Ukraine’s pilot program to finance miltech loans

BLUF: Ukrainian MPs, in coordination with defense firms, are trying to get cheaper, government-backed money for manufacturers: proposing more loans at five percent interest. Also, Ukrainian and Finnish companies will launch a joint venture to produce more drones for AFU. Meanwhile, Maestro Avia is testing its drone F 75 on the battlefield.

THE BIG STORY: Ukrainian defense companies push for financing to grow

Along with the obvious security threats, Ukrainian companies face financial challenges like currency fluctuations and lack of working capital. 

With the Ministry of Defense, a manufacturer can charge an advance payment up to 50 to 80 percent of the total order, but when it comes to smaller military units, advances aren’t typically offered. 

New firms in particular – where much of Ukrainian innovation starts – find it challenging to find working capital to purchase everything they need, or to expand. Investment is hard to find at the earliest stages, and market interest rates from banks are up to 20 percent. 

Working capital shortage

Yurii Liashuk, a soldier who was recently medically discharged, and Vitalii Holovnia, commander of a Ukrainian UAV strike unit, are just two of many would-be defense tech developers running into these issues. They’re trying to get their new drone startup, Maestro Avia, off the ground.

Currently, Liashuk and Holovnia are testing their F 75 drone, a kamikaze optimized for range that they say can be produced cheaply. 

But they need almost $200,000 for machining tools and general production expansion. 

Yurii and Vitalii are not considering bank loans, because they lack collateral and don’t want to deal with the bureaucracy. They were not aware of a state loan program, but said they would consider it if the program is maximally transparent and minimally bureaucratic.

Ukrainian legislators, the Ministry of Strategic Industries and domestic producers are currently working to improve the situation with loans:

The state has allocated $12 million for these loans in 2025, nearly double the $6.3 million they allocated in 2024. But these still relatively low figures mean that very few firms will be able to get such loans for the time being. 

“Our proposition was [$60 million USD]. Since the program is new, the Ministry of Finance proposed to allocate only [$12 million].” explained Halyna Yanchenko, head of the Temporary Special Commission on Protecting Investor Rights. “If this amount is exhausted, we will amend the budget in the first quarter and add as much as the market needs.”

Two banks are already eligible to make these sorts of loans: Oschadbank and Ukreximbank. PUMB bank, meanwhile,  is in the process of joining this program, which entails a special procedure to gain access to state secrets. 

For now, none of these banks have made these loans, because regulations for the lending program haven’t been finalized, Oshadbank’s press center told Counteroffensive.Pro. 

The Cabinet of Ministers limits profit margins for defense companies to three percent except for drone EW and ammunition makers, which are capped at 25%.

It is almost impossible to receive loans from banks, said Serhii Vysotsky, deputy head of the National Association of Ukrainian Defense Industries (NAUDI), which lobbies on behalf of 66 enterprises. 

“We have been collecting data on our own to see if there is such a problem,” said Vysotsky. “And I can say that we already have [demand for] far more than [$23.8 million].”

He added that they knew of some 15 companies who need six- to seven-figures worth of loans. Without these loans, manufacturers try to scrape together smaller orders that require fewer investments in production. 

Another part of the Ukrainian government’s effort is to provide state guarantees for bank loans, giving the bank confidence that they will pick up the difference if the loan is not repaid.

Recently, Ukraine’s MoD signed a contract with a Ukrainian private company, backstopping a loan so that the firm could produce 100 armored vehicles and 100 armored evacuation vehicles.

At the same time the Temporary Special Commission on Protecting Investor Rights of the Verkhovna Rada, which focuses on reforms, is working on other suggestions for procurement regulations. They have suggested changes to Order No. 1275, which covers defense procurement. These reforms will address:

• determination of force majeure circumstances;

• limiting the maximum penalty that can be levied if the producer is unable to fulfill the contract;

• problems with exchange rate differences on the fulfillment of contract; and

• obligating the government to make phased payments for each batch of delivered goods.

Currently, these proposals are under consideration by Ukraine’s Cabinet of Ministers. If changes will be adopted, then Yanchenko will continue work on legislation with Ukrainian military companies.

BUSINESS LUNCH TOPICS: What our reporting shows!

1. Finland, Ukraine partner for drone production plant:

Finnish defense company Summa Defense Ltd — in partnership with Ukrainian companies Kort, Elf Systems, Skyassist and MPS Development — will build a drone production line in Finland. In addition to aerial drones, the manufacturer will also produce ground and naval drones, said Jussi Holopainen, president and CEO of Summa Defense Ltd.

