Much like the way private equity and venture capital funds operate, BDCs aim for capital appreciation via bringing in necessary cash infusions, buying out existing or prospective loans, and providing consultation and strategic guidance to their underlying companies, on top of allowing their investors to participate in the sale of their equity and generating current income.
A key difference between BDCs and private equity, however, is that while private equity is limited to either the very wealthy or the larger institutional investors, BDCs are available to practically anyone who purchases a share in the open market. As a holder of registered investment company (RIC) status, every BDC is legally mandated to distribute a minimum of 90 percent of its taxable income to its shareholders each year—a figure that makes for incredibly high yields, even in comparison to the high-performing fixed income securities and stocks. What makes these BDCs investing even more attractice is the liquidity—rather than wait for the investment manager to complete a sale, investors can trade their shares at any time.
Before purchasing bulk shares of the cream of the crop from the market’s latest business development company list, however, investors must understand the potential liabilities in BDC investing, which manifest as risks related to interest rate, liquidity, credit, leverage and increased losses, regulation issues, and market forces.
To guarantee its continual growth, the operations of a business development company requires a fully dedicated suite of services designed to support a streamlined, comprehensive information handling system, and a commitment to integrity, accuracy, and client decision-making in order to provide all-inclusive financial reporting, accounting, compliance, and tax services to BDCs. Providers of these services let the BDC investment managers hone in on increasing the value of its underlying companies, while consistently generating risk-protected, expanded distributions for all the shareholders.
What is a BDC?
Business development companies are closed-end investment vehicles engineered to facilitate capital formation for small, middle-market, or upcoming American firms, both private and public. Much like the way private equity and venture capital funds operate, BDCs aim for capital appreciation via bringing in necessary cash infusions, buying out existing or prospective loans, and providing consultation and strategic guidance to their underlying companies, on top of allowing their investors to participate in the sale of their equity and generating current income.
A key difference between BDCs and private equity, however, is that while private equity is limited to either the very wealthy or the larger institutional investors, BDCs are available to practically anyone who purchases a share in the open market. As a holder of registered investment company (RIC) status, every BDC is legally mandated to distribute a minimum of 90 percent of its taxable income to its shareholders each year—a figure that makes for incredibly high yields, even in comparison to the high-performing fixed income securities and stocks. What makes these BDCs investing even more attractice is the liquidity—rather than wait for the investment manager to complete a sale, investors can trade their shares at any time.
Before purchasing bulk shares of the cream of the crop from the market’s latest business development company list, however, investors must understand the potential liabilities in BDC investing, which manifest as risks related to interest rate, liquidity, credit, leverage and increased losses, regulation issues, and market forces.
To guarantee its continual growth, the operations of a business development company requires a fully dedicated suite of services designed to support a streamlined, comprehensive information handling system, and a commitment to integrity, accuracy, and client decision-making in order to provide all-inclusive financial reporting, accounting, compliance, and tax services to BDCs. Providers of these services let the BDC investment managers hone in on increasing the value of its underlying companies, while consistently generating risk-protected, expanded distributions for all the shareholders.
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