Believe it or not, the U.S. government is one of the biggest backers of high-yield BDCs, which frequently pay investors 10% or more per year in dividends.
Through the Small Business Administration, BDCs large and small are borrowing cheap capital. Golub Capital BDC (NASDAQ:GBDC) and Fifth Street Finance (NASDAQ:FSC) have two licenses from which they can borrow money at rates mere basis points higher than the U.S. Government.
Likewise, smaller players including Main Street Capital (NYSE:MAIN) and Triangle Capital (NYSE:TCAP) are virtually reliant on the U.S. government to fund their balance sheet. And while it may seem to be a boon for shareholders at the cost of government, this program has been an absolute success.
See why these high-yield BDCs love borrowing from the government at rates you simply will not believe.
In the following video, Motley Fool Financials Bureau Chief David Hanson and Fool contributor Jordan Wathen discuss the opportunities and limitations of the SBIC lending program.