“We will have a [joint venture] with Ukrainian partners and production will be organized together. The [intellectual property] rights will remain with the Ukrainian companies,” Holopainen told Counteroffensive.Pro. The large-scale production of drones is scheduled for the first half of 2025.

The Finnish company is able to manufacture 900 drones per month, said Ihor Krinichko, CEO of Skyassist. He added that the main question is how many orders Ukraine’s Defense Forces will make.

2. Aviation company ‘Maestro Avia’ tests new drone, the F 75, in battlefield conditions:

The drone is made from lightweight materials and can be manufactured in different designs:

• kamikaze;

• reconnaissance;

• electronic intelligence and others.

For now, developers are testing the kamikaze version with a four kg warhead, said Yurii Liashuk, co-founder of Maestro Avia. Their goal is to develop a product that will cost less than $1,000 to produce in large quantities.

“The gray zone at the front is expanding. Russians have moved important objectives deeper to their rear,” explains Vitalii Holovnia, co-founder of Maestro Avia. “Our product has a range of more than 40 kilometers, to strike deeper.”

3. The West needs to get on board with cheap, scalable miltech. –Sergiy Koshman.

The war in Ukraine shows that modern warfare needs low-cost mass production rather than high-end and expensive gear, Sergiy Koshman, managing director of Frankenburg Technologies, told Counteroffensive.Pro. 

The Russia-Ukraine war might spawn a few unicorns far from the battlefield, but it will be a marketing win rather than a tech win, he said. They will be impressive on stage, but irrelevant to the realities of warfare. 

Koshman, the former head of international partnerships and cooperation at Brave 1, said that too many Western companies are trying to pitch their product or ideas without understanding what soldiers’ real needs are.

In Collaboration with CENTRE UA – Ukrainian orders/legislation we’re tracking: 

This week we’re reading about Cabinet of Ministers Resolution No. 262 of March 8, 2024.

The resolution: 

• Regulates the development of innovations and technologies for defense needs. 

• Approves procedures for financial support to foster innovation and technology development for defense purposes. 

• A Defense Innovation Development Fund has been established. 

• Key points include that grant programs are implemented in accordance with provisions approved by the Fund, and the maximum grant amount is ~$21 million per recipient.

ON THE MOVE: Professional movement, promotions and industry news.

Know someone in the defense tech space who has made a professional move? Drop us a line at [email protected]! 

• Hannah Thoburn will be the new EUCOM Strategy Director at Anduril, working on the Global Defense Team. She formerly was a senior aide on the U.S. Senate Foreign Relations Committee. 

• Timur Zima has started new work as a technical advisor at DroneAid Collective, which manufactures FPV drones for the Ukrainian army.

• Polina Yuzhda has joined Kvertus, a Ukrainian EW company, as Social Media Manager.

• NORDA Dynamics, a developer of navigation systems, is hiring pilot-tester of fixed-wing UAVs.

30 SECOND ELEVATOR PITCH:

The ARMOR team has created an app that changes military operations with unique algorithms for ballistic calculations. 

The product enables high-precision firing from concealed positions for over 60 types of weaponry (tanks, IFVs, mortars, machine guns, as well as modern artillery systems). The use of ARMOR significantly expands the shooting range of weaponry and reduces ammunition expenditure. The application simplifies and speeds up the fire preparation process, reducing the number of crew members needed, and can be mastered within 4–6 hours. Tested in the war in Ukraine since 2015, ARMOR has proven its efficiency in real combat conditions.

"We are now looking for financing to finalize and launch the new version of the system that will have extended functionality for fire coordination and enhanced security," said Oleksii Havrysh, CEO and co-founder of ARMOR.

MUST READS:

1. Ukrainian officials had to recall 24,000 mortar shells after complaints from the military they were faulty and misfiring, acknowledged Herman Smetanin, minister of strategic industries.

2. IronNet and Astrion Systems have developed an interceptor drone, the Hitchhiker, to strike down Russian Shaheds.

3. Ukraine, for the first time, showed off newly-developed drones that visually look like the Russian Shahed and Lancet.

   

   Newly-developed drones were shown during visit of German counselor Olaf Scholz to Kyiv. Photo by Ukrainian presidential office.

4. Helsing has announced the HX-2, a new type of strike drone with onboard AI which is capable of engaging artillery, armored and other military targets at up to 100 km range.

5. The Russian company Dominanta has developed a new, low-cost aircraft-type drone called "Shturm-ST" which is made of compressed foam covered with fiberglass.

6. Gedz Tech has introduced the MiNiON-Bob, a compact and portable device for identifying electronic warfare systems.

7. Volyn inventors have created a new remotely-controlled drone capable of moving on land and water for 20 kilometers on a single battery charge.

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