If you’ve ever wished you could earn the kind of income that banks and lenders do—without actually becoming one—there’s good news. You can become a lender, and you don’t need millions of dollars or a fancy office to do it.
Thanks to Business Development Companies, or BDCs, ordinary investors like you can earn high yields by funding American businesses—all from the comfort of your retirement account.
Let’s break it down so you can see how BDCs work, why they pay such generous dividends, and how to choose the safest ones for your portfolio.
What is a BDC?
A Business Development Company is a special type of investment company that provides funding—usually in the form of loans—to small and mid-sized businesses in the U.S. These are often privately owned companies that don’t have access to traditional financing through banks or the public markets.
BDCs were created by Congress in 1980 to help stimulate the U.S. economy by supporting small businesses. In return for helping fund America’s Main Street, BDCs get a big tax break—but they must pay out at least 90% of their profits to shareholders as dividends.
That’s where you come in.
When you invest in a BDC, you’re essentially buying shares in a company that earns interest by lending money to dozens—or even hundreds—of businesses. That interest gets passed on to you in the form of regular, high-yield dividends.
How BDCs Generate Income
Here’s how it works in plain English:
- A BDC raises money from investors (like you).
- It lends that money to private U.S. businesses—usually at higher interest rates than banks would charge.
- The businesses make regular interest payments on those loans.
- The BDC collects those payments and passes most of the profits on to shareholders.
Many of these loans pay interest rates in the 10%–13% range, which is why BDCs can deliver yields of 8% to 12% or more—even in today’s market.
Why “Senior Loans” Are Safer
Not all loans are created equal. The best BDCs specialize in senior secured loans—and that’s very good news for conservative investors.
Here’s why:
- Senior means the loan gets repaid first if the company runs into trouble or goes bankrupt.
- Secured means the loan is backed by collateral—like equipment, inventory, or real estate.
This gives senior secured loans a strong layer of protection that makes them far less risky than unsecured or subordinated loans. It’s the difference between having a lien on a house versus simply hoping you’ll be repaid.
In a world where safety matters—especially for retirees—senior secured loans are the gold standard.
A Real-Life Example: Meet Tom
Tom, a 72-year-old retiree in Florida, wanted more income from his retirement savings but didn’t want to take big risks in the stock market. He also didn’t want to mess with rental properties or manage a side business.
After doing some research, he decided to invest $75,000 in a mix of senior loan-focused BDCs inside his IRA. His portfolio paid him an average yield of 9.5%—or around $7,125 per year in dividends, paid quarterly.
Tom used some of that money to help pay for travel and hobbies, and reinvested the rest to grow his income. Because the BDCs he chose were diversified across hundreds of business loans, he felt more secure than putting it all in one place.
“I like that I’m helping real businesses grow,” Tom said. “But mostly, I like those steady checks showing up in my account.”
Top 4 BDCs for Safety and Yield (as of May 2025)
If you’re looking to get started with BDCs, here are four highly rated names known for quality, senior-secured lending, strong management, and consistent income:
1. Main Street Capital (MAIN)
- Yield: ~6.8%
- What makes it safe: One of the best-managed BDCs in the industry, with a mix of senior secured loans and equity stakes. Conservative underwriting and a strong balance sheet. Pays a monthly dividend.
2. Blue Owl Capital Corp (OBDC)
- Yield: ~9.5%
- What makes it safe: Focuses on first-lien senior loans to larger middle-market businesses. Backed by Blue Owl, a leading asset manager. Very transparent and investor-friendly.
3. FS KKR Capital Corp (FSK)
- Yield: ~12.0%
- What makes it safe: Run by powerhouse private equity firm KKR. Specializes in senior secured lending and benefits from deep research and deal flow. One of the larger BDCs in the U.S.
4. Ares Capital Corp (ARCC)
- Yield: ~9.8%
- What makes it safe: The largest BDC by assets. Known for careful credit selection, a low-cost structure, and access to quality deals through Ares Management, a global investment firm.
These BDCs are widely held by income investors and retirees, with solid reputations for managing risk while delivering strong dividends.
Keep in mind: Yields can vary based on market conditions and stock price fluctuations, but these companies have proven themselves through multiple economic cycles.
Are BDCs Right for You?
BDCs may be a great fit if:
- You’re retired or nearing retirement and want higher income
- You’re looking for diversification outside traditional stocks and bonds
- You want to invest in real American businesses without starting one yourself
- You can tolerate some share price volatility in exchange for high, steady income
You don’t have to pick individual BDCs if that feels overwhelming. There are also BDC ETFs (like BIZD from VanEck) that offer one-click exposure to a diversified basket of BDCs.
Final Thoughts
BDCs are one of the best-kept secrets in retirement investing. By channeling your money into loans for real U.S. businesses, you’re not only supporting the economy—you’re also building a powerful, high-yield income stream for yourself.
And thanks to senior secured lending, you can do it with less risk than many realize.
So if you’re looking to earn bigger yields without taking wild chances, BDCs might just be the ticket. The best part? No phone calls, no tenants, no boss—just steady income, quarter after quarter.
This post is excerpted from my book: 9% Retirement Paycheck: How to Generate Steady, Worry-Free Income for Life, available now at Amazon.com in eBook and paperback formats.
Disclaimer: For Educational Purposes Only
The content on this website is intended for general educational use and should not be considered personalized financial, legal, or tax advice. Always consult a qualified professional before making financial decisions. All investments carry risk, and past performance is not a guarantee of future results. The author assumes no liability for actions taken based on this content.