What is a business development company (BDC)?

A business development company is a closed-end company that has elected, under Section 54(a) of the Investment Company Act of 1940, to be regulated under Sections 55 through 65 of that Act. A business development company exists to finance small and mid-sized American companies, mostly private ones, and it has to offer those companies managerial assistance rather than simply hold their paper. Because a BDC reports under the Exchange Act, its whole portfolio is public in its 10-K. This page explains the structure and where the disclosures sit. It is not investment advice.

How does a company become a business development company?

By election, not registration. The company files a short notification on Form N-54A, stating that it is a closed-end company electing under Section 54(a) to be subject to Sections 55 through 65 of the Act. On that form the file number of registration as an investment company under Section 8(a) is entered as not applicable, which is the clearest single indicator that a BDC is not a registered investment company.

The election comes with standing obligations:

• The 70 percent test. Under Section 55(a), a BDC may not acquire an asset outside the qualifying categories unless qualifying assets make up at least 70 percent of total assets at the time of the acquisition.
• Eligible portfolio companies. Qualifying assets are largely securities bought in private transactions from eligible portfolio companies: US-organised issuers with their principal place of business in the US that have no publicly traded securities, plus certain listed companies below roughly $250 million in common equity market value.
• Managerial assistance. The BDC must make significant managerial assistance available to those companies. The company does not have to accept it.
• Asset coverage. The traditional requirement was 200 percent asset coverage. The Small Business Credit Availability Act of 2018 allowed a BDC to elect 150 percent instead, subject to approval and disclosure, which permits roughly twice the leverage.

Why a BDC's filings are unusually informative

Most pooled US vehicles disclose holdings on fund forms. A BDC does not. It files an annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, the same forms an operating company uses. Inside the 10-K sits a schedule of investments listing the portfolio, and in many cases the 10-Q carries an updated one.

That matters for anyone tracking institutional money, because a BDC's book is mostly private credit and private equity. Those positions are not 13(f) securities, so they never appear in a 13F filing. If you only read 13Fs, this entire category of lending is invisible. The schedule of investments is where it shows up, typically with the borrower, the instrument, the interest rate, cost and fair value.

How to find BDC portfolios

1. Identify the filer on EDGAR. A BDC's filing history shows 10-K and 10-Q filings, and an N-54A near the beginning. See how to search EDGAR.
2. Open the most recent 10-K and go to the schedule of investments.
3. Note the as-of date. Fair values are as of the period end, not today.
4. Compare consecutive periods to see what was added, exited or marked differently.

Fair value is the point to read carefully. Most BDC positions have no quoted market price, so values are board-determined estimates rather than observed prices. That is disclosed, and it is a real difference from a portfolio of listed equities.

What a business development company does not tell you

A business development company discloses a portfolio as of a period end, valued largely by estimate, alongside leverage that may run at either the 200 percent or the elected 150 percent asset coverage level. None of that is a view on the security. Read the schedule of investments as a dated disclosure, check which asset coverage election is in force, and treat fair values as estimates the filing itself labels as such. For how the structure compares with a conventional listed fund, see BDC vs closed-end fund. Flock reports public filings with every claim sourced and dated. What any of it means for your money is your call to make.