Business Development Companies, or BDCs, are private, closed-end investment companies that help small companies meet their capital needs. BDCs originated in the 1980s to fuel corporate growth during periods of time when interest rates were high and small companies were unable to obtain cost-effective financing. BDCs have continued to flourish as brokerages have recognized them as an opportunity sell new and different products to retail clients.
The BDCs make loans to small businesses and finance those loans through capital raised from investors. BDCs are only suitable for investors with a long-term investment horizon who are willing to accept higher levels of risk in their investments. If any of the companies default on their loan repayment obligations, that risk is shifted to investors.
Much like Non-Traded REITs, the prospectus for BDCs confirm that these securities carry a high degree of risk and that their income stream is subject to fluctuation or suspension. In recent years, BDCs have been oversold by brokerages and many of the BDCs have suspended dividends and their principal value has declined. BDC are also illiquid, preventing investors from selling their interest and limiting their loss.
If your Financial Advisor recommended that you invest in Business Development Companies, and you have experienced losses or no gains due to BDCs, you may be able to recover your investment losses through a FINRA arbitration claim. Contact the Wolper Law Firm at 800.931.8452 for a free consultation to discuss your legal rights.