The Rapid Growth of Private Credit

Private credit, broadly defined as non-bank lending directly to companies outside traditional public markets, has seen remarkable growth over the past decade (see Exhibit 1). This segment of finance includes direct loans, mezzanine debt and other debt instruments extended primarily to middle-market companies with annual revenues between USD 10 million and 1 billion.¹ The surge is largely due to regulatory changes that were made after the 2008 financial crisis, which tightened banks’ lending capacities, especially to smaller and mid-sized firms.²

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In investment spaces, investors have increasingly turned to private credit, seeking higher yields amid a low-interest rate environment and greater diversification. The global private credit market is projected to grow to approximately USD 2.6 trillion by 2029, with direct lending remaining the largest and fastest-growing category.³

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Among the various entities operating within direct lending, business development companies (BDCs) have emerged in recent years and now manage about USD 500 billion in assets.⁴

BDCs: A Regulatory Structure Designed to Channel Capital into Private U.S. Businesses

A BDC is an investment vehicle created by the U.S. Congress in 1980 under the Small Business Investment Incentive Act.⁵ This legislation amended the Investment Company Act of 1940 to establish BDCs as a new type of closed-end fund aimed at providing capital to small- and mid-sized businesses that often struggle to secure traditional bank or lender financing. They give investors the ability to invest in private companies and offer several potential benefits.

• Higher income: BDCs are required to distribute at least 90% of their taxable income to shareholders.⁶
• Lower volatility: BDC returns have tended to be less volatile than traditional public equities because their underlying assets, primarily senior secured loans to private companies, are not marked to market daily and are often held to maturity.
• Diversification compared to public fixed income investments: BDCs invest in private credit with limited correlation to publicly traded bonds, which helps investors reduce interest rate and duration risk.

BDCs can be: publicly traded (USD 175 billion in AUM); private finite non-traded (USD76 billion in AUM); or private perpetual non-traded (USD 253 billion in AUM).⁷ Public BDCs are exchange listed and could offer greater liquidity and accessibility. Private non-traded BDCs are typically limited to accredited or institutional investors, often with higher minimums. Non-traded BDCs may be structured as finite-life vehicles (5-7 years) with a planned liquidity event, or as perpetual funds that raise capital continuously.

BDCs Bridge Lending Gaps and Expand Access to Private Credit

Private credit has become a vital part of the financial ecosystem, especially as banks have pulled back on lending to riskier or smaller borrowers due to tighter regulations. This pullback has created opportunities for BDCs, which fill the gap by offering flexible financing solutions.

It’s notable that some BDCs are publicly traded, allowing investors to buy and sell shares easily—something uncommon in the private credit space. This accessibility opens the door for many types of investors to participate in private credit markets.

The S&P BDC Index

The S&P BDC Index tracks publicly traded BDCs that meet certain size, liquidity and quality standards, giving market participants a broad and diversified view of the sector. The index follows transparent criteria and is rebalanced regularly to reflect changes in the market.  It also includes a variety of BDCs with different focuses, helping to provide a balanced view of private credit.

The index can serve as a benchmark for funds and ETFs seeking to provide BDC exposure in the private credit direct lending space. Exhibit 3 presents a five-year performance comparison in total return terms between the S&P BDC Index and other indices, showing that it outperformed them for much of the period.

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Historically, a high dividend yield has been one of the defining characteristics of BDCs. In 2025, the top eight constituents in the S&P BDC Index offered yields ranging from approximately 6% to 16% (see Exhibit 4).

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BDCs can provide a bridge between investors and growing companies needing capital beyond traditional lenders. As private credit expands, S&P Dow Jones Indices will introduce new offerings related to BDCs, direct lending and the broader private credit market.

¹ Cai, Fang and Sharjil Haque. “Private Credit: Characteristics and Risks.” U.S. Federal Reserve. Feb. 24, 2024.

² “The Impact of the Dodd-Frank Act on Small Business.” Research Dept. Working Paper No. 1806 – Dallas Fed.

³ “Private Credit Outlook 2025: Opportunity & Growth.” Morgan Stanley. Dec. 18, 2024.

⁴ Nangle, Tony. “Inside the big boom in ‘business development companies’.” The Financial Times. Sept. 19, 2025.

⁵ “H.R.7554 – 96th Congress (1979-1980): An act to amend the Federal securities laws to provide incentives for small business investment, and for other purposes.” Congress.gov. Library of Congress. Oct. 21, 1980; “H.R.7491 – 96th Congress (1979-1980): Business Development Company Act of 1980.” Congress.gov. Library of Congress. June 4, 1980.

⁶ Office of Investor Education and Assistance. “Publicly Traded Business Development Companies (BDCs): Investor Bulletin.” Investor.gov U.S. Securities and Exchange Commission. Dec. 13, 2024.

⁷ Figures based on Q2 2025 data from Berlin, Andrew. “BDC Quarterly Wrap: 2Q25.” LSTA. Sept. 3, 2025.

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