What Is a BDC? Business Development Companies and Private Credit Explained

A business development company, or BDC, is a closed-end fund under the Investment Company Act of 1940 that lends to and invests in mostly private US companies.

A BDC is one of the most direct ways a public investor can own a portfolio of private-credit loans, either as shares on a stock exchange or through a fund sold by financial advisers. The largest fund in Kresmion's study of the June 2026 private credit redemption gates, Blackstone Private Credit Fund, is a BDC that is not listed. This page covers the legal definition, the tax rule that leads BDCs taxed as regulated investment companies to pay out most of their income, the borrowing limit, listed against non-traded BDCs, net asset value against market price, and how tender offers and proration decide who gets cash when more holders want out than a fund will buy back. It is descriptive throughout.

What makes a company a BDC

The category was added to the Investment Company Act of 1940 in 1980 (Public Law 96-477). Section 2(a)(48) of the Act defines a BDC as a closed-end company that meets three conditions:

1. It is organized, and has its principal place of business, in a US state. 2. It is operated to invest in the securities listed in section 55(a)(1) to (3), and makes significant managerial assistance available to the companies it counts toward the 70 percent test below. 3. It has elected under section 54 to be governed by sections 55 to 65 of the Act.

Section 55(a) carries the 70 percent test: a BDC may not acquire any asset outside a defined list unless, at the time, qualifying assets make up at least 70 percent of its total assets. The core qualifying assets are securities bought privately from "eligible portfolio companies", which section 2(a)(46) defines as US companies that are not investment companies and that, among other routes, have no securities on which brokers may extend margin credit, are controlled by the BDC, or are small.

In practice the BDCs used as examples on this page lend mainly to private companies, much of it through loans whose interest rate floats with a benchmark. Ares Capital's 10-Q, for example, reports that 71 percent of its investments at fair value bore interest at variable rates at 30 June 2026. Four of the five are externally managed: Ares Capital, Blue Owl Capital Corp, FS KKR Capital and Blackstone Private Credit Fund each have an outside investment adviser, while Main Street Capital is internally managed, employs its own investment staff and pays no external advisory fee.

The 90 percent payout and RIC status

A BDC can be taxed as a regulated investment company (RIC). Section 851(a)(1)(B) of the Internal Revenue Code lets a domestic corporation that "has in effect an election under such Act to be treated as a business development company" qualify, and section 851(b) adds two tests:

• Income. At least 90 percent of gross income comes from dividends, interest, gains on securities and similar investment income.
• Diversification, at the close of each quarter. At least 50 percent of total assets is cash, government securities, other RICs and securities limited to 5 percent of assets and 10 percent of the voting shares per issuer; no more than 25 percent of assets sits in any one issuer.

Section 852(a)(1) then applies the RIC rules only if the deduction for dividends paid covers at least 90 percent of investment company taxable income. The BDC deducts what it distributes, so the income it pays out is taxed in shareholders' hands rather than at the fund. Section 4982 adds a 4 percent excise tax on the shortfall when a RIC distributes less than 98 percent of its ordinary income for the calendar year plus 98.2 percent of its capital gain net income for the year to 31 October. Some BDCs choose to pay it and carry income into the next year; Blackstone Private Credit Fund's 10-Q reports $1.3 million of excise tax accrued for the second quarter of 2026.

The result is that a BDC taxed as a RIC, as all five examples here are, keeps little of its income. It grows by raising new shares and new debt, which makes the two limits below matter.

How much a BDC can borrow: asset coverage

Section 18(h) defines asset coverage as total assets, less liabilities and debt that are not senior securities, divided by the senior securities representing debt. Section 61(a), as amended in 2018 by the Small Business Credit Availability Act (Public Law 115-141), sets the BDC minimum at 200 percent, and lets a BDC drop to 150 percent if either a required majority of its directors approves (effective one year later) or its shareholders approve (effective the next day), with disclosure in its filings. A BDC whose common shares are not listed on an exchange must also offer to buy back the shares held on the approval date, 25 percent in each of the four following quarters.

