Why Private Credit Is Growing in Popularity
Private credit has emerged as one of the fastest-growing asset classes over the past decade. With banks retreating from certain types of lending after the financial crisis, private lenders—including Business Development Companies (BDCs)—have stepped in to fill the gap.
For retail investors, BDCs represent a unique opportunity: they provide access to private credit markets that were once available only to institutions and high-net-worth individuals. And they often deliver attractive dividend yields in return.
Understanding BDCs (Business Development Companies)
What Is a BDC?
A BDC is a publicly traded company that invests in small and mid-sized businesses, often by providing loans or taking equity stakes. They were created by Congress in 1980 to encourage the flow of capital to underserved companies while offering individual investors a way to participate.
How BDCs Operate
BDCs raise money from investors and use it to lend to or invest in private companies. In exchange for favorable tax treatment, they are required to distribute at least 90% of their taxable income to shareholders, making them popular among income-focused investors.
Why BDCs Appeal to Retail Investors
High Dividend Yields
Because BDCs must distribute at least 90% of their taxable income, they often provide dividend yields significantly higher than traditional equities or bonds. Many BDCs yield between 8%–12% annually, making them attractive for income-seeking investors.
Access to Private Credit Markets
Historically, private credit opportunities were reserved for institutional investors. BDCs open the door for everyday investors to gain exposure to this asset class without needing millions in capital.
Diversification Benefits
BDCs lend to a wide range of industries, from healthcare to technology to manufacturing. For retail investors, this provides built-in diversification within a single investment vehicle.
Risks of Investing in BDCs
Interest Rate Sensitivity
BDCs often borrow money to fund loans. Rising interest rates can increase their borrowing costs and compress profit margins.
Credit and Default Risk
BDC portfolios consist of loans to small and mid-sized businesses. These borrowers can be more vulnerable to economic downturns, leading to potential defaults.
Market Volatility and Liquidity Issues
While BDCs are traded on public markets, their underlying assets are private loans, which are less liquid. Share prices can swing with market sentiment, even if loan performance remains stable.
Popular BDCs in 2025
- Ares Capital Corporation (ARCC): The largest BDC, known for stability and consistent dividends.
- Main Street Capital (MAIN): Focused on both debt and equity investments in middle-market companies.
- FS KKR Capital Corp (FSK): Offers broad exposure to private credit with a diversified portfolio.
- Prospect Capital (PSEC): Known for high yields but carries higher risk compared to peers.
How to Invest in BDCs as a Retail Investor
Direct BDC Purchases
Investors can buy shares of publicly traded BDCs directly on major stock exchanges, just like buying stocks or ETFs.
BDC ETFs and Funds
For those seeking diversification across multiple BDCs, ETFs such as the VanEck BDC Income ETF (BIZD) provide exposure to a basket of leading BDCs, reducing single-company risk.
Final Thoughts: Are BDCs Right for Your Portfolio?
BDCs bridge the gap between institutional private credit and retail investing. They provide attractive income potential, diversification benefits, and access to an asset class traditionally off-limits to individuals.
However, investors must weigh the risks—interest rate fluctuations, borrower defaults, and market volatility. For income-focused investors who understand the trade-offs, BDCs can be a powerful addition to a well-rounded portfolio.
As with marathon training or building long-term wealth, the key lies in patience, diversification, and discipline.
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