Business development companies, or BDCs, can give investors exposure to private businesses across a range of industries while generating high cash flow. Their high yields are a major draw for investors seeking a stream of passive income, but 2026 has found BDCs at the center of several current tensions. “Much of the pressure over the last year has revolved around headlines related to liquidity and redemption limits at some non-traded funds, a few idiosyncratic credit events like First Brands and Tricolor (bankruptcies) and uncertainty about how AI may disrupt certain software borrowers,” says Coulter Regal, product manager at VanEck, which manages the VanEck BDC Income ETF (ticker: BIZD).
He adds that lower interest rates have also weighed on the group because BDC loans are predominantly floating-rate. “The income case also remains compelling,” he says, “with many BDCs yielding double digits, an attractive level relative to other areas of the income market today.” Publicly traded BDCs are also trading at discounts to net asset value, or NAV, which Regal says may mean “much of the fear around private credit is already priced in.” What Is a Business Development Company? Business development companies invest in or lend to small and midsize businesses that may not have access to the same capital markets as larger corporations.
Because these borrowers can be riskier, BDCs can often charge higher interest rates. Many BDC loans are floating-rate, which can generate more income when rates are higher but become a headwind when rates fall. BDCs are diversified across many companies, but diversification only goes so far if credit quality deteriorates.
The primary risk with BDCs is poor credit underwriting, says David Miyazaki, who focuses on BDCs as a portfolio manager at Confluence Investment Management. “Rising or high levels of credit problems in loan portfolios are yellow and red flags, as they can lead to declining net asset value, lower income and ultimately, lower dividends,” he says. Higher-quality BDCs tend to have strong management teams, disciplined underwriting and better portfolio construction, Regal says.
He adds they often have “lower nonaccr…
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