In debt-to-equity terms, 200 percent coverage allows debt up to about 1 times equity and 150 percent up to about 2 times; the approximate conversion is 1 divided by (coverage minus 1). Five BDCs at 30 June 2026, from their 10-Qs:

Ares Capital's 186 percent works out to debt of about 1.16 times equity. Blue Owl Capital Corp's 10-Q describes the 150 percent limit as meaning it "can borrow up to $2 for every $1 of investor equity", and reports net leverage of 1.11 times debt to equity. Main Street's figure is not like for like: SEC exemptive relief lets it leave the SBA-guaranteed debentures of its small business investment company subsidiaries out of the calculation. All four listed BDCs report operating under the 150 percent limit.

Listed and non-traded BDCs

Listed BDCs trade on an exchange like any other stock. A holder who wants cash sells to another investor at the market price; the BDC itself does not redeem shares.

Perpetual non-traded BDCs such as Blackstone Private Credit Fund sell shares continuously at a price based on net asset value, usually through financial advisers, and have no exchange listing; Blackstone Private Credit Fund's offer documents state that its shares "are not traded on any established trading market." A holder who wants cash depends on the fund's periodic offers to buy shares back. Blackstone Private Credit Fund's 10-Q describes a program under which the fund may buy back, each quarter and at its board's discretion, up to 5 percent of its shares outstanding, by number of shares or by NAV, as of the close of the previous quarter. The board may amend or suspend the program, so buybacks "may not be available each quarter."

Net asset value against market price

Net asset value per share is the fair value of a BDC's investments plus its other assets, minus its debt and other liabilities, divided by the shares outstanding. Most of the loans have no traded price, so fair value comes from valuation models: Ares Capital's 10-Q places $28.7 billion of its $29.3 billion of investments at 30 June 2026 in Level 3, the category valued with significant unobservable inputs.

A listed BDC's share price is set by buyers and sellers, and it can sit far from NAV:

• Ares Capital's 10-Q reports a closing price of $18.61 on 23 July 2026, a discount of about 3.82 percent to its 30 June NAV of $19.35.
• FS KKR Capital's 10-Q reports second-quarter 2026 closing prices from $10.04 to $11.62 against a 30 June NAV of $18.30, discounts of 45.14 percent and 36.50 percent. Its NAV had been $20.89 at the end of 2025.

A discount says that buyers paid less for the shares than the fund's own marks imply; a premium says the reverse. The gap describes the moment it is measured and is not a forecast of either figure.

A wide discount also limits what the BDC can do. Section 63(2) allows a BDC to sell common stock below NAV only if a majority of its voting shares, and a majority of those held by holders who are not affiliates, approved the practice at the last annual meeting within the prior year, and its board makes findings about the interests of shareholders and the price; section 23(b), which section 63 applies to BDCs, separately allows below-NAV sales in an offering to existing holders. Some BDCs buy back their own stock instead: Ares Capital's 10-Q describes a program to buy up to $1.0 billion of its shares in the open market at certain thresholds below NAV per share.

Tender offers, redemption limits and proration

A non-traded BDC buys back shares through an issuer tender offer under Rule 13e-4 of the Securities Exchange Act. The rule requires the offer to stay open at least 20 business days. If holders tender more shares than the fund will buy, it must buy "as nearly as may be pro rata", in proportion to what each holder tendered. The fund may also accept up to an additional 2 percent of the class without that counting as an increase that would force the offer to stay open longer.

Blackstone Private Credit Fund's offers add their own terms: the price is NAV on the last calendar day of the quarter, set after the offer closes; shares held for less than a year are bought at 98 percent of that NAV, an early repurchase deduction kept by the fund; payment is by a non-interest-bearing promissory note; and any part of a tender that is not accepted is not carried forward to the next offer.

