DOD Makes Loans to Industry for Critical Technology Development, Production

On Dec. 1, 2022, the Defense Department announced the creation of the Office of Strategic Capital, or OSC, to ensure that critical technologies get the funding needed to make it through product development, followed by production.

These critical technologies usually have application for both military and civilian use.

Jason Rathje, director, OSC, spoke today at a Center for Strategic and International Studies webcast on "Funding Allied Innovation: Ensuring Advanced Capabilities for the Future Warfighter." 

Some of the most important technology areas for national security include energy, advanced materials and quantum science. These technology areas are extremely expensive and require a lot of time and money to develop before a return on investment is realized, he said.

OSC was developed to incentivize industry to reinvest or expand their investment in many of these capital-intensive technology areas, Rathje said.

Last year, OSC was authorized to be the lender for DOD. Therefore, OSC has unique authorities to grant and guarantee loans in support of this mission and enable industry to scale up production and generate revenue, he said.

As an example, Rathje pointed to an investment in next-generation semiconductors, where U.S. and allied investments are low, due to the length of time needed to go from research and development to production and profitability.

Rathje also mentioned the need for industry to be aware of and take appropriate actions regarding supply chain vulnerabilities. Collaboration and coordination between government and industry can ensure supply chains become more resilient.

To safeguard national interests, OSC incorporates comprehensive reviews of adversarial capital investments and influence, according to OSC's fiscal year 2024 investment strategy.

These reviews assess potential investors and their affiliations to identify connections with entities, persons or countries of concern that may pose risks to national security, economic security or the integrity of the supply chains needed for defense.

OSC will also use a coordinated risk-based approach with allies and partners to ensure that decisions about risk are informed within the global context.