--- title: "Business Development Company (BDC) | Altss Glossary" description: "A business development company (BDC) is a US closed-end investment company that elects to be regulated under special provisions of the Investment Company…" canonical: "https://altss.com/glossary/business-development-company" --- Glossary · Fund / vehicle structure # Business Development Company (BDC) A business development company (BDC) is a US closed-end investment company that elects to be regulated under special provisions of the Investment Company Act and invests mainly in securities of private or small US companies, most commonly through private credit. Publisher: Altss LLCContent modified 2026-10-02 ALTSS-STRUCT-014 BDCs were created to channel public and retail capital into smaller private businesses. Today many BDCs are private-credit vehicles that lend to sponsor-backed and other middle-market companies. Some trade on an exchange, some are sold continuously without a listing and offer quarterly repurchases, and some are offered privately to institutions. ### Formal definition Section 2(a)(48) of the Investment Company Act defines a business development company as a closed-end company that is organised under the laws of, and has its principal place of business in, a US State, is operated for the purpose of making investments in the securities described in section 55(a)(1)-(3), makes significant managerial assistance available to the issuers of those securities (subject to statutory exceptions), and has elected under section 54 to be subject to the BDC provisions. ## Jurisdiction and status BDCs exist only under US federal law. The Investment Company Act of 1940 defines them in section 2(a)(48) and sets their regime in sections 54 to 65, as amended by the Small Business Credit Availability Act of 2018; these provisions are in force at 2 October 2026. A BDC is a closed-end company but is not a registered investment company: it elects into the separate regime (section 2(a)(48)(C)). Two features define the regime. It may acquire an asset outside the qualifying categories only if, at that time, qualifying assets, chiefly securities of eligible portfolio companies (broadly, private or small-cap US operating companies), make up at least 70% of its total assets, leaving out the operating assets listed in section 55(a)(7) (section 55(a)). And it may use more leverage than a registered closed-end fund: asset coverage of 200%, reducible to 150% (roughly 2:1 debt to equity) if the change is approved by the required majority of directors (effective one year after approval) or by more than 50% of the votes cast at a shareholder meeting (effective the day after approval), and the BDC meets the disclosure conditions of section 61(a)(2). A BDC whose shares are not listed on an exchange and that adopts the 150% ratio by either route must offer to repurchase the shares held on the approval date, 25% in each of the four calendar quarters that follow. ## Three types **Listed BDCs** trade on an exchange; investors get liquidity from the market, and shares can trade at a premium or discount to NAV. **Non-traded (perpetual-life) BDCs** sell shares continuously at NAV, usually through wealth channels, and offer liquidity through quarterly issuer tender offers that are discretionary and capped. They are a principal [semi-liquid](https://altss.com/glossary/semi-liquid-fund) private-credit wrapper. **Private BDCs** are offered privately, often to institutions, sometimes with drawdown commitments like a closed-end private fund; they may later list or wind down. ## Fees BDCs typically pay their external adviser a base management fee on assets and an incentive fee with two parts: one on net investment income above a hurdle, and one on realised capital gains net of losses. ## Valuation and oversight Rule 2a-5 under the Investment Company Act applies to BDCs as well as registered funds: the board determines in good faith the fair value of investments without readily available market quotations, or designates the adviser as valuation designee to make those determinations under board oversight. Because non-traded BDC investors subscribe and exit at NAV, valuation quality directly affects transfers between investors. ## Where BDCs fit in private credit BDCs are a main conduit for [direct lending](https://altss.com/glossary/direct-lending) to middle-market companies. The Bank for International Settlements links part of [private credit](https://altss.com/glossary/private-credit)'s growth to a narrowing cost-of-capital gap between banks and BDCs. For a lender analysing BDC exposure, the portfolio looks like a direct-lending fund; for a wealth investor, the vehicle is a closed-end company with discretionary, capped liquidity. ## Not the same as - [Interval Fund](https://altss.com/glossary/interval-fund): An interval fund is a registered closed-end fund that, under a fundamental policy, must make periodic repurchase offers. A BDC is not a registered investment company and has no standing repurchase obligation unless it takes one on (Rule 23c-3 is also available to BDCs, and a non-listed BDC adopting the 150% asset coverage ratio must make a repurchase offer); it is subject to the section 55(a) 70% qualifying-asset test. - [Open-End Fund](https://altss.com/glossary/open-end-fund): A BDC issues no redeemable securities. Non-traded BDCs offer discretionary tender offers, not redemptions. - [Direct Lending](https://altss.com/glossary/direct-lending): Direct lending is the strategy most BDCs pursue; BDC is the legal wrapper. ## How it is classified - It is a BDC only if it has filed a BDC election; a private credit fund investing in the same loans is not a BDC. - Classify listing status (listed, non-traded, private) as a sub-attribute, not a different structure. ## Common mistakes - Calling a non-traded BDC an open-end fund. It is a closed-end company with discretionary, capped repurchases. - Assuming BDC