What is an SBIR Grant?
The Small Business Innovation Research (SBIR) program, sometimes also referred to as America’s Seed Fund, was put into place to provide funding for technology commercialization in the United States. SBIR grants assist companies in the United States with funding for federal research and development for products that have a good chance of being commercialized. SBIR grants are funded by the government and operate under a unique structure. The purpose behind SBIR funding is to help companies fund their research and development costs.
Where does SBIR Money Come From?
There are 11 federal agencies who have extramural budgets in excess of $100 million. On an annual basis, $2.5 billion of that is awarded to SBIR grants. Out of the 11 federal agencies, the Department of Defense gives the most in SBIR grant money – approximately $1 billion per year.
What does SBIR Money Cover?
SBIR grants cover a range of expenses relating to the operation of your business: Not only do these grants help cover direct research costs, they can also be used for other expenses that relate to running your business. These can include items like rent, utilities, materials, salaries, and more. That being said, costs having to do with entertaining clients, sales, publicity, and other similar expenses cannot be paid using grant money.
If you receive a SBIR grant for a specified amount, that amount will be given to you most likely in predetermined increments and not all at once. Sometimes deliverables and specific reporting must be presented in order to receive the next round of funding. As a result, initial working capital or support from investors can be helpful to have.
How Do I know if I Qualify for a SBIR Grant?
To be considered eligible for an SBIR grant or contract, a business must be a “small business” according to the Small Business Administration (SBA) and meet the following criteria:
- The business must be classified as a Small Business Concern (SBC). These requirements can be found on the Small Business Administration website.
- The business must be independently owned and operated
- The business must be based out of the United States
- 51 percent of the business must be owned or controlled by citizens or permanent illegal aliens of the United States
What are the phases of an SBIR Grant and how do they work?
SBIR Grants are awarded in three phases:
Phase I is considered the start-up phase in which up to $150,000 can be awarded over a period of six months to help a company get their research and development costs covered to determine whether or not a technology is worth pursuing.
In Phase II, SBIR grants can be awarded in amounts up to $1 million for up to two years. Whether or not a company makes it to Phase II will depend on their results from Phase I. During Phase II, research and development work is continued and the developer determines whether or not the product should be commercialized.
Phase III consists of the technology/product moving from a laboratory and into the market to be sold. During phase III, no additional funds are awarded.
Once I have an SBIR grant, what kind of accounting practices do I need to put into place?
If your small business has been awarded a SBIR grant, or if you are looking to apply for an SBIR grant in the future, it is important to have a grasp on what you will need to have in place to correctly keep track of not only your research and development costs, but also how you use the money your business has received through the SBIR grant. These areas include:
- An accounting system for your business that has the ability to accurately keep track of actual expenses as compared to the SBIR grant budget submitted while also having the capability to meet FAR Part 31 requirements.
- A set of policies and procedures to document the key operational and accounting areas of your business. These policies and procedures will need to state your understanding of allowable versus unallowable costs in addition to other compliance areas.
Meticulous record-keeping habits are key and most organizations that provide grants require proof that the grants are being used properly. Because of this requirement, you will want to be strict and accurate about your record keeping. For example, to support the record of the expenses your business incurs, you’ll want to keep accurate employee time records, copies of invoices, and receipts for expenses. In order to be accurate with your record keeping, it’s critical to have a solid accounting system in place.