SBA, Department of War expand capital access for U.S. defense suppliers

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SBA expands defense capital access

Highlights

The Small Business Administration and Department of War signed a memorandum enabling the Department's Economic Defense Unit to refer defense-related small business financing needs directly to SBA's 7(a) and 504 lender networks.
SBA can now back redeemable preferred-equity investments in small and medium-sized companies within critical defense sectors, including munitions, platforms, technology, essential materials, and strategic metals and minerals.
The initiative targets the 70 percent of the defense industrial base made up by smaller manufacturers, aiming to boost production capacity, strengthen supply chains, and reduce foreign dependence.

Integrated financing plan for defense manufacturers

As reported by the Small Business Administration, the new memorandum of agreement builds on the Smaller War Plants Commission, created last month as a federal effort to expand domestic industrial capacity supporting the military.

Under the arrangement, the Department of War's Economic Defense Unit will identify small businesses with financing needs through its Business Operators for National Defense efforts and refer potential loan candidates to SBA. SBA is then set to use its existing 7(a) and 504 lender networks to connect eligible companies with SBA-backed funding.

The agreement also allows SBA to support Department of War-funded redeemable preferred-equity investments in small and medium-sized businesses tied to critical industrial capacity. The areas cited include munitions, platforms, technological processes, essential materials, and the exploration, development and mining of strategic and critical metals and minerals.

SBA is providing due diligence, underwriting, transaction support and portfolio-management assistance, while the Department of War keeps final decision-making authority over its investments. The agencies also plan to establish joint investment guidance, hold quarterly portfolio reviews and resource planning, and collaborate on annual reporting covering investment performance and exits.

Policy push to strengthen domestic supply chains

The administration says the initiative is aimed at increasing production capacity among smaller defense-related manufacturers, which SBA says make up 70 percent of America's defense industrial base. Officials present the program as a way to reduce foreign dependence and direct more strategic capital toward companies supplying ships, munitions, microelectronics, materials, components and other military technologies.

The Smaller War Plants Commission takes its name from World War II-era federal entities that helped small manufacturers obtain financing, contracting tools and technical support. By pairing that historical model with current lending and investment channels, the agencies are seeking to scale businesses considered essential to military readiness and the resilience of U.S. supply chains.

Germany’s projected rise in public debt and deficits through 2030 outlined how increased borrowing is being used to fund infrastructure and expanded defence spending. Our earlier article noted that the combination of a large infrastructure fund and looser defence-related borrowing rules is expected to keep Germany above EU Maastricht reference levels, reflecting a policy choice to invest for growth after a prolonged weak period.

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