Banks Pulled Back From Lending to Mid-Sized Companies. These 3 Stocks Stepped In, and $105,000 Pays $12,137 a Year

Quick Read

• Capital Southwest and Trinity Capital, two BDCs filling the gap left by retreating banks, yield about 11% and 12%, paying $4,000 each on $35,000 stakes.

• Three BDCs holding $105,000 would throw off about $12,000 a year, since BDCs must pay out at least 90% of taxable income.

• Floating-rate loans mean this income can shrink if short-term rates fall, and most BDC dividends are taxed as ordinary income.

• Read More: Learn 7 ways to generate income with a $1,000,000+ portfolio (sponsor)

Banks have pulled back from lending to mid-sized businesses, in part because tighter capital rules made those loans less attractive to hold. A group of publicly traded lenders stepped in to fill the gap, and they pass most of the interest they collect through to shareholders.

Three of these lenders each received a $35,000 stake, for a total investment of $105,000. At prices as of November 5, 2026, that would yield $12,040 in passive income each year, above the $12,000 target.

All three are business development companies, or BDCs. A BDC is a publicly traded lender to private businesses. BDCs are taxed as regulated investment companies, and keeping that status requires paying out at least 90% of investment company taxable income as dividends (26 U.S.C. § 852(a)(1)(A)). What they distribute largely skips corporate tax, so most of the interest ends up with shareholders.

Each yield below uses a different basis. For Capital Southwest (NASDAQ:CSWC), the calculation annualizes its current regular and supplemental dividends. Trinity Capital (NYSE:TRIN) uses its current monthly dividend, and Barings BDC (NYSE:BBDC) uses its last four quarterly payments.

——

Learn 7 Ways To Generate Income With A $1,000,000+ Portfolio

If you’ve saved over $1,000,000, this guide is for you. The last thing you want in retirement is to run out of money, you want your money to generate lasting income while you enjoy your life.

Now you can learn the strategies wealthy retirees use to fund their retirement with The Definitive Guide to Retirement Income from Fisher Investments. Download the guide today! (sponsor)

——

Capital Southwest

• Stock #3

• Capital Southwest (NASDAQ:CSWC)

• Yield: 11.25%

• Shares for $35,000: 1,502.15

• Annual Passive Income: ~$3,937

Capital Southwest is based in Dallas and lends to lower middle market companies earning $3 million to $25 million in EBITDA (cash profit before interest, taxes, and noncash costs). First-lien debt gets repaid first if a borrower fails, and it makes up 99% of its credit portfolio. The portfolio’s weighted average yield was 10.9%, and the company pays regular dividends monthly plus a supplemental dividend each quarter.