Foreign Military Financing · 2 of 5
Read section 23 of the Arms Export Control Act on its own and Foreign Military Financing looks like a lending program. The statute sets a repayment period: the President "shall require repayment in United States dollars within a period not to exceed twelve years after the loan agreement with the country or international organization is signed" (22 U.S.C. 2763(b)).
It also sets a floor on the price of the money. The President "shall charge interest under this section at such rate as he may determine, except that such rate may not be less than 5 percent per year" (22 U.S.C. 2763(c)(1)).
Where a direct loan is made, the manual records how the rate is fixed: "interest charged on direct loans is at a single fixed rate determined by the Department of Treasury", and that rate is written into the loan agreement (SAMM C9.7.2.10.4.1.1).
In practice most FMF is not repaid, and the reason is in the appropriations act rather than in the Arms Export Control Act. The Further Consolidated Appropriations Act, 2024 appropriated funds under the heading Foreign Military Financing Program and then provided "that funds appropriated or otherwise made available under this heading shall be nonrepayable notwithstanding any requirement in section 23 of the Arms Export Control Act" (Public Law 118-47).
That single proviso is what converts the statutory loan into a grant. It is renewed each year, which means the character of the money is an annual decision of Congress rather than a permanent feature of the program.
The distinction is not cosmetic. As set out in what non-repayable funding changes on a case, whether the money is repayable changes what the purchaser is charged.
Alongside credit, the Act provides for guaranties. Section 24 states that the President "may guarantee any individual, corporation, partnership, or other juridical entity doing business in the United States (excluding United States Government agencies other than the Federal Financing Bank) against political and credit risks of nonpayment arising out of their financing of credit sales of defense articles, defense services, and design and construction services to friendly countries and international organizations" (22 U.S.C. 2764(a)).
The backing is explicit. The same section provides that "any guaranties issued hereunder shall be backed by the full faith and credit of the United States" (22 U.S.C. 2764).
A guaranty is therefore not a loan from the United States. It is a promise to a private lender that it will be paid, which is a different thing to budget for and a different thing to negotiate.
The value of a guaranty lies in who stands behind it. Because the statute provides that guaranties "shall be backed by the full faith and credit of the United States", a lender is not assessing the credit of the borrowing government in the ordinary way (22 U.S.C. 2764).
The statute also draws a boundary around who may be guaranteed. It covers an entity "doing business in the United States", and expressly excludes United States government agencies other than the Federal Financing Bank (22 U.S.C. 2764(a)). The instrument is aimed at private American lenders financing a sale, not at moving money between federal accounts.
A guaranty costs the budget something even when no one defaults. The manual explains the accounting. The Federal Credit Reform Act of 1990 "requires that the President's budget reflect the costs of loan guarantee programs", and the guaranty is treated as federal credit requiring a subsidy paid from the program account. Because the Congressional Budget Office scores it, "specific legislation is required for FMF to finance a loan guarantee" (SAMM C9.7.2.9.1).
History reflects that. The manual records a Defense Department loan guarantee program run with the Federal Financing Bank from 1975, discontinued in 1984, where "repayments to the FFB by debtor countries continue until those loans reach maturity" (SAMM C9.7.2.9.3). A later statutory program created by the 1996 National Defense Authorization Act exists on the books, but the manual states plainly that "the program is not currently funded" (SAMM C9.7.2.9.2).
Legacy debt is a live feature of the program rather than a historical footnote. The manual records that the Defense Department loan guarantee program run with the Federal Financing Bank was discontinued in 1984, and that "repayments to the FFB by debtor countries continue until those loans reach maturity" (SAMM C9.7.2.9.3).
Those obligations carry consequences. The manual quotes the annual appropriations provision barring assistance to a government "which is in default during a period in excess of one calendar year in payment to the United States of principal or interest on any loan made to the government of such country by the United States pursuant to a program for which funds are appropriated under this Act", subject to a presidential determination made after consulting the appropriations committees (SAMM C9.7.2.10.4.5).
A partner can therefore be receiving grant money under one heading while servicing decades-old debt under another, and a lapse on the second can put the first at risk.
Three things follow for anyone looking at a partner's funding position.
First, the words grant and loan describe the appropriation, not the authority. The authority is the same section in both cases.
Second, a country carrying legacy repayments is not unusual, and those obligations can predate the current grant arrangement by decades.
Third, if a guaranty is being discussed rather than a grant or a direct loan, that is a signal the transaction needs its own legislation. It is not a variation a case manager can arrange.
| Direct loan | Repayable FMF credit under section 23, at a fixed Treasury rate written into the loan agreement. |
|---|---|
| Non-repayable FMF | Grant funding, produced by a proviso in the annual appropriations act rather than by the Arms Export Control Act. |
| Guaranty | A United States promise to a private lender against nonpayment, under 22 U.S.C. 2764. |
| Subsidy cost | The budget cost of a guaranty under the Federal Credit Reform Act, paid from the program account. SAMM C9.7.2.9.1. |
| Federal Financing Bank | The Treasury lender named in section 24 and in the discontinued Defense Department guarantee program. |
Every statement above links to the document behind it. The full source list for this piece is on the sources page.
This page describes public United States government programs for general information. It is not legal, regulatory or procurement advice, and it does not address the facts of any particular case.
Whether a case is funded by grant, loan or a partner’s own budget, the delivery problem at the far end is the same. Sentfore provides secure movement, protective security, facilities and life support around that delivery. Requirements can be sent through the contact page.