The SAFE borrowing scheme backed by the EU's central budget was proposed by Brussels in March as the bloc rushes to boost its defences.
Member states haggled over what the money could be spent on and how countries outside the EU can access the funds for weeks before agreeing a final text late Sunday, diplomats said.
In the end, the agreement stuck to the original proposal allowing 35 percent of the value of the weapons to come from manufacturers beyond the bloc and Ukraine.
The finalisation comes as the EU and the UK agree a new defence partnership as part of a post-Brexit "reset" at a London summit.
London would still need to strike a separate deal with the EU if it wants to fully open the new scheme to the British defence industry.
The EU text still needs to be formally signed off by the bloc and approval should come when Europe ministers meet in Brussels on May 27.
The borrowing programme is part of a package of measures including loosening budget rules that Brussels says could unlock 800 billion euros of defence spending.
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