by Fred Fuld III
A business development company (BDC) is a type of financial institution that specializes in providing financing to small and medium-sized businesses (SMBs). They do this by raising capital from investors, typically through issuing stocks or bonds, and then using that money to make loans or investments in private companies.
Here are some key things to know about BDCs:
- Focus on SMBs: BDCs primarily focus on providing financing to SMBs that may not be able to easily access traditional bank loans or other forms of debt. This could be due to a variety of factors, such as the company’s size, stage of development, or credit history.
- Debt and equity investments: BDCs can make both debt and equity investments in companies. Debt investments typically involve providing a loan to the company, while equity investments involve buying a ownership stake in the company.
- High yields: BDCs are known for offering high dividend yields to their investors. This is because they are required to distribute 90% of their taxable income to shareholders each year. However, it is important to note that BDC investments are also considered relatively risky.
- Publicly traded: Many BDCs are publicly traded companies, which means that their shares can be bought and sold on stock exchanges. This makes them more accessible to a wider range of investors than private equity funds or venture capital firms.
BDCs play an important role in the economy by providing financing to growing businesses that may not be able to obtain it from traditional lenders. This can help to create jobs and boost economic growth.
The following BDCs pay dividend yields of more than 9% and pay their dividends monthly:
Horizon Technology Finance (HRZN), which has a yield of 9.71%.
Horizon Technology Finance Corporation, established in 2003 and headquartered in Farmington, Connecticut, is a specialty finance company with a focus on providing capital and financing solutions to venture capital and private equity-backed companies. The industries targeted by Horizon Technology Finance include technology, life sciences, healthcare information and services, and sustainability.
The company’s core services revolve around venture debt financing, offering loans to support the growth and development of technology and life sciences companies. In addition to debt financing, Horizon Technology Finance may engage in equity investments, participating alongside its debt offerings. The company actively manages a portfolio of investments in various stages, ranging from early-stage to expansion-stage and late-stage companies.
Pennant Park Floating Rate Capital (PFLT) yields 9.75%.
PennantPark Floating Rate Capital Ltd. is a specialty finance company that operates as a closed-end, non-diversified investment company. It is publicly traded and focuses on providing customized financing solutions primarily to middle-market companies. The company’s investment strategy centers around investing in floating rate loans and other investments in the form of senior secured loans, mezzanine debt, and equity investments.
Headquartered in New York, PennantPark Floating Rate Capital seeks to generate current income while preserving capital through its investment activities. As of my last knowledge update in January 2022, the company primarily targets companies operating in various industries, including healthcare, industrial manufacturing, automotive, technology, energy, and other sectors.
PennantPark Floating Rate Capital’s portfolio is diversified across multiple industries and consists of investments in debt and equity securities. The focus on floating rate loans provides the company with the potential for income generation in a rising interest rate environment.
The company is managed by PennantPark Investment Advisers, LLC, a registered investment adviser with expertise in credit and private equity markets. The management team is responsible for implementing the company’s investment strategy and making decisions aimed at optimizing returns for shareholders.
Prospect Capital (PSEC) pays an extremely high yield of 11.63%.
Prospect Capital Corporation is a business development company (BDC) that operates as a closed-end investment company. Headquartered in New York City, the company specializes in providing financing solutions to middle-market companies across various industries. As a BDC, Prospect Capital is focused on supporting the growth and expansion of its portfolio companies through a range of financial instruments.
The investment strategy of Prospect Capital involves deploying capital in a diversified manner, including senior and subordinated debt, as well as equity investments. The company typically targets companies with strong management teams and growth potential, often in need of capital for acquisitions, recapitalizations, or other corporate purposes.
Prospect Capital’s investment portfolio spans a wide array of industries, including but not limited to energy, manufacturing, healthcare, technology, and consumer services. The goal is to build a diversified portfolio that mitigates risk while generating income and potential capital appreciation for shareholders.
Disclosure: Author didn’t own any of the above at the time the article was written.