Time to Startup!

The BizFilings blog covering business tips and trends.

Small Business Expansion: Government R&D Grants

Published on Nov 7, 2012


Read our article, 'Small Business Expansion: Government R&D Grants' at 'Time to Start Up,' the small business blog by BizFilings.
For some businesses, it means opening new stores to take advantage of untapped markets. For another business, it means hiring new employees and boosting inventory or introducing new services. And for other businesses, expansion depends on scientific research and development. Financing this kind of research and development can be tricky, but there are two federal grant programs that can provide significant R&D funds to take eligible and highly promising businesses to the next level: the Small Business Innovation Research program and the Small Business Technology Transfer program. What is the SBIR program? The Small Business Innovation Research program was launched in 1982, and since then has provided R&D funding to small businesses in a variety of different fields. The financing has spurred important scientific breakthroughs and new commercial products related to the environment, healthcare, national defense, computer technology and more. Eleven federal agencies set aside funds each year to distribute as R&D awards to small businesses. These agencies are the departments of agriculture, commerce, defense, education, energy, health and human services, homeland security, and transportation, as well as the Environmental Protection Agency, NASA and the National Science Foundation. SBIR is described by the U.S. Small Business Administration as a three-phase program, but only the first two phases involve funding:
  • Phase I: The six-month "startup phase," in which businesses receive up to $100,000 to do in-depth research regarding the merit and viability of an idea.
  • Phase II: Businesses are given up to $750,000 and as long as two years to perform further research and specifically consider the commercial applications of a concept.
The third phrase of the program is when a concept becomes a commercial product available for sale in the marketplace. No SBIR financing supports this phase, so companies that make it this far have to turn to private capital or other government financing options, such as SBA loans. Do I qualify for the SBIR program? American-owned and independently operated for-profit small businesses that employ no more than 500 people are eligible for the SBIR program. How do I apply for the SBIR program? The SBIR website lists open solicitations for proposals that have been posted by participating government agencies. Businesses cannot submit proposals that do not pertain to open solicitations, but they are encouraged to consider all solicitations, as there are a wide variety and companies may find one that is related to innovations they would like to pursue. What is the STTR program? The Small Business Technology Transfer program is similar to the SBIR program, except it seeks to foster collaboration between the public and private sectors. A small business that partners with a non-profit research laboratory can apply for STTR funds. Typically, the lab takes the lead on the research side while the small business spearheads the effort to commercialize the innovation and take it to market. Fewer federal agencies participate in the STTR program than the SBIR program. The departments of defense, energy and health and human services disburse STTR funds, as do NASA and the National Science Foundation. The program is identical to the SBIR program in its three phrase structure, with the first two phases funded. The first phase can involve grants of up to $100,000 for a period of research lasting about one year, and the second phase can last as long as two years, with a maximum award of $750,000. Phase III - the introduction of a product to the marketplace - is not funded through STTR dollars. Do I qualify for the STTR program? As with the SBIR program, American-owned and independently operated for-profit small businesses that employ no more than 500 people are eligible for the STTR program. However, the nonprofit research partner must also meet eligibility requirements. It must be located in the United States, receive federal funds and be not-for-profit. It can be a college or university. How do I apply for the STTR program? The guidelines are the same as for the SBIR program. Applications must be in response to a solicitation from a participating federal agency. Many solicitations are open to both SBIR and STTR applicants. If you're interested in applying for either program, you should keep in mind they are highly competitive. The highest 2010 SBIR applicant success rate was 0.215, at NASA. The success rate was slightly higher for STTR applicants, and NASA also had the highest 2010 rate, at 0.372. While it's tough to get this financing, small businesses are encouraged to apply, and 15,000 firms have received funding, according to the SBIR/STTR website.