Last updated September 2026
The Small Business Innovation Research program is the largest source of non-dilutive funding available to U.S. technology companies. It is also widely misunderstood — including by companies that have already won awards. This guide explains where the money comes from, how it moves, and what changed in 2026.
The money is levied, not appropriated
Congress does not fund SBIR directly. Instead, every federal agency with an extramural research and development budget above $100 million must set aside a statutory minimum percentage of that budget each year — currently 3.2% for SBIR and 0.45% for STTR. Eleven agencies currently meet the threshold, and the combined pool runs between $4 billion and $6 billion annually.
The word extramural is doing real work. Federal R&D divides into intramural research, performed by government employees in government facilities, and extramural research, performed by outside organizations under contracts, grants, and cooperative agreements. Only the extramural portion is subject to the set-aside. An agency’s obligation is therefore a percentage of what it already pays outsiders to perform research.
Two consequences follow. Awards are non-dilutive because this is research procurement rather than investment — no agency takes equity. And the funding structure explains the unusual shape of the 2025–26 program lapse: when statutory authority expired, agencies lost the legal power to issue solicitations or make awards, but the set-aside requirement is written into appropriations and continued operating. The money accumulated with nowhere to go. Unobligated FY2026 funds now roll into FY2027, enlarging the pool available for new awards.
Who runs the program
The Small Business Administration sets policy through the SBIR/STTR Policy Directive, monitors agency compliance, reports to Congress, and maintains the Company Registry. SBA does not make awards.
Each participating agency administers its own program — its own solicitations, topic lists, review processes, timelines, and internal award ceilings, all within SBA’s policy framework. This is why a general question about how SBIR works has eleven partially different answers, and why choosing the right agency is the highest-leverage decision an applicant makes before drafting begins.
Why commercialization carries weight in review
The Small Business Innovation Development Act of 1982 (P.L. 97-219) established four objectives for the program: stimulate technological innovation, increase small business participation in federal R&D, foster participation by socially and economically disadvantaged individuals, and increase private sector commercialization of technologies derived from federally funded research.
That fourth objective is why commercialization plans are scored, why the Technical and Business Assistance allowance exists, and why the 2026 reauthorization specifically targets firms that accumulate awards without bringing anything to market.
The three phases
Phase I — feasibility. Six to twelve months at most agencies; NIH is the outlier and can run up to two years. As of April 2026, agencies may issue a Phase I award up to $323,090 without seeking SBA approval, though typical awards fall well below that ceiling. The technical bar is deliberately low; the commercial bar is not.
Phase II — development. Typically 24 months, funding prototype construction and the validation data an agency, investor, or licensee will want. The ceiling is $2,153,927 without separate SBA approval, but agencies set lower internal caps and sbir.gov describes the ordinary case as normally not exceeding $1 million. Generally restricted to prior Phase I awardees on the same effort, with a Direct-to-Phase-II exception offered by some agencies — historically DoD, NIH, and the Department of Education — for firms that can document Phase I-equivalent feasibility using non-SBIR funds. NSF does not offer this exception.
Phase III — commercialization. Structurally different from the phases before it. No funding ceiling, no competition requirement, and agencies may issue sole-source awards. But no SBIR dollars: Phase III draws from agency procurement budgets rather than the SBIR set-aside, which means competing for program money against established vendors rather than for research money against other small firms. This transition is where most awardees stall.
Who is eligible
Participation is limited to for-profit companies owned and controlled by U.S. citizens or permanent residents, with fewer than 500 employees, performing the work in the United States.
One significant exception applies to SBIR only: Congress authorized agencies to elect to award either 25% or 15% of their SBIR funding, depending on the agency, to small businesses majority-owned by multiple venture capital operating companies, hedge funds, or private equity firms.
How STTR differs
STTR was created a decade after SBIR by the Small Business Technology Transfer Act of 1992. Same phase structure, same award ceilings, much smaller pool at a 0.45% set-aside. The defining difference is a required partnership with a nonprofit research institution — typically a university or federal laboratory — which must perform at least 30% of the research on each award.
Technical and Business Assistance
TABA sits on top of the award structure, authorized by the John S. McCain National Defense Authorization Act for Fiscal Year 2019. Awardees may request up to $6,500 at Phase I and up to $50,000 at Phase II to contract with outside providers for commercialization services — intellectual property support, customer discovery, market assessment, business strategy, and manufacturing planning.
TABA must be requested in the proposal itself. It cannot be added after submission.
→ Full detail on TABA amounts by agency, and the four mistakes that cost awardees money
What changed in 2026
SBIR and STTR authority expired on September 30, 2025, producing a 195-day lapse — the longest in the programs’ 42-year history. The Small Business Innovation and Economic Security Act, signed April 13, 2026, restored authority and extended both programs through September 30, 2031.
The standard Phase I and Phase II ceilings did not change. The 3.2% and 0.45% set-asides did not change. What did change:
Strategic Breakthrough Awards. A new Phase II category authorizing up to $30 million over 48 months, against 100% private or non-SBIR matching funds. It sits above the standard Phase II ceiling rather than replacing it, and applies to large agencies for late-stage, milestone-based work.
Per-firm submission caps, beginning FY2027. Every participating agency must establish a limit on how many proposals a single firm may submit, using one of three frameworks — fiscal year, per solicitation, or per topic — and must publish its chosen framework within 90 days of the start of FY2027.
Topic waivers capped. Waivers for time-sensitive or urgent technology needs are limited to 5% of topics in any fiscal year, with notice to the SBA Administrator.
Expanded national security screening. Substantially broader due diligence around foreign affiliations, investment ties, and technology licensing arrangements involving countries of concern.
Sources
- SBA — About SBIR and STTR (current award ceilings)
- Congressional Research Service — Small Business Research Programs: Overview and Issues for Reauthorization (set-aside requirements, eligibility, VC ownership provisions)
- Congressional Research Service — Small Business Research Programs: Selected Issues (extramural vs. intramural R&D)
- American Institute of Physics — Congress Passes Small Business Research Reauthorization (set-aside percentages maintained, STTR research institution share)
- OpenGrants — SBIR Grants in 2026: What Changed (submission caps, waiver limits, unobligated funds)
Planning a Phase I or Phase II submission? See Proposal Development. Already hold an award? See TABA & Commercialization.