Manufacturing Scale-Up: Summary of 14 Relevant Federal Financing Programs
Peter Singer, MIT Washington Office
May 27, 2014
Discussed below are 14 federal programs that could potentially address aspects of the problem of financing manufacturing production scale-up faced by small, mid-sized and start-up manufacturers. These programs:
1) address the issue in part, or
2) offer a potential model for a program that could address this problem, or
3) possibly could be redirected to better address the issue.
There is no single program that fully addresses the scale-up problem, but a patchwork of these programs could provide significant support. The majority of programs that are focused on small businesses do not provide financing for amounts above the $5 million range, which may raise questions about where advanced manufacturers fit in programs that are classified as small business oriented, in comparison with the nation’s other small businesses. Many of the programs included are identified in a 2011 Booz Allen Hamilton report.
The programs summarized below are:
Department of Defense
- Defense Production Act Title III Program
- OnPoint Technologies
- Industrial Base Innovation Fund
Small Business Administration
- Small Business Investment Company (SBIC) Program
- 7(a) Loan Program
- Certified Development Company 504 Loan Program
Department of Transportation
- Transportation Infrastructure Finance and Innovation Act (TIFIA)
Department of Commerce
- Federal Loan Guarantees for Innovative Technologies in Manufacturing
- Revolving Loan Fund Program
Department of Energy
- Loan Programs Office
Department of the Treasury
- New Markets Tax Credit Program
- Small Business Lending Fund
- State Small Business Credit Initiative
Department of Defense Programs
Defense Production Act Title III Program
Potential for small and medium manufacturers in the defense industry to receive financing for scale-up
The U.S. Defense Production Act [50 U.S.C App. § 2061 et seq.] was first enacted in 1950 and most recently reauthorized on September 30, 2009. The 1950 version of the law offered the President far reaching powers, however four sections of the law have been repealed. These sections include Title II, IV, V, and VI, which dealt with the authority to requisition and condemn, price and wage stabilization, settlement of labor disputes, and control of consumer and real estate credit respectively. Title III has remained, granting wide authority to support domestic production for national defense related needs.
Scope of the DPA Law:
The DPA is intended “to promote industrial resources preparedness,” “to support continuing improvements in industrial efficiency and responsiveness,” and “to respond to actions taken outside of the United States that could result in reduced supplies of strategic and critical materials, including energy, necessary for national defense and the general economic well-being of the United States” [50 U.S.C. App. § 2062 (a)(2)]. The law also emphasizes supporting smaller subcontractors and suppliers of the Armed Forces with the domestic base remaining viable after the termination of assistance.
Title III grants a number of authorities to the President to ensure the domestic industrial base is capable of meeting national defense needs. Of the three major authorities, the first two cited below are not being used at this time. The President may authorize a guaranteeing agency to provide guarantees of loans by private institutions to finance any contractor, subcontractor or provider of critical infrastructure. However, credit must not otherwise be available under reasonable terms. A loan guarantee must be the most cost effective, expedient and practical alternative. If the value of all guarantees combined exceed $50 million the responsible House and Senate Committees must be notified. [50 U.S.C. App. § 2091]
Title III also authorizes loans and loan guarantees to private business enterprises. Once again financial assistance from private sources must be unavailable on reasonable terms as well as a number of other conditions that apply during periods of national emergency declared by the Congress or the President. Loans can be made or guaranteed only to the extent that an Appropriations Act provides advanced budget authority for the costs and a limit on the total loan principle is established. If the value of all guarantees combined exceed $50 million the responsible House and Senate Committees must be notified. [50 U.S.C. App. § 2092]
While the above two authorities are not now being utilized, the third major authority is in widespread use. This authority expands beyond loans and loan guarantees and instead authorizes the President “to procure and install additional equipment, facilities, processes or improvements to plants, factories, and other industrial facilities owned by the Federal Government” and “to procure and install equipment owned by the Federal Government in plants, factories, and other industrial facilities owned by private persons” [50 U.S.C. App. § 2093 (e)]. A Defense Production Act “Fund” is also provisioned for in Title III that cannot exceed $750,000,000 at the end of the fiscal year [50 U.S.C. App. § 2094]; however, appropriations as opposed to the fund are now being used.
Currently the DPA Title III Program is managed within the Office of the Deputy Assistant Secretary of Defense for Manufacturing & Industrial Base Policy (MIBP), the same office that oversees ManTech. The Air Force is Executive Agent for program and occasionally sends out requests for information to industry for potential topics. The Defense Production Act Committee (DPAC) plays an important advisory role and it creates study groups to assess need; currently there are groups looking into, for example, metal fabrication and lightweight materials. Title III authority is not limited to the Department of Defense and partnerships with the Department of Energy and Homeland Security have occurred.
Program Funding Levels:
The DPA Title III Program currently funds or has funding planned for 56 projects, totaling just over $1 billion. The portfolio of projects is broken up into four sections, space industrial base council, electronic materials & devices, structural materials, and advanced technologies & systems. Projects typically last 3-6 years and funding ranges from 8 to 20 million dollars; cost sharing is typical. In the last ten years there have only been 3 projects over $50 million. The technologies the program funds are typically at TRL/MRL (technology/military readiness level) 7 or higher, the focus is on commercial-scale production. There are currently projects in some 17 states.
