Pentagon Unveils $984 Million Loan Program to Promote Critical Technologies

The Office of Strategic Capital
Secretary of Defense Lloyd Austin established the OSC in December 2022 to help military services field innovative capabilities at a faster pace. Congress formally enacted the OSC into law through the Fiscal Year (FY) 2024 National Defense Authorization Act (NDAA), which also granted the office new authorities to issue loans and loan guarantees. In addition, Congress appropriated funds in FY24 for the OSC to loan up to $984 million to eligible entities (defined below).

As detailed in the FY24 NDAA, the OSC is directed to carry out a pilot program to provide loans and loan guarantees to fund the development of specified technologies that are critical to national security but also have applications beyond DoD. Under this approach, the OSC will help providers of certain technologies prepare for broader distribution in the private sector. Then, as those technologies reach new markets and achieve new economies of scale, DoD can purchase those products at lower cost.

Eligible Entities
Eligibility for this program is broad and may include individuals, corporations, partnerships, trusts, states, tribal governments and other government or public entities. While many entities may apply, applicants will be evaluated against program goals. For example, each applicant will be reviewed for foreign ownership and control. One goal of this program is to enhance domestic technologies and projects—so a company may be eligible to apply but limited in its success if it has complete foreign ownership or no U.S. background. Similarly, a company with adversarial ownership, such as ties to China, Russia, Iran or North Korea, would also likely not be viewed favorably by the OSC. The OSC will assess the foreign connections of each company as demonstrated by their customers, suppliers, management team, board of directors, ownership and other contractual relationships. The OSC will also evaluate the degree to which other federal funds are supporting the entity’s project and technology, favoring those projects that have not received substantial government support to date.

Eligible Technologies
When Congress authorized the OSC in the FY24 NDAA, it specified 31 covered technology categories that may receive OSC capital assistance. The OSC has broad authority to invest in supply chain and component-level technologies and processes that enable DoD capabilities but are not always supported through direct procurement. These technologies must benefit the national security and defense activities of DoD but must also have the potential for broader use in other applications and sectors. A selection of the covered technology categories includes:

• advanced manufacturing,
• battery storage,
• cybersecurity,
• edge computing,
• hydrogen generation and storage,
• microelectronic assembly, design, fabrication and manufacturing,
• sensor hardware,
• solar technologies,
• space launch and spacecraft, and
• quantum computing, security and sensing.

Eligible Uses
Applicants who are chosen to receive either a loan or a loan guarantee may use the funding to finance the purchase or rehabilitation of equipment used in manufacturing. This can include:

• pre-installation costs (including planning, development, engineering analysis and legal expenses),
• installation costs (including labor and materials),
• appraisal and inspection costs, and
• refinancing costs, on a case-by-case basis.

Application Process
The application portal will open on January 2, 2025, and close on February 3, 2025, although the application materials are available now for review. Each applicant may only submit one application. The OSC plans to offer consultations with potential applicants to help strategize their application and help the applicant gauge their chances of success. To participate in this program, an applicant must submit their initial materials during Part 1 (January 2 – February 3) to be eligible for Part 2. Applicants invited to Part 2 will be informed by the OSC of when and how to submit their application on a rolling basis.

Pillsbury’s Government Law and Strategies and Regulatory practices stand ready to help clients access federal funding opportunities. For those interested in pursuing federal benefits, in the form of either direct grants, through public-private partnership, or through loan opportunities or tax credits, Pillsbury is prepared to help you navigate the myriad programs, eligibility requirements and application processes.