SBIR Program at a Crossroads: Competing Bills Shape Its Future

For more than forty years, the federal Small Business Innovation Research program – along with its sister Small Business Technology Transfer (STTR) program – has fostered groundbreaking research by funneling government R&D funding to innovative small companies. These initiatives have spurred over $54 billion in awards and supported more than 1.5 million jobs, by one industry estimate**. Now, this pillar of America’s innovation ecosystem faces an uncertain future: SBIR and STTR are set to expire on September 30, 2025, unless Congress acts to renew them. With the deadline weeks away, lawmakers are scrambling to avoid a lapse in the programs – but they remain starkly divided over what the next chapter of SBIR should look like.

Earlier this week, House Small Business Committee Chairman Roger Williams (R-Tex.) introduced a stopgap bill to extend SBIR/STTR for one year, aiming to prevent any disruption in funding while a longer-term deal is worked out**. “Congress cannot allow for any lapse in resources to the small businesses that drive American innovation,” Williams said, emphasizing that the short extension would preserve continuity as negotiations continue. If the authorization were to lapse even temporarily, new SBIR awards at major agencies – from the Defense Department to NASA and the Department of Energy – would be put on hold, potentially stalling R&D projects mid-stream. The urgency is real: by month’s end, thousands of entrepreneurs and researchers could see a funding pipeline freeze unless lawmakers reach agreement.

Two Competing Visions for SBIR’s Future

Behind the scenes, a tug-of-war is unfolding over how – and whether – to overhaul the 43-year-old SBIR program. One camp, led by Republican sponsors, argues the program must be modernized for the 21st century with stricter oversight and a sharper focus on national security. The other, including longtime SBIR champions, insists the program should be made permanent and left to do what it already does well: fund promising ideas on a merit basis. So far, there is “little agreement on what the future of the program will look like” in Congress**.

The INNOVATE Act: A Major Overhaul

In March, Sen. Joni Ernst (R-Iowa), who chairs the Senate Committee on Small Business, introduced the Investing in National Next-Generation Opportunities for Venture Acceleration and Technological Excellence Act – or INNOVATE Act – to reauthorize SBIR/STTR for three years and enact sweeping changes. House Republicans, led by Rep. Williams, later unveiled a companion measure of the same name. Together, these bills amount to a major overhaul of the SBIR/STTR programs**. Key provisions include:

• Rebalancing SBIR vs. STTR: The INNOVATE Act would slightly raise the SBIR funding set-aside – from 3.25% to 3.45% of each agency’s external R&D budget – but slash the STTR set-aside from 0.45% down to just 0.2%. The difference (0.25%) would be repurposed to support larger follow-on awards, effectively shifting funds away from university partnership projects and toward later-stage commercialization efforts.
• New “Phase I-A” Awards for Fresh Innovators: To draw in first-time applicants, the bill creates a simplified Phase I-A grant: up to $40,000 for companies that have never won an SBIR/STTR before. These starter awards would require at most a two-page proposal and aim to test the commercial potential of nascent ideas with minimal bureaucracy.
• “Phase III” Scale-Up Funding: At the other end of the pipeline, the act carves out dedicated funding for huge “Strategic Breakthrough” awards – essentially a new Phase III – to help successful Phase II projects transition to actual products, especially for defense needs. The Department of Defense would be required to spend at least 0.25% of its SBIR budget on awards up to $30 million (with private matching investment) to scale up the most promising technologies and get them into the field.
• Caps on Repeat Funding: A controversial centerpiece of the INNOVATE Act is a lifetime cap of $75 million on how much total SBIR/STTR funding any one small business (including its affiliates) can receive. Companies that hit the cap would be barred from further awards. (The House version adds a national-security waiver, allowing agencies to bypass the cap for a company deemed vital to defense if no alternative supplier exists.) The proposal also limits how many proposals a firm can submit – no more than three per solicitation and 25 per year – and imposes “performance benchmarks” to discourage firms from hoarding grants without progress. For example, any company that has won over 10 Phase I awards would be required to convert at least one-quarter of those into Phase II projects, and those with over 25 Phase I wins must hit a 50% Phase II conversion rate, or else face a one-year freeze on new Phase I awards.
• Faster, Fixed-Price Contracts: To speed up award cycles, the bill pushes agencies to use fixed-price contracts by default for SBIR projects, streamlining negotiations and reducing administrative overhead for small businesses.
• Security and Due Diligence: Amid rising geopolitical concerns, the INNOVATE Act tightens restrictions to prevent any “adversary-linked” firm from accessing SBIR funds. It broadens required due diligence checks on applicants’ owners, subsidiaries and investors. Notably, an SBIR award would be prohibited if the company has ties to foreign entities of concern, and any such connection could trigger a 10-year ban from the program.
• Refocusing Outreach Efforts: The legislation would redirect federal outreach and support toward what it calls “emerging states” – defined as the 25 states with the fewest SBIR/STTR awardees in recent years – as well as to rural communities. Agencies would concentrate technical assistance in those underrepresented regions. At the same time, the bill would eliminate current mandates to track or give preference to women-owned, minority-owned, or socially disadvantaged businesses, arguing that awards should be “geographically” broadened but otherwise strictly merit-based.
• Open Topic Solicitations: To spur more diverse ideas, every agency participating in SBIR would be required to hold at least one “open topics” solicitation per year, where companies can pitch innovative solutions not tied to a specific prescriptive requirement. This approach, pioneered by the Air Force’s AFWERX program in recent years, lets entrepreneurs propose cutting-edge technologies that agencies might not know to ask for.

