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are companies organized under special state statutes for the purpose of providing funds to small businesses in their state. Most can provide debt and equity financing. Business development corporations often borrow the money they provide to businesses. When they do, they tend to finance companies in ways that will generate enough cash to permit them to make their interest and principal payments to their lenders. Because of this, these types of BDCs usually lend money instead of making pure equity investments. This way, the portfolio companies support the BDC's obligation to repay its lenders by making regular payments of principal and interest to the BDC. Even when a BDC acquires stock in a company it is usually through a warrant or option to purchase stock that accompanies a loan. Because these BDCs need to make regular debt service payments to their lenders, they (unlike other venture investors) tend to be more interested in a company's ability to support and repay debt in the short term than in the company's prospects for rapid, profitable growth. As a result, BDCs are often precluded from investing in early stage companies or companies that lack the ability to show a profit in the near term. See: CDCs (Community Development Corporations), Debt Service, Personal Guarantees, SBICs (Small Business Investment Companies), Venture Capitalists.
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