By: Margaret M. Cassidy & Andrew Swick
Technological advantage has always been America’s edge: unparalleled access to capital; well-established and enforceable intellectual property protections; elite universities that work with investors, startups, and industry; bankruptcy laws that treat business failure as a growth opportunity and give second chances; and, of course, a spirit of ingenuity, self-reliance, and work ethic.
In recent years, adversaries have deployed resources to close that gap, and their innovation is moving faster than the Department of Defense (DoD) acquisition process can handle.
It turns out the gap in critical technology has not been about a lack of ideas in the United States. It has been a financing problem. Businesses with critical technologies are running out of funding: an idea in the head of a founder, or in an R&D lab, often dies before production, or there is not enough production capacity to field a prototype.
To address this, DoD decided that using its power to get capital into the right hands is an innovation force multiplier. With government credit behind private money, and more investment moving into defense and national security businesses, DoD may fill gaps the private financial markets alone were not meeting. That is the idea behind DoD’s Office of Strategic Capital (OSC): a faster way to out-pace and out-finance adversaries in getting technology to scale.
The Office of Strategic Capital
DoD was concerned that strategic U.S. industries faced liquidity and funding problems that were slowing innovation, weakening domestic production capacity, and increasing reliance on foreign supply chains.
In December 2022, DoD responded by standing up the OSC as a pilot program to pull private capital toward innovators and to support production capacity through loans, loan guarantees, and technical assistance directed into critical technology companies and the defense industrial base.
Congress picked up the cause in Section 903 of the FY24 National Defense Authorization Act, endorsing the OSC with its legislative power. It directed DoD to continue the pilot and its mission: deploying loans, loan guarantees, and technical assistance into critical technology and the defense industrial base. The OSC facilitates capital structured like the commercial market, aimed squarely at companies with an idea or R&D but no path to production, or those needing production capability.
The Senate’s FY27 National Defense Authorization Act would expand OSC authority to make equity investments in businesses. That expansion would also create a real risk of politicization and market distortion, and the Senate bill accordingly includes mandates for transparency from DoD on OSC operations and strategies. The Defense Salon will track this.
The Mechanics
- OSC is still a pilot. OSC’s authority sunsets October 1, 2028. The FY27 National Defense Authorization Act may change that.
- Defined industries. OSC funding must support one of the critical technology areas identified in the FY24 National Defense Authorization Act, which include, for example, applied artificial intelligence, biomanufacturing, contested logistics technologies, quantum and battlefield information dominance, scaled directed energy, and scaled hypersonics.
- The technology must be dual-use. To be eligible, technology must sit on the commercial-and-defense frontier. Eligible technology will likely be export controlled, but because it cannot be solely defense, it likely will not be captured by the International Traffic in Arms Regulations (ITAR).
- Many, but not all, are welcome. OSC is not limiting its activities to U.S.-owned companies. Foreign-owned businesses are eligible so long as the company is domiciled in the United States.
- These are not acquisition contracts, grants, or cooperative agreements. OSC is not contracting with businesses to buy technology or R&D, and it is not funding R&D, prototypes, or production through grants or cooperative agreements.
- Leverage, not handouts. For now, 80 percent or more of the capital in an OSC loan must come from private sources. DoD crowds private money in rather than replacing it. Both DoD and Congress are considering equity stakes in eligible businesses.
- Patient capital. Loan maturities can run up to 50 years — a runway built for hard technology and long supply chains, not the quarterly cycles demanded by founders, private equity, venture capital, or banks.
The Playbook So Far
DoD has been active. In 2025, OSC partnered with the Small Business Administration to announce its first cohort of investment funds, approved under the Small Business Investment Company Critical Technologies Initiative.
Also in 2025, OSC announced a $150 million direct loan to MP Materials, which owns a rare earths mine. The loan was intended to add rare earth separation capability to MP Materials’ existing processing facility, responding to what the Administration views as aggressive Chinese Communist Party actions endangering the global critical minerals supply chain and undermining U.S. economic and national security.
In August 2026, OSC signaled plans to build the legal and transactional infrastructure needed to support a larger volume of financing activity and more complex investment transactions, issuing what amounts to a request for proposals from law firms with deep financial transaction experience to serve as external transaction counsel.
That same month, OSC announced a Notice of Funding Opportunity for its National Security Fund Finance Program, which will “provide capital support to credit funds addressing shortages, gaps, and vulnerabilities in critical minerals vital to United States national security.”
DoD has ambitions for more. FY25 reconciliation seeded the DoD Credit Program to subsidize up to $100 billion in loans and guarantees for critical minerals and covered technology, and DoD’s FY27 request adds $20 billion in mandatory funding. OSC appears to be a pilot program in name only, not in dollars.
Takeaways for Industry
If your R&D, technology, prototypes, or production capability is dual-use and can move commercial and defense technology forward while strengthening the defense industrial base, OSC is worth tracking — not only as a source of funding, but as a signal from Congress and DoD about where the government is heading on innovation and the industrial base.
- Build it into strategic plans. If plans call for more R&D or facility build-out for production and capital is needed, consider whether OSC is a worthwhile source. Understand the compliance requirements that come with the funding and build them into the plan.
- Confirm the technology is dual-use. If emerging or existing technology is commercial-and-defense, or production capability is built for dual use, the business may qualify. Match the technology against the critical technology areas named in the statute when building the business case.
- Bring the capital stack. The 80 percent non-federal rule means private lenders and investors need to be lined up. Start those relationships now, not when applying.
- Supply chain plays count. OSC explicitly targets supply chains. A more efficient, effective, and resilient supply chain in a named industry may draw support — real opportunity for materials and component makers, not just platform primes.
If a business sits in the named critical technology areas, this may be the financing lane to get the capital needed to move forward.
