The Pentagon announced its first direct lending tool Monday, offering loans to U.S. companies that make in-demand defense component technologies.
Nearly $1 billion has been set aside for the Defense Department to award direct loans ranging from $10 million to $150 million.
The Defense Department hopes the effort will help companies fund the construction and equipment needed to scale production across 31 technology categories deemed critical to U.S. national security. That includes areas like space launch, microelectronics fabrication, edge computing and quantum sensing.
“DOD now has proven financial tools to enable millions of dollars of investment in national security priorities at limited cost to the department and the taxpayer,” Defense Department Office of Strategic Capital, or OSC, Director Jason Rathje said in a statement.
The effort is geared toward businesses who need flexible financing options in order to attract additional investment and “unlock growth opportunities,” OSC said in a LinkedIn post Monday.
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For a company to receive an OSC loan, it must meet certain eligibility requirements established by DOD and the Office of Management and Budget to make sure projects are economically viable, low-risk for the government and mature enough to quickly enter the commercial market.
The office will accept initial applications between January 2 and February 3. Following review, OSC will notify firms if their projects were selected to move to the next phase of the application process.
OSC set up shop in December 2022 to help the Pentagon steer private capital toward the technologies and supply chains that are most important to DOD and broader U.S. economic security. The office is distinct from other department initiatives in that it focuses on investments in components rather than capabilities, and on lending funds rather than spending them.
Congress gave OSC lending authority as part of the 2024 National Defense Authorization Act, which was signed into law in December. OSC released its inaugural investment strategy in March, creating a framework for the lending program that it expects to refresh on a regular basis as threats change and technology advances. The document outlined 12 initial priority areas, including biotechnology, quantum science, microelectronics, space-enabled services and sensor hardware.
The office’s strategy is to partner with other government agencies to offer cost-effective tools that incentivize private capital firms to invest in the technology DOD needs.
“As used by OSC in collaboration with federal partners, these financial tools will enable capital providers to invest in critical technologies that would otherwise be less attractive because the cost of capital is too high, the timelines for repayment or liquidity are too long, or the technical challenges are too risky for a nascent commercial market alone,” OSC said in its strategy.
Courtney Albon is C4ISRNET’s space and emerging technology reporter. She has covered the U.S. military since 2012, with a focus on the Air Force and Space Force. She has reported on some of the Defense Department’s most significant acquisition, budget and policy challenges.
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