Introduction
When you apply for an SBIR award, you’re not just applying for funding—you’re entering into a specific type of agreement with a federal agency. That agreement can be either a grant or a contract, and the difference isn’t just paperwork. It influences how you write your proposal, how flexible your project can be, and even how closely the agency will work with you during development.
Understanding which type of award you’re pursuing is essential. It shapes everything from your deliverables to your commercialization strategy—and ignoring the distinction could derail your progress before it starts.
SBIR awards are not always grants.
Many agencies issue contracts instead.
Which Agencies Use Grants vs. Contracts
SBIR awards are issued by 11 federal agencies, and each agency chooses whether to use grants, contracts, or both. This choice is tied to their internal goals and how closely they want to guide the research.
Grant-Issuing Agencies typically prioritize scientific advancement and offer flexibility in how the work is conducted. Notable grant-oriented agencies include:
- National Science Foundation (NSF)
- National Institutes of Health (NIH)
- Department of Energy (DOE)
- Department of Agriculture (USDA)
- National Oceanic and Atmospheric Administration (NOAA)
Contract-Issuing Agencies treat the award more like a procurement tool. These agencies specify what they need and expect strict adherence to scope and milestones. Examples include:
- Department of Defense (DoD)
- National Aeronautics and Space Administration (NASA)
- Department of Homeland Security (DHS)
- Environmental Protection Agency (EPA)
- Department of Transportation (DOT)
Agencies Using Both grant and contract mechanisms—like NIH and the Department of Education—may shift based on the topic or program. Always review the solicitation details to know which you’re dealing with.
- Grants Only (usually): NSF, DOE, USDA, NOAA
- Contracts Only (usually): DoD, NASA, DHS, EPA, DOT
- Both: NIH, Department of Education
Core Differences Between Grants and Contracts
At a glance, SBIR grants and contracts may seem like interchangeable funding mechanisms. In practice, they create two very different working environments. Understanding these differences helps you align your project with agency expectations from the outset.
- Grants
- Contracts
Purpose: Support public interest research with broad goals.
Initiative: You define the research direction and outcomes.
Flexibility: High—scope and methods can adapt over time.
Deliverables: Best-effort basis; less rigid.
Reporting: Periodic, typically less detailed.
Agency Role: Limited oversight; you’re the research lead.
Purpose: Procure specific products or services for the government.
Initiative: The agency defines the problem and expected results.
Flexibility: Low—work must follow strict requirements.
Deliverables: Must meet contractually defined milestones.
Reporting: Frequent and detailed.
Agency Role: Active oversight; the agency is your customer.
These distinctions don’t just affect administration—they influence how you manage your project timeline, budget, and even your communication style with the agency.
How These Differences Affect Your SBIR Proposal
The type of award you’re pursuing—grant or contract—should shape every part of your proposal. Misaligning your proposal with the agency’s expectations is one of the most common reasons applications get rejected.
If you’re applying for a grant, you’re expected to take initiative. You’ll define your research question, justify its significance, and propose how you’ll explore it. The agency is funding your idea based on potential impact—not a pre-defined need.
If you’re applying for a contract, your job is to solve the agency’s problem. The scope is already set, and your proposal needs to prove you understand the requirements and can deliver exactly what they’re asking for—on time and on budget.
Even subtle mismatches can hurt. A proposal filled with exploratory language submitted to a contract-based agency may come across as unfocused. Likewise, a rigid, milestone-heavy proposal may feel out of place in a grant context, where innovation and flexibility are prized.
Tailor your proposal based on whether the opportunity is a grant or a contract.
This isn’t optional—it’s strategic.
Commercialization Implications
Grants and contracts not only shape your project—they also influence your path to market.
Contracts often create a direct line to a first customer: the agency itself. For example, if you’re awarded a Phase I contract from the Department of Defense and meet the requirements, you’re already solving a problem they’ve prioritized. That alignment can make Phase III follow-on funding and procurement opportunities more accessible, especially within government markets.
By contrast, grants typically support early-stage, high-risk innovation without a predefined buyer. While this gives you more freedom to shape your product, it also means you’ll need to work harder to identify customers and validate your market independently.
This distinction doesn’t make one better than the other—but it does affect how you position your long-term strategy. If your end goal is government procurement, a contract may offer a clearer path. If you’re aiming for commercial markets with scientific backing, a grant might be a better fit.
How to Tell Which You’re Applying For
Before you start writing, you need to know whether the funding opportunity is structured as a grant or a contract. Fortunately, agencies make this clear—if you know where to look.
Start with the solicitation or Funding Opportunity Announcement (FOA). The document will state the funding mechanism, often near the top or in the eligibility section. It may explicitly label the opportunity as a “grant” or “contract,” or refer to a specific contract number or grants.gov identifier.
Also, review the agency SBIR website. Some agencies, like the DoD, only issue contracts. Others, like NIH, clearly mark which mechanisms are available under each program component.
When in doubt, contact the agency’s SBIR program officer. They can confirm the funding mechanism and clarify any questions you have before you apply.