OTTAWA — A new international defence bank might be a big help to Canadian defence startups that have trouble financing expansions but isn’t likely to help the government buy new military gear.

The proposed Defence, Security and Resilience Bank (DSRB), backed by public money from its member countries, could lend both to military suppliers seeking to grow and governments looking to buy their products. Any democratic nation is a potential participant.

“Defence lending typically is considered higher-risk for many reasons, and that is why the DSRB is so important to the growth of this sector and to the expansion of our industrial base,” Laura Wood, a Canadian executive at consulting firm PwC who leads its defence work globally, told The Logic.

Canada’s defence industrial base is “very, very stretched” already and companies will have to put money in up front to meet the government’s new demands—to expand facilities, hire workers and buy more raw materials. “They don’t get paid until the equipment’s delivered,” she said.

If suppliers don’t have money ready on their balance sheets, they’ll need subsidies, venture capital or loans. Through its new defence industrial strategy and the Business Development Bank of Canada, the federal government is already funding production, but a DSRB or an institution like it would help, said Wood.

“We know that the credit required to support the expansion of the industrial base will be significant,” Wood said.

Canada’s banks have not had much involvement in the defence sector lately—partly because lending to weapons manufacturers just hasn’t been big business, and partly because doing so invited criticism from advocates of ethical investing.

Both conditions have changed since countries began increasing their defence spending on the grounds that liberal democracies need to be able to protect themselves from international predators. Now all of Canada’s biggest banks are backing the DSRB, at least rhetorically. Part of its promise is to bring lending expertise tuned for the defence sector to international finance.

The Canadian government doesn’t expect that the DSRB will finance procurements for the Canadian Armed Forces, however.

National Defence officials said as much in a briefing note written to prep an associate deputy minister for an October meeting with counterparts from other departments like Finance and Global Affairs. The Logic obtained a copy through an access-to-information request.

“A key feature of [multilateral development banks] is that they have high credit ratings (AAA) and can borrow from international markets at low rates,” the briefing note said, adding that that’s useful to countries that don’t have such good credit. “However, Canada has a AAA rating and thus would not benefit from lower rates.”

Other NATO countries might benefit, however, and strengthening allies could be in Canada’s interests. Poland, for instance, had its “A-” rating from Fitch affirmed in late February, but with a negative outlook that suggests a downgrade is possible. One problem Fitch has with Poland’s finances is how much it’s spending on defence despite its growing debt.

The DSRB would take in capital from participating countries and use the money to back low-interest loans to countries wanting to buy weapons, military gear and related equipment.

In testimony to the House of Commons last November, the Canadian who’s president and chief operating officer of the DSRB organizing group, Kevin Reed, suggested Canada might put in $2 billion in direct funding and a further $8 billion in “callable capital” the bank could draw on if needed.

The institution would join numerous other “multilateral development banks” that operate on similar principles, like the World Bank. There’s even a competing effort to form a defence-oriented bank focused on European Union and NATO members.

Canada’s interest in the DSRB plan culminated in Finance Minister François-Philippe Champagne’s public backing of the proposal in January. Just how the bank would work has been the subject of long negotiations in Montreal among potential member countries’ representatives, with more to come before a charter is agreed on and countries can start deciding whether to commit.