For decades, one of the biggest obstacles facing America’s defense industrial base was not always technology. It was capital.
A company could have an innovative product, a promising production line, or a critical technology that the Department of Defense desperately needed. Yet expanding manufacturing often required hundreds of millions of dollars in financing long before meaningful government revenue arrived. Defense contracts are notoriously unpredictable in their timing, procurement decisions can take years, and even approved programs can experience delays that leave suppliers struggling to finance growth.
The Pentagon believes it has found a solution.
The Department of War’s Office of Strategic Capital, or OSC, is rapidly evolving into what amounts to a national security investment bank. Armed with the ability to support approximately $200 billion in loans and loan guarantees, the office is designed to provide the capital needed to build the industrial capacity America requires before shortages become national security emergencies.
A New Tool for National Security
The Office of Strategic Capital was established in December 2022 and later authorized by Congress through the National Defense Authorization Act. Its mission is straightforward but ambitious: use America’s deep private capital markets to accelerate investment in technologies that are critical to national security.
Rather than relying solely on traditional defense contracts, OSC offers financial tools including direct loans and loan guarantees to companies building strategic capabilities. The office was created because many important technologies require enormous amounts of upfront investment that private lenders often view as too risky or too slow to produce returns.
As the office explained when it was formed, many critical technologies “require long-term financing to bridge the gap between the laboratory and full-scale production.” The goal is to fill investment gaps that conventional markets have been reluctant to finance while attracting significantly larger amounts of private capital alongside federal support.
Congress expanded that vision dramatically through recent legislation. According to the Congressional Research Service, $1.5 billion in federal credit subsidy funding allows OSC to support approximately $200 billion in loans, loan guarantees, and technical assistance. Roughly half is directed toward critical minerals and related industries, while the remainder supports more than 30 covered technology sectors that range from advanced manufacturing and semiconductors to telecommunications, quantum technologies, aerospace, and space launch.
Building a Wall Street Team Inside the Pentagon
Managing a $200 billion lending portfolio requires a very different skill set than awarding defense contracts.
Recognizing that reality, the Trump administration has launched an aggressive recruiting campaign aimed directly at Wall Street. The Office of Strategic Capital has hired professionals from investment banks, private equity firms, and private credit funds, growing from a small team of five dealmakers to dozens of financial specialists, with dozens more expected to join.
To compete with the private sector, President Donald Trump signed an executive order authorizing salaries of up to $400,000 for certain key federal officials. Some senior OSC positions can pay as much as $438,000 annually under specified circumstances. Executive recruiting firm Heidrick & Struggles has been enlisted to help identify candidates, while business schools such as Stanford and the University of Pennsylvania have become recruiting grounds for mid-career finance professionals.
OSC Director David Lorch said attracting experienced financial professionals is essential because the office is managing transactions unlike anything previously handled inside the Defense Department.
“These are people, many of whom have taken seven-figure pay cuts to do this,” Lorch said. He added that the office is executing “highly complex, multibillion-dollar transactions that require the deep transactional expertise that’s only found in the private sector.”
Lorch serves as Director of the Office of Strategic Capital and Senior Advisor to Deputy Secretary of War Steve Feinberg, the former chief executive of Cerberus Capital Management. Feinberg’s background in private equity has helped shape an approach that emphasizes sophisticated financial transactions rather than traditional government grants.
Why Traditional Defense Contracting Was Not Enough
Defense manufacturing operates differently from most commercial industries.
Building new facilities for missile components, rare earth processing, semiconductor fabrication, or advanced materials often requires years of construction and billions of dollars before meaningful revenue begins to flow. While defense contracts eventually provide demand, their timing can be difficult to predict, and changing budget priorities or procurement delays can leave companies carrying enormous financial burdens.
OSC is designed to solve that problem by reducing financing risk.
Instead of waiting for contracts to generate sufficient cash flow, companies can secure long-term financing that allows them to build production capacity in advance. Federal backing also helps attract additional private investment, allowing projects that might otherwise remain on the drawing board to move into construction.
The office also extends beyond direct lending. Through programs that partner with venture capital and private equity funds, OSC provides financing to investment managers that combine federal support with private capital before investing in strategically important companies. This approach allows every federal dollar to mobilize substantially larger private investment.
Early Investments Show the Strategy
Although the Office of Strategic Capital only began issuing loans in 2025, its portfolio is growing rapidly.
One of its largest commitments is a $725 million conditional loan to Energy Fuels to expand the White Mesa processing facility in Utah and construct additional rare earth separation and metallization capacity in the United States.
Another $500 million conditional commitment was awarded to Phoenix Tailings to expand domestic rare earth processing while constructing the company’s Freedom Facility, a new state-of-the-art separation and metallization plant expected to strengthen America’s mine-to-magnet supply chain.
The office has also approved a $620 million conditional loan for Vulcan Elements to expand domestic neodymium-iron-boron magnet production, an $80 million commitment to ReElement Technologies for similar magnet manufacturing capabilities, and a $150 million loan commitment to MP Materials to expand heavy rare earth separation at its Mountain Pass, California facility. These investments focus heavily on rebuilding domestic supply chains for materials that have become strategically vulnerable because of foreign dependence.
According to Lorch, OSC has already committed approximately $5 billion in direct loans and signed term sheets representing another $14 billion in planned financing. With authority to support roughly $200 billion in lending over the coming years, those early commitments likely represent only the beginning.
By combining Wall Street finance with national security priorities, the Office of Strategic Capital represents one of the most significant structural changes in defense industrial policy in decades. Rather than simply buying weapons after factories are built, the Pentagon is increasingly positioning itself as the lender that helps finance the factories themselves, ensuring America’s industrial base can expand before the next national security crisis demands it.
