A Business Development Company or "BDC" provides funding to small companies and usually pay high dividend yields.

BDCs are in the business of helping small companies grow. They do this by providing capital growth and also by providing managerial guidance.

As Wikipedia explains:

A Business Development Company is a form of publicly traded private equity vehicle in the United States...

...Typically, they are structured similar to real estate investment trusts (REITs) to reduce or eliminate corporate income tax. In return, REITs are required to distribute 90% of their income, which may be taxable to its investors.

We as investors escape the double-taxation penalty by buying shares of Business Development Companies. But this comes at a cost. Since they are required to distribute more than 90% of their income to shareholders, they have meager "retained earning" to put back into their business to make it grow. This in turn means that their high dividends do not grow appreciably.

You can think of a Business Development Company as a kind of a "mutual fund" that invests in very small companies. These companies have capitalization of $100 million or less, and can be termed "nano-cap" companies. Investing in Business Development Companies is probably the only way to gain exposure to companies of this size, which is another reason to invest in them.

There are many Business Development Companies that trade on the major US exchanges. Here are the biggest 10 by capitalization (as of 6/7/2009):

• American Capital Strategies (ACAS)
• Apollo Investment Corporation (AINV)
• Allied Capital Corporation (ALD)
• Ares Capital Corporation (ARCC)
• Capital Southwest Corporation (CSWC)
• Fifth Street Finance Corporation (FSC)
• Hercules Technology Growth Capital, Inc. (HTGC)
• MVC Capital Inc. (MVC)
• Prospect Capital Corporation (PSEC)
• NGP Capital Resources Company (NGPC)