BDCs: the most important commercial lenders you've never heard about

A business development company (BDC) is a closed-end mutual fund, the main purpose of which is to extend direct loans to small- and medium-sized enterprises. Most BDCs are traded in official secondary markets and therefore, provide investors with the possibility to invest, in a liquid way, into relatively illiquid assets. The authors first review the main characteristics of BDCs as financial intermediaries, looking at their relevance in financial markets, their typical operations, organizational structure, and governance, and also in comparison to banks. They then view BDCs from the lens of financial investors and compare their returns with those offered by other asset classes.