Defence industry: Lack of capital jeopardises defence capabilities

The German government has ramped up defence spending in response to growing security challenges, yet a significant flaw persists: the money isn’t reaching the entire industry. While major arms manufacturers benefit from new contracts, small and medium-sized enterprises (SMEs) – the backbone of innovation and specialised supply, are struggling to access the capital they urgently need. 

Many SMEs, including cutting-edge start-ups, face difficulty securing equity or loans, with few domestic investors willing to engage. This is not just a financial issue; it’s a structural risk. Large defence companies rely on a wide network of specialised suppliers to deliver integrated systems across land, sea and air. If these suppliers cannot operate sustainably, the entire ecosystem falters. 

Public institutions such as KfW, the European Investment Bank and NATO have begun to respond, but implementation is slow, and awareness among SMEs remains low. Private investors, too, must step up – through sector-specific funds, improved lending frameworks, and revised investment policies that recognise the stability and growth potential of the defence sector. 

If Germany wants to retain a capable, sovereign defence industry, it must act decisively to bridge the capital gap for SMEs, before critical skills, technologies and ownership slip away. 

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The article was originally published in Table Briefings on July 16th, 2025.