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Federal Funding Pathways: Capital Options for Defense-Focused Manufacturers

From SBA loans to DoD grants, discover the full spectrum of federal funding available to manufacturers pursuing defense contracts.

KDM & Associates
February 4, 2026
11 min read
Federal FundingCapitalManufacturingDefenseGrants

Access to capital is one of the biggest challenges facing small manufacturers seeking to enter the defense market. The good news is that the federal government offers a wide array of funding programs specifically designed to help small businesses build the capabilities needed for defense contracting. This guide maps out every major funding pathway available in 2026.


SBA Loan Programs


7(a) Loan Program

The SBA's flagship loan program, ideal for general business purposes.


Details:

  • Maximum amount: — $5 million
  • Interest rates: — Prime + 2.25% to 4.75%
  • Terms: — Up to 25 years for real estate, 10 years for equipment
  • Use: — Working capital, equipment, real estate, debt refinancing
  • Guarantee: — Up to 85% for loans up to $150,000; 75% for larger loans

    • Best for: General business expansion, working capital for contract performance


    504 Loan Program

    Designed for major fixed asset purchases.


    Details:

  • Maximum amount: — $5.5 million (up to $16.5 million for manufacturing)
  • Structure: — 50% from bank, 40% from CDC, 10% borrower equity
  • Interest rates: — Below market (fixed rate on CDC portion)
  • Terms: — 10 or 20 years
  • Use: — Real estate, equipment, machinery

    • Best for: Purchasing manufacturing equipment, building or expanding facilities


    Microloan Program

    For smaller capital needs.


    Details:

  • Maximum amount: — $50,000
  • Average loan: — $13,000
  • Terms: — Up to 6 years
  • Use: — Working capital, inventory, equipment, supplies

    • Best for: Startups and very small manufacturers needing modest capital


    Community Advantage Loans

    For underserved markets and communities.


    Details:

  • Maximum amount: — $350,000
  • Focus: — Businesses in underserved communities
  • Terms: — Similar to 7(a)
  • Use: — General business purposes

    • Best for: Minority-owned manufacturers in underserved areas


    DoD-Specific Funding


    Small Business Innovation Research (SBIR)

    Competitive grants for R&D with commercial potential.


    Details:

  • Phase I: — Up to $275,000 (6-12 months, feasibility study)
  • Phase II: — Up to $1.75 million (24 months, prototype development)
  • Phase III: — No SBIR funding limit (commercialization, using non-SBIR funds)
  • Success rate: — Approximately 15-20% for Phase I

    • Best for: Manufacturers with innovative products or processes for defense applications


    Small Business Technology Transfer (STTR)

    Similar to SBIR but requires partnership with a research institution.


    Details:

  • Phase I: — Up to $275,000
  • Phase II: — Up to $1.75 million
  • Requirement: — Must partner with a university or research lab
  • Research institution: — Must perform at least 30% of the work

    • Best for: Manufacturers developing technology in partnership with universities


    Defense Production Act (DPA) Title III

    Direct investment in critical defense manufacturing capacity.


    Details:

  • Amount: — Varies ($1 million to $100+ million)
  • Focus: — Critical defense manufacturing capabilities
  • Form: — Grants, loans, loan guarantees, purchase commitments
  • Priority areas: — Critical minerals, microelectronics, energy storage, castings/forgings

    • Best for: Manufacturers producing defense-critical items


    Industrial Base Analysis and Sustainment (IBAS)

    Funding to strengthen the defense industrial base.


    Details:

  • Amount: — Varies by program
  • Focus: — Supply chain vulnerabilities and critical capabilities
  • Form: — Contracts, grants, cooperative agreements
  • Areas: — Manufacturing technology, workforce development, supply chain resilience

    • Best for: Manufacturers addressing identified supply chain gaps


    Department of Energy Funding


    Advanced Manufacturing Office Grants

    Focus: Energy-efficient manufacturing technologies

    Amount: $500,000 to $5 million

    Best for: Manufacturers developing energy-efficient processes


    Critical Minerals Grants

    Focus: Domestic critical minerals processing

    Amount: Up to $50 million

    Best for: Minerals processing and recycling companies


    Loan Programs Office

    Focus: Large-scale clean energy and manufacturing projects

    Amount: Up to $2 billion

    Best for: Major manufacturing facility development


    Other Federal Programs


    Manufacturing Extension Partnership (MEP)

    Not direct funding, but subsidized consulting and technical assistance.

  • Technology adoption support
  • Quality system implementation
  • Workforce development
  • Supply chain optimization
  • Cybersecurity assistance

    • Economic Development Administration (EDA)

    Focus: Economic development in distressed communities

    Amount: $100,000 to $3 million

    Best for: Manufacturers in economically distressed areas


    USDA Rural Development

    Focus: Manufacturing in rural areas

    Programs: Business & Industry Loan Guarantees, Rural Energy for America

    Best for: Rural manufacturers


    State and Local Programs


    Most states offer additional incentives for manufacturers:

  • Tax credits — for equipment purchases and job creation
  • Workforce training grants — for employee development
  • Infrastructure grants — for facility improvements
  • Tax increment financing (TIF) — for development projects
  • Opportunity Zone incentives — for investments in designated areas

    • Building a Funding Strategy


    Step 1: Assess Your Needs

  • Equipment and technology: $___
  • Facility expansion: $___
  • Working capital: $___
  • Certifications and compliance: $___
  • Workforce development: $___
  • R&D and innovation: $___

    • Step 2: Match Needs to Programs

    NeedBest Program

    |------|-------------|

    Equipment purchaseSBA 504, state tax creditsWorking capitalSBA 7(a), Community AdvantageR&DSBIR/STTR, ARPA-ECritical manufacturingDPA Title III, IBASFacility constructionSBA 504, EDA, Opportunity ZonesWorkforce trainingMEP, state workforce grants

    Step 3: Prepare Applications

  • Develop a compelling business plan
  • Prepare financial projections
  • Document your defense market opportunity
  • Demonstrate management capability
  • Show how funding will create jobs and economic impact

    • Step 4: Apply Strategically

  • Apply to multiple programs simultaneously
  • Start with programs with highest probability of success
  • Use smaller grants to build track record for larger ones
  • Leverage federal funding to attract private investment

    • Conclusion


    The federal government is investing unprecedented amounts in domestic manufacturing capability. For small manufacturers willing to navigate the application process, these programs can provide the capital needed to enter and grow in the defense market. The key is to start early, apply broadly, and persist through the process.



    Ready to Take the Next Step?

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    Whether you're a small manufacturer seeking defense contracts, a government buyer looking for qualified suppliers, or a business owner pursuing CMMC certification, KDM & Associates and the V+KDM Consortium are here to help.


    Join the KDM Consortium Platform today:


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    • *Schedule a free introductory session to learn how we can accelerate your path to government contracting success.*


    Critical Minerals and National Security: What Small Businesses Need to KnowCMMC Certification in 12 Weeks: Is Your Business Ready for Defense Contracts?

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