Congress Passes Small Business Research Reauthorization

The House passed a bill to reauthorize two technology maturation programs for small businesses last week, sending the bill to the president’s desk to be signed into law. The bill would reauthorize the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs for five years. The leaders of the Senate Small Business and Entrepreneurship Committee reached a compromise several months after the authorization lapsed last October, leaving many awardees and prospective applicants uncertain about the programs’ future. President Donald Trump said earlier this month that he will not sign any bills until the SAVE America Act passes, though it may still become law without his signature at the end of the week. The White House did not respond to a request for comment on whether the president would sign the bill.

Agencies with large extramural research budgets — such as the Department of Defense, Department of Energy, and the National Science Foundation — set aside a portion of those funds for small business R&D through the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, which currently allocate around $4 billion to $6 billion annually. The STTR program also requires that 30% of the research for each award be performed by a non-profit research institution, typically a university or federal lab. The programs have received bipartisan support in Congress but have only been renewed for a few years at a time.

Efforts to reauthorize the programs ran aground last year in the face of opposition led by Senate Small Business Committee Chair Joni Ernst (R-IA). Ernst insisted on reforms to the program through her INNOVATE Act to prioritize “truly small businesses” and “counter Chinese espionage.” Ernst called her proposals “basic safeguards” and said, if lawmakers cannot agree to them, “this SBIR set-aside charade should end.” Sen. Ed Markey (D-MA), the committee’s ranking member, opposed Ernst’s bill and pushed for a “clean” reauthorization that would carry the program forward as-is for one year while lawmakers worked toward a compromise.

The compromise bill includes some reforms from the INNOVATE Act, including new requirements related to reducing foreign risk, limits on applications, and a new type of award that targets agency priority areas. Other INNOVATE Act reforms did not make it into the final bill, including a 50% cut to STTR funds, a $75 million lifetime cap on SBIR awards for any one company, several additional limits on applications, and one-time awards designed to bring in more companies.

In a press release, Markey highlighted his opposition to those provisions and said that their exclusion from the final bill benefits small businesses and research institutions.

Ernst said in a separate press release that “when confronted with the status quo of the SBIR program, I knew I could no longer let China win, allow waste to run rampant, fail our warfighters, or let large companies crowd out actual small businesses. After working across the aisle, these necessary reforms will strengthen the integrity of America’s seed fund while unlocking new innovation.”

The House Science Committee and Small Business Committee issued a joint statement in support of the bill after its passage in the House, saying, “The reauthorization of the SBIR and STTR programs is a critical win for the small businesses that drive American innovation. … We look forward to this bill becoming law and restoring certainty to Main Street America.”

New requirements and awards

The compromise bill maintains the percentages of agency extramural research budgets set aside for SBIR and STTR at 3.2% and 0.45%, respectively. Both the original Ernst and Markey bills included funding increases for the SBIR program, and Markey’s bill also included funding increases for STTR, while Ernst’s bill cut STTR funding by more than half.

Kate Hudson, deputy vice president of the Association of American Universities, said higher ed has historically been opposed to increasing set-asides within agency extramural research budgets, including for SBIR and STTR.

The compromise bill also directs agencies to apply limits on applications, either per fiscal year, per solicitation, or per topic, starting in fiscal year 2027. In contrast, the INNOVATE Act would have set limits on the number of award proposals a single company can submit annually, the number of proposals a company can submit for each solicitation, and the number of proposals on which an individual may concurrently serve as the primary investigator.

Such limits were a point of contention during negotiations, said Erin Neal, a partner at Velocity Government Relations who works with awardees of Department of Defense and NASA SBIR funds. Limiting a company’s per-year submissions, for instance, “would be the death of some of these companies,” Neal said. “They usually have to submit seven or eight to only receive one or two,” she added.

Senior leaders at DOD have indicated that they intend to apply limits on a per-topic basis rather than a per-company basis, which is consistent with the current system, Neal added.

The compromise bill also introduces Strategic Breakthrough awards of $30 million or less, which focus on “the most promising technologies” and require 100% matching funds from private sources or from a non-SBIR or -STTR agency award, according to Ernst’s press release. Eligible businesses must have been awarded at least one prior Phase II SBIR or STTR award.

The bill also adds national security requirements, directing agencies to use several entity lists to review whether applicants have any foreign affiliations that pose a security risk. If the application is denied as a result, agencies must inform applicants of the reason for the denial. The bill also guarantees that denial in one cycle does not bar future participation.

Hudson said the new requirements are a significant change for AAU’s private sector partners, but are less so for the university community, which has already been experiencing high levels of scrutiny over research security in the past decade.

Impact of authorization lapse

Following the passage of funding bills in January, DOD began “threatening” to reprogram SBIR and STTR funds for other purposes, which may have been the final push for Ernst and Markey to negotiate a compromise, Neal said.

The small businesses Neal works with are currently “running on fumes,” she said. “We’re well into FY26 now, and there have been no new SBIRs that have been released this fiscal year. So they’re struggling,” she added. “These are tiny little operations, they’re just trying to make it until that big break.”

It is often difficult for companies seeking DOD SBIR awards to pivot to other types of funding, because those alternatives often require a higher level of technology readiness, Neal said.

“You’re not going to sell hypersonic missiles at Walmart,” Neal added. “These are not commercial products, these are small businesses making widgets for the warfighter. So it’s difficult to figure out where the commercial market is for some of these products.”

On the university side, Hudson said the authorization lapse has strained already-delicate partnerships between universities and small businesses. The lapse also disrupts researchers’ personnel and lab planning year over year and threatens the retention of early-career researchers, she added.