Business development company (BDC).
In plain English
A business development company, or BDC, pools investor money to finance small and mid-size private companies, mostly through loans, giving everyday investors access to private-credit lending they otherwise could not reach. Many BDCs trade on exchanges like a stock and pay high dividends because they must distribute most of their income. The high yield comes with real risk: they lend to riskier borrowers, often use leverage, and can cut dividends or fall sharply in a downturn. The yield is a signal of the risk taken, not free income.
01Why it matters
BDCs advertise eye-catching yields, but that income comes from risky private lending and leverage, so understanding the source of the yield is what separates informed use from yield-chasing.
02The math, step by step
A BDC pays a 9 percent dividend by lending to small private firms. In a downturn some borrowers default, so the BDC cuts its dividend and its share price drops, showing the yield reflected the risk taken.
03What this is NOT
A BDC's high yield is NOT low-risk income. It comes from lending to riskier private companies, often with leverage, so both the dividend and the share price can fall hard in a downturn.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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