A Business Development Company functions just like a venture capital firm that invests in small start-up businesses that can't go to major banks to borrow money.
A BDC typically lends money at high rates of interest, although borrowers may sometimes offer BDCs rights to buy stocks in the company as a way of reducing their financing costs.
Like REITs, BDCs pay little to no corporate income taxes and must distribute substantially all of their profits to shareholders.
As expected, small companies have high risk of failure, BDCs' prices are also full of risk.
One example is KCAP Financial (KCAP - 12.5% yield).
For a summary of the high yield investment products and the best way to approach them, see our final post of this series.