On September 30, 2024, the Department of Defense's (DoD) Office of Strategic Capital (OSC) took an important step in furthering its mission of increasing available capital for companies that develop technologies critical to the U.S.'s economic and national security by announcing its first Notice of Funding Availability (NOFA). This nearly billion-dollar loan program will provide direct loans to companies that manufacture technologies in "covered technology categories" (CTCs) to help them modernize their manufacturing equipment.  

Background 

The DoD established OSC in late 2022 to address the ongoing global race to lead emerging technology development and its inextricable connection to national security. In particular, the establishment of OSC is meant to help solve what is commonly referred to as the "Valley of Death" – a gap in capital that many companies experience that prevents them from being able to transition from initial technology development to full-scale production. The idea being that OSC will make capital available through non-acquisition-based tools and, in demonstrating the Government's commitment to certain industries and technologies, spur private capital investment necessary to ensure sufficient overall investment in statutorily identified CTCs.   

NOFA Overview

The available loan amounts range between $10 million and $150 million, depending on the companies' particular financing needs, and are to be used specifically for the purchase or rehabilitation of manufacturing equipment used in the production of critical technologies. The NOFA anticipates that approximately 10 companies will be selected to receive these loans. While the NOFA sets out general guidelines for the terms of the loans, including interest rates, maturity dates, and others, it does not provide specifics and instead states that terms will be negotiated on a deal-by-deal basis. 

NOFA Eligibility Requirements

The NOFA provides several statutorily and non-statutorily derived eligibility requirements. Stemming from Section 903 of the 2024 National Defense Authorization Act, the applicant must be an "Eligible Entity," which includes individuals, corporations, partnerships, and joint ventures, among others. The applicant must also manufacture a technology or product that is included in Section 903's list of CTCs, such as autonomous mobile robots, edge computing, various subcategories of microelectronics and quantum, and optical communications. Interestingly, though also derived from Section 903, the technology cannot be limited to defense applications – there must also be a commercial application for the technology. This requirement highlights the increasing interrelatedness of the commercial marketplace and U.S. national security and Congress' seeming intent to link the two in the minds of those building these companies and private investors. This requirement is likely also an attempt to decrease the risk of OSC's loan programs by limiting eligibility to companies with technologies that have sources of revenue outside the defense market. Beyond the above listed statutorily required eligibility requirements, OSC will also evaluate applicants' credit, their general "alignment" with OSC's mission, and compliance with the Federal Credit Reform Act of 1990. 

Of note is what is not included as an eligibility requirement – companies do not need to have prior or existing contracts or sales to the Government to be eligible for these loans. That said, applicants generally need to have at least three years of operating history, though this requirement can be waived.

While not a company eligibility requirement, per se, the NOFA requires, as dictated by Section 903, that at least 80 percent of the capital invested in a company's industry come from non-federal sources at the time the loan is made. What this means is that there must already be significant private capital investment in a particular company's industry for that company to be eligible for a loan under this program. Like the requirement for commercial application, this requirement likely exists as a protection for the loaned funds. Presumably the assumption underlying this requirement is that if the private capital market is already heavily invested in a company's particular industry, the company is more likely to succeed and therefore less likely to default on its loan. However, this requirement, along with several of the NOFA's screening questions, beg two questions: 1) How is OSC's mission to catalyze private capital investment in critical technologies served by making loans available only to companies in industries that already have significant private capital investment? and 2) Will the loans ultimately go to companies that are in greatest need due to a lack of access to other capital investment? 

That said, other of the screening questions, such as whether "[i]n the absence of an OSC loan, [] the project [is] economically viable (e.g., is the OSC loan critical to securing favorable ratings opinions or catalyzing private investments)?", do appear to better align with OSC's mission, while seemingly conflicting with the requirements described above.  

NOFA Evaluation Criteria 

The NOFA provides 10 evaluation criteria which generally mirror the eligibility requirements discussed above. However, some of the evaluation criteria provide greater clarity on which companies' applications will be considered more competitive. For example, priority will be given to technologies that can be more quickly brought to market and made commercially available. In addition, "[a]pplicants in a position to execute on the purchase of equipment" will also be given priority. The takeaway here is that companies that are poised to act quickly, likely meaning that the technology development and potential manufacturing capabilities are more mature, will be viewed more favorably. 

NOFA Application Process

Companies can begin submitting Part 1 of their applications on January 2, 2025. Applications must be received before 5 p.m. EST on February 3, 2025. OSC will determine which companies are invited to participate in the second phase of the application process, which will be on a rolling process. Companies can request a pre-application consultation session with OSC. 

Key Takeaways

• Given the seeming conflict between several of the eligibility requirements, screening questions, and evaluation criteria, companies should take advantage of the pre-application consultation session with OSC to try to obtain greater clarity on what will make for a competitive application
  • This advice is especially important for companies that are inexperienced with federal contracting or grant processes 
• Because this is OSC's first NOFA, it is possible that the eligibility requirements and the corresponding evaluation criteria will evolve over time as OSC learns and develops as a program
• Companies should look for future OSC loan program opportunities 

If you have any questions about the NOFA, your company's eligibility, or the application process, please contact one of the attorneys listed below:

Ashley Powers, apowers@milchev.com, 202-626-5564

Alex L. Sarria, asarria@milchev.com, 202-626-5822

The information contained in this communication is not intended as legal advice or as an opinion on specific facts. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. For more information, please contact one of the senders or your existing Miller & Chevalier lawyer contact. The invitation to contact the firm and its lawyers is not to be construed as a solicitation for legal work. Any new lawyer-client relationship will be confirmed in writing.

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