Types of Business Development Companies (BDC)
An essential form of closed-end investment companies is business development companies (BDCs); their main function is to supply capital for small to middle-market enterprises. There are primarily two types of BDCs:
1. Publicly traded Business Development Companies (BDCs):
- Overview: These BDCs are publicly traded, and their stock is readily available on most stock exchanges for purchase or sale.
- Advantages: This is because shares are easily marketed in the open market, making them a liquid investment. They also ensure that they maintain full disclosure of information relating to their financial results and follow the guidelines of the SEC.
- Example: ARCC stands for Ares Capital Corporation, and MAIN stands for Main Street Capital Corporation, both notable closed-end funds that belong to the BDCs category.
2. Non-Traded Business Development Companies (BDCs):
- Overview: These BDCs are not publicly traded and are only available through the private placement of securities or sales. It is generally a less liquid investment and is designed for those investors who want to invest their money for the longer term instead of the shorter term.
- Advantages: It could have higher potential returns if compared to the public BDCs since they could not have such fluctuations with their stocks. They also have disadvantages associated with them, as they are less transparent and have lower liquidity as compared to the standard ones.
- Example: FS Investment Corporation therefore started as a closed-end fund, which was a BDC, but later moved to a P SMB.
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