📈 Stocks & Equities · Lesson 8 of 9 · 9 min
BDCs — Be the Bank
🏦 What if hundreds of businesses paid YOU interest, instead of you paying a bank? That's a BDC — yields around 8–11% a year for taking on the lender's risk. Here's the catch that comes with it.
💡 Key idea
BDCs are stocks that act like a lending bank. High yields (8-11%), but higher risk in recessions.
🧠 Why it matters
A BDC (Business Development Company) is a stock-market-traded company that lends money to small and mid-sized businesses. The interest those businesses pay flows back to you as high dividends. Like a REIT, BDCs must pay out 90%+ of income.
🌍 In the real world
💸 Ares Capital (ARCC) is one of the largest BDCs — it has lent billions to hundreds of mid-sized American companies. Investors collect dividend yields around 9%. The risk: in a recession, some borrowers default. BDCs reward you for taking on that lending risk.
📌 Takeaways
- BDCs lend to businesses — you collect the interest as dividends
- Yields are high (8-11%) but riskier in downturns
- Like REITs, they must distribute 90%+ of income
✅ Test yourself
What does a BDC actually do?
- Builds buildings
- Lends money to mid-sized businesses
- Mines gold
- Runs restaurants
Answer: B · Lends money to mid-sized businesses
BDCs are essentially publicly traded lenders. You become a part-owner of a lending operation and collect interest as dividends.
When are BDCs riskiest?
- Bull markets
- Recessions, when borrowers default
- Summer
- When rates are high
Answer: B · Recessions, when borrowers default
BDCs lend to smaller companies. In a recession, more of those borrowers can't pay — defaults rise and BDC values can fall hard.
Quiz, XP and streaks in the app. No sign-up needed.