Business development companies -- or BDCs -- will be marching in the earnings season parade next week. What makes BDCs so attractive? Well, let's start with the model. The typical BDC will provide financing to small- and medium-sized businesses that often can't line up conventional funding through major commercial banks. In return for taking on the risk, BDCs can ask for reasonably high interest payments and even some equity exposure. As long as they divvy up at least 90% of their interest income among their investors, there's no double taxation.
Risk is mitigated via diversification, but default rates are surprisingly low. A recent Barron's article claims that the annual loan-loss rate for BDCs is just 0.7%. Here are some of the BDCs reporting next week: Prospect Capital (NASDAQ: PSEC), TICC Capital (NASDAQ: TICC), Ares Capital (NASDAQ: ARCC), Fifth Street Finance (NASDAQ: FSC) and Main Street Capital (NYSE: MAIN).
Source: Motley Fool
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