DPA Funding Mechanisms:
DPA funding provides “special economic incentives” – i.e., purchases, purchase commitments, purchase guarantees, or leases of advanced manufacturing equipment for installation in government or privately owned facilities. It applies these tools to scaling up production to meet challenges. The government owns the installed production facilities and equipment within private firms; these cannot be transferred abroad.
The Defense Production Act "Fund" has never been set up at Treasury. The Joint or Service Program Offices of record, Defense agencies or other Federal agencies, as funding offsets for specific Title III efforts, provide funding for the initiatives. Title III appropriations are valid until they are expended and the Title III program currently has around $120 million of uncommitted funds. There is separate line in the DOD appropriations for the Title III Program.
The program objectives include:
- Create, maintain, expand, protect, or restore the production capabilities of domestic suppliers whose technologies and products are critical to national security;
- Increase the supply, improve the quality and reduce the cost of advanced materials and technologies;
- Reduce U.S. dependency on foreign sources of supply for vital materials and technologies; and
- Strengthen the economic and technological competitiveness of the U.S. defense industrial base. (from: MIBP, DPA Title III, “Advanced the Industrial Base to Defend the Nation”, p. 5)
The actual contracts for the projects are handled through the USAF at Wright-Patterson Air Force Base. As suggested above, the most common funding commitments in the contracts area are purchase commitments, capital equipment purchases and installation, engineering support as well as support to develop business and marketing plans. There is currently an agreement with OMB not to use loans or loan guarantees. So although there is loan and loan guarantee authority under DPA, it is not used, instead this purchase mechanism is used. A Presidential Determination is required for each project, signed by Defense Under Secretary for AT&L David Kendall and is then sent to Congress, although Congressional comments are highly infrequent.
The DPA program states that it:
- “Provides financial incentives to industry to make investment in production capabilities and resources;
- “Executes projects ranging from process improvement to production plant construction; and
- “Targets the most important elements of production as they related to both the nation’s needs and the industry business model.” (from: MIBP, DPA Title III, “Advanced the Industrial Base to Defend the Nation”, p. 5)
A recently completed project, for example, is a new beryllium production plant, a $73 million project started as a result of Brush Wellman’s shutdown of the only beryllium plant in the U.S. The Title III authority is used in conjunction with other agencies as well, like the DOE advanced "drop in" biofuels project. Recent projects supported include: PV solar cell encapsulant production with state-of the art manufacturing lines, CO2 absorbent material production, advanced carbon nanotube production, optical ceramic production, atomic layer deposition hermetic coatings production, conductive composites nano-materials scale-up, lithium ion battery production for military and space applications, and integrated automated composite fiber placement production.
DPA Title III Program Director Mark Buffler noted a number of cross agency projects (DOE, DOD, Homeland Security) discussed in the most recent DPAC meeting including developing domestic production of very large transformers, a silicon carbide semiconductor project with Cree, and chem-bio sensors. Polymer shipping containers with imbedded sensors for secure shipping is a possible project, where work at the U. of Maine could be used to produce a spin off company.
The program has grown significantly since 1995, when there were only around 15 projects. The program also has had strong congressional support, receiving $150 million over the budget request in 12/13. The last significant project failure, according to Buffler, was around 97/98. Although a few companies that have received funding, such as AXT, were purchased and moved overseas, equipment purchased under DPA could not be moved out of the country. A project with Boston Power (co. website: to build advanced battery manufacturing facilities in the U.S. never came to fruition due to stronger incentives offered by the Chinese government.
A list of current DPA Title III Program projects is available here:
A short article by Rich Mirsky, a former program manager at the DPA Title III program, entitled “Trekking Through That Valley of Death- The Defense Production Act” is available here:
A venture capital firm that raises money for companies that produce dual use technology that meets the needs of the Army
A program modeled by the Army on the CIA’s In-Q-Tel program and initially funded by the Army, OnPoint provides venture capital funding for firms that create dual use technologies and products for particular Army needs that are also developed for commercial markets. In effect, the Army leverages technologies being developed for civilian markets to meet Army requirements. According to crunchbase.com OnPoint has made a number of large investments in the last few years. These include raising $27.5 million with five other investors for InVisage Technologies, which is a semiconductor manufacturing company that makes quantum dot-based image sensors.