Its offer for the second quarter of 2026, from its final Schedule TO amendment:

The fund bought 93,100,272 of the 191,782,834 shares tendered, about 48.5 percent overall. Its Offer to Purchase prorates by the number of shares tendered but gives priority to requests arising from a holder's death, disability or divorce, so other holders had at most that share accepted: a holder who tendered 10,000 shares had about 4,854 or fewer bought, kept the rest, and could only try again in a later offer. The shares tendered came to about 10.3 percent of shares outstanding at 31 March 2026. The holder also committed on 29 May to a price that was not set until 30 June, and was paid about two months after the deadline.

The quarter before ran differently. When requests for the first-quarter offer exceeded 5 percent, the fund's 2 March 2026 amendment said the board raised the offer to 7 percent of shares, "the maximum amount permitted without changing the terms of the repurchase offer", which is the 2 percent allowance in Rule 13e-4. Its final amendment for that offer, filed 1 May 2026, reports that the fund accepted 100 percent of the shares tendered "as permitted by Rule 13e-4(f)(1)", and its 10-Q puts the purchase at 7.0 percent of shares outstanding, at $24.19 a share.

Where Kresmion shows BDCs

Kresmion's research pages for Ares Capital, Blue Owl Capital Corp, FS KKR Capital and Main Street Capital show each listed BDC's last daily close, its recent SEC filings and the 13F positions reported by the managers Kresmion tracks. Blackstone Private Credit Fund has no exchange ticker or market price (its 10-Q cover lists none), so its NAV, tender offers and results are read from its filings on EDGAR. Private Credit's Public Shadow looks at how tracked managers hold listed BDCs against listed asset managers, and what is a credit spread covers the yield gap that lending to riskier companies carries.

Honest limitations

Company figures come from each company's 10-Q for the quarter ended 30 June 2026 and are as of that date unless the text gives another (Ares Capital's 23 July 2026 closing price, FS KKR Capital's second-quarter price range and end-2025 NAV, and the first-quarter offer's 31 March 2026 price); the tender offer results come from the Schedule TO filings. The five BDCs are examples chosen for size and variety, not a sample of the sector. Asset coverage is not always calculated on the same base, as Main Street's exclusion of SBA debentures shows, and NAV rests on model-based marks that can move when the inputs change. The tax summary covers the main RIC tests only and is not tax guidance. Nothing on this page assesses the credit quality of any BDC's loans or describes what its share price, NAV or distributions do next.

Key takeaways

Frequently asked questions

What does BDC stand for?

Business development company. It is a category Congress added to the Investment Company Act of 1940 in 1980 for closed-end funds that invest mainly in private or small US companies and elect to be governed by sections 55 to 65 of the Act.

Why do BDCs pay such high dividends?

Because the tax rules push them to. To be taxed as a regulated investment company, a BDC must distribute at least 90 percent of its investment company taxable income, and a 4 percent excise tax applies to the shortfall below 98 percent of ordinary income. Most of that income is interest on loans, so it reaches shareholders as distributions rather than staying in the fund. The rule sets the share of income paid out; the size of each payment depends on how much income the loans produce.

What is the difference between a listed and a non-traded BDC?

A listed BDC's shares trade on an exchange at whatever price buyers and sellers agree, which can be above or below NAV. A non-traded BDC sells shares at a price based on NAV and has no exchange listing, so holders depend on the fund's periodic tender offers to get cash, and at Blackstone Private Credit Fund, HPS Corporate Lending Fund and Ares Strategic Income Fund those offers are limited to 5 percent of shares a quarter at the board's discretion.

What happens if more investors ask to redeem than a BDC will buy back?

Unless the fund raises the offer, which Rule 13e-4 allows by up to 2 percent of the shares without extending it, it buys pro rata: each holder's accepted shares are in proportion to the number tendered, and the rest stays invested. Blackstone Private Credit Fund's offers also give priority to requests arising from a holder's death, disability or divorce. In its second-quarter 2026 offer, 191,782,834 shares were tendered and 93,100,272 were bought, about 48.5 percent of all shares tendered, at the 30 June NAV of $23.65.

