In an era of geopolitical uncertainty, Europe's defence capabilities increasingly depend on an overlooked segment: small businesses.
More than 2 500 small and medium-sized companies in Europe are essential suppliers for major defence manufacturers such as Airbus, Thales, Rheinmetall, and Leonardo. These suppliers provide critical components, technologies and services that underpin jobs, innovation and growth across the sector. Yet despite their strategic importance, many struggle to find loans or other capital needed to expand during periods of rapid demand growth.
The European Investment Bank Group is addressing this critical gap with an unprecedented mobilisation of financial support, channelling billions of euros to defence-sector small businesses through new partnerships with fund managers and commercial banks across the continent. For the sector as a whole, the Bank aims to lend as much as €3.5 billion in 2025, up from €1 billion in 2024.
A new breed of defence financing
In September 2025, the European Investment Fund (EIF) made a landmark €30 million cornerstone investment in Sienna Hephaistos Private Investments–Europe's first private credit fund dedicated to defence industry financing. The fund, managed by Luxembourg-based Sienna Investment Managers, targets a total size of €500 million and expects to support 25 to 30 companies across the European defence industrial base.
"This fund is a pioneer in a market that is booming," said Adrien Desbois, a loan officer at the European Investment Fund. “We expect to see more and more funds like this, which is a first of its kind in Europe.”
The investment was made under the InvestEU Defence Equity Facility, a mandate designed to mobilise private capital in support of Europe's security and defence objectives. By offering tailored credit solutions, the Hephaistos fund enables companies to expand production capacity, increase inventories and pursue strategic consolidation—without diluting existing ownership stakes.
Investing in innovation
Beyond traditional defence manufacturing, the European Investment Fund is also backing the next generation of security technology. In May 2025, it announced a €40 million investment in Keen Venture Partners' European Defence and Security Tech Fund—its first investment in a dedicated European defence fund.
Keen's fund focuses on early-stage companies working in information superiority, cyber defence, robotics, artificial intelligence, autonomous systems and space technologies. The pan-European approach includes the United Kingdom, Turkey, and Norway, reflecting the continent-wide nature of security challenges.
"The opportunity to add the power of tech entrepreneurs with the full support of venture capital to the European defence ecosystem is huge," said Alexander Ribbink, a partner at Keen Venture Partners. "A stronger and safer Europe needs the resourcefulness and grit that only entrepreneurs can bring."
Banking on defence
Complementing these venture capital investments, the European Investment Bank itself has dramatically scaled up its lending to defence companies by signing more so-called intermediated loans with major European banks.
The first agreement in June saw Deutsche Bank receive a €500 million loan, enabling €1 billion in total financing for small and medium firms throughout the EU security and defence supply chain, as well as military and police infrastructure.
Just one week later, the European Investment Bank signed a €300 million loan agreement with France's BPCE banking group – the first such operation in France under the expanded financing. This financing specifically addresses the needs of French companies investing in cybersecurity, surveillance, resilience, and defence technologies.
In addition, the EIB Group has signed an agreement with the public development banks of France, Germany, Italy, Poland and Spain on a pan-European approach to strengthening European security and defence. The EIB and the five long-term investors – Caisse des Depôts, Kreditanstalt für Wiederaufbau, Cassa Depositi e Prestiti, Bank Gospodarstwa Krajowego and Instituto de Crédito Oficial – will work together on areas of investment and on potential joint financing in sectors such as research and development, industrial capacity and infrastructure.
