Small businesses that operate under the category of research and development in the United States can receive funding from grant programs to maximize and support their efforts. Research and development-focused companies — specifically those in the technology and science industries — can take advantage of federal programs like the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs.
Here’s how to get started with funding your small business research, as well as some options for businesses that don’t qualify for government programs.
What research programs are available for small businesses?
The SBIR and STTR programs are designed to stimulate innovation, create and encourage the participation of underserved persons, provide for federal research and development needs, and increase private-sector commercialization. According to the U.S. Small Business Administration (SBA), thousands of small businesses receive grants annually.
[Read more: Best Practices for Applying for Small Business Grants]
Small Business Innovation Research
The SBA reported over $3.2 billion in funding was awarded to research and development-focused small businesses during fiscal year 2019 through the SBIR program. Businesses that were eligible to receive funding may have been awarded by participating agencies, such as the Department of Agriculture, Environmental Protection Agency, and Department of Transportation, among others. In total, there are 11 agencies that participate in this program.
A key difference that stands out for the SBIR program is that the principal investigator of the project must be employed over 50% of the time during the award period by the small business. A participating agency, however, can waive this requirement.
Small Business Technology Transfer
In addition to the mission of the SBIR program, the STTR program also aims to bridge the gap of technology transfer of research and development between small businesses and institutions dedicated to research. In fiscal year 2019, small businesses received over $429 million in funding.
Participating STTR agencies include:
- Department of Defense.
- Department of Energy.
- Department of Health and Human Services.
- National Aeronautics and Space Administration.
- National Science Foundation.
The SBA reported over $3.2 billion in funding was awarded to research and development-focused small businesses during fiscal year 2019 through the SBIR program.
Who qualifies for these programs?
Small businesses that have an interest in the SBIR and STTR programs must meet a set eligibility criteria to receive award funding. The criteria include:
- Operates a U.S. location.
- Is majority-owned by a U.S. citizen or lawful permanent resident.
- Operates as a for-profit entity.
- Has 500 employees or fewer — including employees at affiliates.
- Is focused on research and development.
Those interested in the STTR program will need a formal partnership agreement with a nonprofit research institution located within the United States. In scenarios where small businesses are owned by a partner, such as a private equity firm, hedge fund, or multiple venture capitalists, SBIR awards are still granted as long as none own a majority of the business.
[Read more: Free Grants and Programs for Small Business]
How does the SBIR/STTR program work?
The program operates in three phases. In Phase I, projects are evaluated to determine their potential impact and feasibility. During this phase, awards in the amount of $50,000 to $250,000 are granted. Depending on which program, this phase can last for six months or up to one year.
Phase II is focused on continuing research and development efforts already initiated. The findings of Phase I influence the funding during Phase II, generally amounting to $750,000 for two years.
If appropriate, small businesses have the possibility for commercialization during Phase III of the program. In this final phase of the programs, no funding is given to organizations.
Funding research outside of the SBIR/STTR program
What if your business doesn’t qualify for the SBIR/STTR program? There are still ways to raise money to fund your research.
Becca Hoeft, CEO and Founder of Morris Hoeft Group, recommended looking beyond government grants and exploring universities and research institutions, as many of them focus on collaborative projects. There are also plenty of options for obtaining general business funding, such as commercial loans and crowdfunding.
“Don’t lose hope,” said Hoeft. “There is money available out there. It just may take some time and a strategy to obtain it.”
[Read more: A Practical Guide to Funding Your Small Business with Business Loans and Beyond]
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