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Banks Pulled Back From Lending to Mid-Sized Companies. These 3 Stocks Stepped In, and $105,000 Pays $12,137 a Year
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.
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.
For the quarter ended September 30, 2026, pre-tax net investment income (NII), meaning the interest and fees left after expenses, was $0.58 per share. That covered the $0.58 regular dividend, paid as $0.1934 a month. Behind the $0.06 December supplemental sits $0.92 per share of retained taxable income, which is income already earned but not yet paid out.
Credit quality is the primary concern here. Non-accruals, which are loans that have stopped paying interest, rose to 1.4% of the portfolio at fair value from 1.1%.
Trinity Capital- Stock #2
- Trinity Capital (NYSE:TRIN)
- Yield: 11.57%
- Shares for $35,000: 1,985.25
- Annual Passive Income: ~$4,050
Trinity Capital lends to growth-stage companies, many of them venture-backed, and runs a large equipment financing business alongside tech lending and three other segments. Its 198-company portfolio includes $470.7 million in equipment financings, and its effective yield on debt investments reached 15.2%.
Third-quarter NII came in at $0.52 per share versus a $0.51 quarterly distribution, for 103% coverage. The $0.17 monthly dividend held steady through every month of 2026. On top of that, the company has $0.69 per share of retained taxable income set aside.
Leverage is the main thing to track. Net debt-to-equity was at 117%, and $75.0 million of unsecured notes mature in December 2026.
Barings BDC- Stock #1
- Barings BDC (NYSE:BBDC)
- Yield: 11.86%
- Shares for $35,000: 3,990.88
- Annual Passive Income: ~$4,151
Barings BDC is externally managed by Barings, a MassMutual subsidiary, and makes mostly senior secured loans to middle-market companies. Its portfolio was valued at about $2.46 billion as of June 30, 2026.
Third-quarter NII came in at $0.26 per share, down from $0.28 in the previous quarter. That exactly covered the $0.26 quarterly dividend, leaving no cushion for current earnings. Spillover income held in reserve stood at approximately $0.80 per share.
The company previously paid $0.31 quarterly in March, June, and September 2025, combining its $0.26 regular dividend with a $0.05 special payment. The regular $0.26 quarterly dividend remains unchanged.
Net asset value per share slipped to $10.94 from $11.02 after reductions on a few watch-list loans. On October 30, Barings priced a $396 million CLO financing and plans to use the proceeds, along with credit facility borrowings, to repay its $350 million in notes due November 23, 2026.
Income Snapshot at $35,000 per Position Name Yield Annual Dividend Income Capital Southwest 11.25% $3,937 Trinity Capital 11.57% $4,050 Barings BDC 11.86% $4,151 Total 11.56% $12,137Together, these three positions generate $12,137 in annual passive income on a $105,000 investment, a combined yield of 11.56%. Capital Southwest contributes $3,937, Trinity Capital adds $4,050, and Barings BDC rounds out the group with $4,151.
Listed BDC shares can be sold on any trading day, which offers more flexibility than a private loan fund that may limit withdrawals. Most of their loans carry floating rates, so this income can shrink if short-term rates fall.
In a taxable account, BDC dividends are mostly taxed as ordinary income. Only the portion a fund reports as qualified dividend income gets the lower rate (26 U.S.C. § 854(b)(1)(B)), and payouts built on interest income rarely qualify.