Why do some BDCs trade below net asset value?

The market price is what buyers pay for the shares today, while NAV is the fund's own estimate of what its loans are worth, mostly from valuation models. When buyers pay less than those marks, the shares trade at a discount, as FS KKR Capital's did throughout the second quarter of 2026. A discount describes the gap at a moment and does not forecast either the price or the NAV.

This page is information, not investment advice.

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Source: Investment Company Act of 1940, section 2(a)(46) and (48), 15 U.S.C. 80a-2, https://www.law.cornell.edu/uscode/text/15/80a-2 ; section 18(h), 15 U.S.C. 80a-18, https://www.law.cornell.edu/uscode/text/15/80a-18 ; section 55(a), 15 U.S.C. 80a-54, https://www.law.cornell.edu/uscode/text/15/80a-54 ; section 61(a), 15 U.S.C. 80a-60, https://www.law.cornell.edu/uscode/text/15/80a-60 ; section 63, 15 U.S.C. 80a-62, https://www.law.cornell.edu/uscode/text/15/80a-62 ; Internal Revenue Code sections 851, 852 and 4982, https://www.law.cornell.edu/uscode/text/26/851 , https://www.law.cornell.edu/uscode/text/26/852 , https://www.law.cornell.edu/uscode/text/26/4982 ; Rule 13e-4, 17 CFR 240.13e-4, https://www.ecfr.gov/current/title-17/section-240.13e-4 ; Ares Capital Corporation, Form 10-Q for the quarter ended 30 June 2026, https://www.sec.gov/Archives/edgar/data/1287750/000162828026050307/arcc-20260630.htm ; Blue Owl Capital Corporation, Form 10-Q for the quarter ended 30 June 2026, https://www.sec.gov/Archives/edgar/data/1655888/000165588826000056/obdc-20260630.htm ; FS KKR Capital Corp., Form 10-Q for the quarter ended 30 June 2026, https://www.sec.gov/Archives/edgar/data/1422183/000162828026053783/fsk-20260630.htm ; Main Street Capital Corporation, Form 10-Q for the quarter ended 30 June 2026, https://www.sec.gov/Archives/edgar/data/1396440/000139644026000094/main-20260630.htm ; Blackstone Private Credit Fund, Form 10-Q for the quarter ended 30 June 2026, https://www.sec.gov/Archives/edgar/data/1803498/000180349826000048/bcred-20260630.htm ; Blackstone Private Credit Fund, Schedule TO-I/A final amendment filed 4 August 2026, https://www.sec.gov/Archives/edgar/data/1803498/000121390026084924/ea0300287-01_sctoia.htm ; Schedule TO-I/A filed 2 March 2026, https://www.sec.gov/Archives/edgar/data/1803498/000119312526085706/d16188dsctoia.htm ; Offer to Purchase dated 4 August 2026, https://www.sec.gov/Archives/edgar/data/1803498/000119312526331631/d58084dex99a1ii.htm ; proration and conversion arithmetic computed by Kresmion ; Blackstone Private Credit Fund, Offer to Purchase dated 1 May 2026, section 3, https://www.sec.gov/Archives/edgar/data/1803498/000119312526199360/d133377dex99a1ii.htm ; final amendment to the first-quarter 2026 tender offer, filed 1 May 2026, https://www.sec.gov/Archives/edgar/data/1803498/000121390026050688/ea0288145-01_sctoia.htm ; HPS Corporate Lending Fund, Form 10-Q for the quarter ended 30 June 2026, https://www.sec.gov/Archives/edgar/data/1838126/000162828026056772/hps-20260630.htm ; Ares Strategic Income Fund, Form 10-Q for the quarter ended 30 June 2026, https://www.sec.gov/Archives/edgar/data/1918712/000162828026054923/asif-20260630.htm.

Kresmion Research.