Skip to main content

An Introduction to Small Business Innovation Programs

There are more than 30 million small businesses in the United States. Lauded as being the backbone of the American economy for their contributions to job creation and employment, many of these businesses are also important sources of innovation.

The federal government has long recognized the innovative capacity of small businesses and annually spends billions of dollars to foster the discovery and commercialization of new technologies by smaller employers. As efforts to bolster American competitiveness remain front-and-center, this Bipartisan Policy Center primer provides an overview of two signature small business innovation programs that are set to expire at the end of fiscal year 2022: the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs.

What is SBIR?

The Small Business Innovation Research program has its roots in efforts to strengthen American economic competitiveness in the 1970s. Initially launched by the National Science Foundation in 1977, Congress later expanded the program and established its current structure through the Small Business Innovation Development Act of 1982 (P.L. 97-219). Federal agencies with an extramural budget for research or research and development more than $100 million are required to spend 3.2% of their R/R&D budget for SBIR.

What is STTR?

A decade later, Congress created the Small Business Technology Transfer program through the Small Business Research and Development Act (P.L. 102-564) and modeled it after SBIR. Both programs share a focus on spurring innovation, but STTR is unique in that it requires small businesses to formally collaborate with a research institution (e.g., a university or federal lab). In doing so, the program aims to ensure small businesses have the resources to translate the results of research and development into new products and services. Federal agencies with R&D budgets of $1 billion or more are required to set aside a portion (.45%) of R&D funds to finance STTR activities.

Key Similarities of SBIR & STTR

  1. Both SBIR and STTR are highly competitive, awards-based programs for U.S. small businesses.
  2. SBIR and STTR have goals of:
    • Spurring technological innovation and encouraging U.S. small businesses to engage in basic research and R&D.
    • Making technologies and technical solutions available to federal agencies so they can effectively carry out their missions.
  3. SBIR and STTR each consist of three distinct phases.
  4. The Small Business Administration’s (SBA) role consists of determining whether federal agencies are required to establish SBIR and/or STTR programs, conducting oversight of agency SBIR.


Phase I (Concept Phase)

  • 6-12 months in length to support exploration of the technical merit or feasibility of an idea.
  • Includes evaluation of the commercial potential of the proposed research or research and development being done by the small business.
  • Awards typically range from $50,000 to $250,000.

Phase II

  • Funding awarded to small businesses in Phase II typically lasts for up to two years and is for the purpose of expanding results from Phase I research and development.
  • Typically, only Phase I awardees are eligible for Phase II funding.
  • Awards range from $500,000 to $1.5 million.

Phase III

  • Phase III is intended to help small businesses pursue the commercialization objectives of their Phase I and II work.
  • SBIR and STTR do not provide funding in this phase; instead, this phase may involve follow-on contracts with the U.S. government.
Read Next

SBIR & STTR Spending by Participating Federal Agencies 

Bipartisan Areas for Improvement 

SBIR and STTR have traditionally received bipartisan support. In 2016, the programs were reauthorized and extended with support from both Republicans and Democrats. There is also bipartisan recognition that the programs can be improved. The Research Advancing to Market Production (RAMP) for Innovators Act (H.R. 652/S. 3109), for example, is a bipartisan bill aimed at increasing the speed of SBIR and STTR awards and improving commercialization outcomes.   

Members of Congress have expressed concerns about potential for waste, fraud, and abuse; the number of small businesses that receive multiple awards; a lack of diversity; and the public’s return on investment. National security concerns have also been raised by reports of foreign countries luring away SBIR recipients. 


The Bipartisan Policy Center has identified several ways to strengthen the programs, including by:

  • Developing better metrics by which to assess the impact of the programs,
  • Expanding participation—both demographically and geographically—and,
  • Speeding up timelines and increasing flexibility.

Developing Better Metrics

  • Background: SBIR and STTR success stories abound (e.g., new jobs and technologies created, additional investment generated, and number of spin-off companies formed). Yet agency reporting remains focused on things like the number of proposals received, the number of awards made, and award timelines. SBIR and STTR are intended to promote commercialization by small businesses. The programs should be robustly measured against this critical goal.
  • Potential Improvements:
    • Relevant commercialization outcome metrics could include commercial success or federal use of technologies developed by SBIR and STTR awardees, follow-on funding from the private sector, and employment growth.

Expanding Participation

  • Background: SBIR and STTR have goals of encouraging innovation and entrepreneurship among individuals with historically low rates of participation, especially women and those from socioeconomically disadvantaged backgrounds. A 2021 report from the Congressional Research Service points out, however, that reviews of agency SBIR and STTR programs have found that efforts to increase the number of women-owned or minority-owned small businesses applying for SBIR or STTR funding have largely been ineffective.1 Members of Congress have also expressed concern about a lack of geographic diversity in award recipients.
  • Potential Improvements:
    • The SBA could work more closely with SBIR and STTR program managers to identify and communicate with networks of diverse business owners so that they know about SBIR and STTR funding opportunities and have support to apply.
    • Additional efforts may include setting goals around the diversity of applicant pools, recruiting more diverse application reviewers, and hiring diverse program managers.
    • Agencies could report year-over-year growth in participation by small businesses owned by women or disadvantaged persons.
    • Dedicated partnerships with a broader group of universities and entrepreneurship support organizations could help widen geographic representation.

Increasing Speed and Flexibility

  • Background: Time is one of the most precious resources for an entrepreneur or small business owner. Yet, many agencies fail to issue SBIR and STTR awards on time. A 2021 Government Accountability Office (GAO) report found that “only nine of the 29 participating agencies were consistently on time in fiscal year 2020.”2 Here, being “on time” means issuing at least 90 percent of awards within 180 days, which is still a significant waiting period for small businesses.
  • Along with the need for increased speed is the importance of flexibility. Research and development efforts don’t always unfold as planned. Unexpected obstacles or unforeseen results may lead SBIR and STTR award recipients in different directions, yet management processes do not always allow for needed pivots.
  • Potential Improvements:
    • SBIR and STTR application processes could be simplified and expedited, including by using standardized contracts and making awards up front.
    • Federal agencies could allow for more flexibility in managing SBIR and STTR grants so that researchers may easily pivot as they seek to discover and commercialize new technologies.

Learn More

Support Research Like This

With your support, BPC can continue to fund important research like this by combining the best ideas from both parties to promote health, security, and opportunity for all Americans.

Give Now