leverage is limited to 1:1 debt to equity; the 150% asset coverage option allows about 2:1. - Treating a BDC as a real estate vehicle; BDCs invest in operating companies, mostly through loans. ## Edge cases - A private BDC with drawdown commitments behaves like a closed-end private credit fund until it lists or converts. ## Sources - [15 U.S.C. 80a-2 - Definitions (Investment Company Act sec. 2, incl. 2(a)(48) BDC and 2(a)(51) qualified purchaser)](https://www.law.cornell.edu/uscode/text/15/80a-2). U.S. Congress (United States Code; LII mirror), Current US Code text as published by LII (accessed 2026-10-01). Status: in force (checked 2026-10-01). Sec. 2(a)(48)(A)-(C) — supports: Statutory definition of a business development company: closed-end company organised and with principal place of business in a State, operated to invest in section 55(a)(1)-(3) securities, making significant managerial assistance available, that has elected under section 54(a) - [15 U.S.C. 80a-60 - Capital structure (Investment Company Act sec. 61, BDC asset coverage)](https://www.law.cornell.edu/uscode/text/15/80a-60). U.S. Congress (United States Code; LII mirror), Current US Code; sec. 61(a)(1)-(2) added by Pub. L. 115-141, div. S, title VIII, sec. 802 (2018-03-23, Small Business Credit Availability Act). Status: in force (checked 2026-10-01). Sec. 61(a)(1), (a)(2)(A)-(D) — supports: 200% asset coverage; 150% if approved by the required majority of directors (effective 1 year after approval) or by more than 50% of votes cast at a shareholder meeting (effective the first day after approval), with disclosure conditions; a non-listed BDC must offer to repurchase shares held at the approval date, 25% in each of the 4 following calendar quarters; SBCAA 2018 - [Business Development Companies (BDCs) (glossary)](https://www.investor.gov/introduction-investing/investing-basics/glossary/business-development-companies-bdcs). U.S. Securities and Exchange Commission (Investor.gov), Accessed 2026-10-01. Status: current (checked 2026-10-01). Glossary entry — supports: BDCs are closed-end funds investing in small and medium-sized private companies; shares may or may not be listed - [17 CFR 270.2a-5 - Fair value determination and readily available market quotations (Rule 2a-5)](https://www.law.cornell.edu/cfr/text/17/270.2a-5). U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror), eCFR current as of 2026-09-29; last amended 2021-03-08 (effective date of adoption). Status: in force (checked 2026-10-01). 17 CFR 270.2a-5(a)-(b), (e)(1), (e)(4) — supports: Fair value determination in good faith by the board or a valuation designee (the adviser) under board oversight; 'fund' includes BDCs - [The global drivers of private credit](https://www.bis.org/publ/qtrpdf/r_qt2503b.htm). Fernando Avalos; Sebastian Doerr; Gabor Pinter, BIS Quarterly Review, March 2025, 11 March 2025. Status: Published (checked 2026-10-01). Key takeaways; section 'Banks, private credit and the cost of capital' — supports: Narrowing bank-BDC cost-of-capital gap partly explains private credit growth - [15 U.S.C. 80a-54 - Acquisition of assets by business development companies (ICA s.55)](https://www.law.cornell.edu/uscode/text/15/80a-54). U.S. Congress (US Code via LII), Current US Code text as published by LII (accessed 2026-10-01). Status: in force (checked 2026-10-01). Sec. 55(a), (a)(7) — supports: 70% qualifying-asset test applied at the time of each non-qualifying acquisition; operating assets in (a)(7) excluded from the base - [15 U.S.C. 80a-5 - Subclassification of management companies (ICA s.5)](https://www.law.cornell.edu/uscode/text/15/80a-5). U.S. Congress (US Code via LII), Current US Code text as published by LII (accessed 2026-10-01). Status: in force (checked 2026-10-01). Sec. 5(a)(1)-(2) — supports: Open-end company = issuer offering or having outstanding redeemable securities; closed-end company = any other management company - [17 CFR 270.23c-3 - Repurchase offers by closed-end companies (interval funds)](https://www.law.cornell.edu/cfr/text/17/270.23c-3). U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror), eCFR current as of 2026-09-29; last amended 2021-08-01. Status: in force (checked 2026-10-01). 17 CFR 270.23c-3(b) introductory text — supports: Rule 23c-3 periodic repurchase offers are available to registered closed-end companies and BDCs ## Related terms 7 terms - [Direct Lending](https://altss.com/glossary/direct-lending) - [Private Credit](https://altss.com/glossary/private-credit) - [Semi-Liquid Fund](https://altss.com/glossary/semi-liquid-fund) - [Interval Fund](https://altss.com/glossary/interval-fund) - [Fair Value](https://altss.com/glossary/fair-value) - [Leverage](https://altss.com/glossary/leverage) - [Closed-End Fund](https://altss.com/glossary/closed-end-fund) ## Referenced by 8 terms - [Alternative Investments (Alternative Assets)](https://altss.com/glossary/alternative-assets) - [Blocker Corporation](https://altss.com/glossary/blocker-corporation) - [Evergreen Fund](https://altss.com/glossary/evergreen-fund) - [Hurdle Rate](https://altss.com/glossary/hurdle-rate) - [Payment-in-Kind (PIK)](https://altss.com/glossary/pik-payment-in-kind) - [Portfolio Company](https://altss.com/glossary/portfolio-company) - [Private Capital (Private Markets)](https://altss.com/glossary/private-capital) - [Venture Debt](https://altss.com/glossary/venture-debt) ## Concept record Concept ID ALTSS-STRUCT-014 Classification Fund / vehicle structure · Legal, regulatory & tax Topics Private credit · Fund structures Jurisdiction US Version 2.0.0 Last reviewed 2026-10-02 Structured data [JSON](https://altss.com/reference/concepts/business-development-company.json) Source check Legal and regulatory statements checked against the cited primary sources on 2026-10-02 ([how](https://altss.com/methodology)). General information, not advice. ## Canonical URL https://altss.com/glossary/business-development-company