A defense wide program, with individual programs for each branch of the military that maintains defense-manufacturing capabilities
The DOD ManTech program develops technologies and processes for affordable, timely production and sustainment of defense systems through all phases of acquisition. ManTech claims, “to anticipate and close gaps in defense manufacturing capabilities [which] makes the program a crucial link between technology invention and industrial applications - from system development through sustainment.” Four tenets are considered while making decisions. First, the project must address the highest priority defense manufacturing needs in the window of opportunity to make a difference. Second, the project must transition manufacturing R&D processes into production applications. Third, the project must attack pervasive manufacturing issues and exploit new opportunities across industry sectors. Fourth, the project must address manufacturing technology requirements beyond the normal risk of industry. The various projects are managed and selected by the component ManTech programs: (1) Army, (2) Navy, (3) Air Force, (4) Defense Logistics Agency, (5) Defense-wide Manufacturing Science & Technology, and (6) Missile Defense Agency. Defense-wide Manufacturing Science & Technology was funded at $51.9 million (including IBIF, below), Air Force- $37 million, Navy- $58.9 million, DLA -$27 million in FY2013. The Army ManTech program requested $56.1 million for FY14. Some of the projects funded by the various ManTech projects include, Transparent Spinel Armor Manufacturing Scale-Up, Casting Solution for Crane Roller Brackets, and Copper-based Casting Technology Applications Program on Pumps.
The ManTech programs at DOD have taken a leadership role in funding advanced manufacturing technology institutes consistent with the AMP1.0 report recommendations, including the first institute, for additive manufacturing established in Youngstown, Ohio in 2013, so the program is closely following advanced manufacturing opportunities and taking a dual use approach.
Industrial Base Innovation Fund
A fund situated within ManTech that makes direct investments in manufacturing R&D
The Industrial Base Innovation Fund (IBIF) is one of the Defense-wide Manufacturing Science &Technology (DMS&T) investment areas, within ManTech. DMS&T was appropriated $25 million for FY14 and is a ManTech Project. IBIF was directed to make investments in manufacturing research and development that address any of the three areas: (1) urgent production requirements and diminishing defense manufacturing sources and material sources, and a sustainable defense design team base, (2) model-based engineering and integrated computational materials engineering, (3) new, innovative technologies being developed through public-private partnerships. Grants are awarded to large and small manufacturers for close to $1 million. The fund was authorized $30 million in FY13.
Small Business Administration Programs
Small Business Investment Company (SBIC) Program
Small and medium manufacturers can receive financing (averaging between $1m to $10m) from SBICs, which operate in more geographically diverse areas than most venture capital firms
The SBIC program enables qualified private investment funds to use their capital plus borrowed funds, guaranteed by the SBA, to make investments in businesses. SBIC’s can only invest in small businesses, those with a tangible net worth of less than $18 million and an average of $6 million in net income over the previous two years. A small business can also be defined by number of employees, which is different for each specific type of manufacturer but ranges from 500-1000 employees in general.
The average investments by SBICs range between $1 million and $10 million, with loans to manufacturers averaging higher than most other businesses. The program is growing with 34 new SBIC licenses granted in 2013 and SBA plans to increase the total commitment to the program from $3 billion to $4 billion. A directory of all licensed SBICs is available on the SBA website, however not all listings include easy access to detailed information and the directory is not sortable by key industrial sectors or areas.
The Obama administration created an Impact Investment Initiative, in which the SBA has committed to make $1 billion available, over five years, to investment funds licensed as Impact SBICs. Currently there are two sectors, education and clean energy, that qualify as impact investments. Advanced manufacturing could be added as a focus by Administrative directive.
Between 1997 and 2005 manufacturing accounted for 29.8% of all SBIC financing. The percentage dropped to 18% between 2008 and 2012, but still totaled an investment of $1.9 billion, more than any other sector. In 2011 and 2012, 50% of SBIC fund strategies were for mezzanine financing. SBICs have also tended to invest with a wide range of geographical distribution.
Because private investment funds receive the SBIC loan guarantee and then lend to small businesses, a particular loan default by a particular firm is considerably less visible than in, for example, DOE Loan Guarantee program.
These SBIC programs, because the limited average size of the loans, cannot meet major production scale-up financing needs that may be in the tens of millions, but could meet niche sector scale up requirements or advanced manufacturing equipment needs.
7(a) Loan Program
A widely used SBA program that provides access to financing for a wide range of small business with a maximum loan of $5 million
Provides loan guarantees for small business to obtain financing. The maximum loan is $5 million. According to a 2008 Urban Institute report most of the business aided by the program are minority, women, or veteran owned, or located in rural areas or special zones in need of economic development, with start-ups representing one third of the businesses.
Certified Development Company 504 Loan Program
This program provides access to capital to companies to purchase land or make building improvements for small businesses; the maximum loan for SMEs is $4 million
Business must have net worth less than $15 million and an average net income less than $5 million after taxes for the preceding two years to qualify for a loan. 504 loans can be used to purchase land, including existing buildings, purchase improvements, the construction of new facilities or modernizing, renovating or converting existing facilities. The loans are made by Certified Development Companies (CDCs), which are nonprofit corporations certified and regulated by the SBA. There are 270 CDCs, each covering a specific geographic area, across the United States. A bank partners with a CDC, with the bank covering 50% of project costs and the CDC covering up to 40%. For small manufacturers the maximum loan is $4 million and one job must be created or retained for every $100,000 guaranteed by the SBA (for other businesses the maximum loan is $5 million and $65,000 for each job). Manufacturing SMEs could use the program for small plants and facilities or modernization of existing facilities. The caps on loan size for manufacturers limit its applicability to major production scale-up, but this could support smaller-scale efforts.