Supporters of the INNOVATE Act say these reforms will inject new energy and accountability into a program some view as stuck in an earlier era. They point to a handful of firms that have won dozens – even hundreds – of SBIR awards over the years without ever commercializing a breakthrough product, arguing that such “SBIR mills” have gamed the system to live off federal grants. By capping total awards and enforcing stricter phase-to-phase progress, the overhaul seeks to “weed out” companies that perpetually research on the government’s dime without private investment or real-world impact. The bill’s architects also emphasize the national security angle: they want SBIR dollars to accelerate critical technologies for the military and prevent adversary nations from exploiting U.S.-funded research. “For too long, SBIR mills have taken in hundreds of millions of award dollars but produced little more than white papers,” a spokesperson for Sen. Ernst said, asserting that the changes would ensure funding goes to the “best and brightest” innovations that directly support the warfighter.

The Markey–Velázquez Plan: Permanent Authorization

In stark contrast, the ranking Democrats on the Senate and House small business committees – Sen. Edward Markey (D-Mass.) and Rep. Nydia Velázquez (D-N.Y.) – have proposed a broad reauthorization that doubles down on the current SBIR model. Their SBIR/STTR Reauthorization Act of 2025, introduced in May, would make both programs permanent, eliminating the sunset clause that has required renewal every few years. Rather than curtailing “multiple award” firms, the Markey–Velázquez plan seeks to expand the programs’ reach and resources while maintaining their traditional open competition. Its provisions include:

• No More Expirations: The SBIR and STTR programs would be permanently authorized. This would end the periodic cliffhangers over reauthorization and give agencies and small businesses long-term certainty that the programs will continue operating indefinitely.
• Doubling Funding Over Time: The required share of agency budgets devoted to SBIR and STTR would be raised dramatically – to 7% for SBIR and 1% for STTR (up from the current 3.2% and 0.45%). Agencies would phase in these higher percentages over seven years. In effect, the pool of SBIR/STTR grant money available each year could more than double, potentially enabling many more awards and larger project budgets.
• No Award Caps or “Graduation” Limits: The Democratic bill pointedly rejects the idea of lifetime award caps or limits on how many grants a firm can win. It would preserve the programs’ longstanding focus on merit-based selection – meaning a small business that continues to innovate successfully could keep receiving SBIR awards without arbitrary cut-offs. The sponsors argue that picking winners and losers via caps would undermine the spirit of competition that drives innovation.
• Strengthening Commercialization: To address concerns that SBIR projects sometimes languish after initial R&D, the bill pushes federal agencies to better integrate small-business innovations into their missions. It would require agencies to designate a dedicated “Technology Commercialization Official” and provide training to acquisition staff on transitioning SBIR technologies into operational use or procurement. The goal is to boost the rate at which SBIR-funded research leads to actual products, contracts or sales – the so-called Phase III commercialization.
• Extending Security Reviews: The proposal keeps in place the heightened foreign influence screening introduced in the last reauthorization. It would extend the current due-diligence program (which vets SBIR applicants for ties to foreign adversaries) through 2030. This maintains the guardrails aimed at preventing China and other competitors from leveraging U.S. small-business research, without imposing new additional restrictions on the companies themselves.
• Broadening Participation: Markey and Velázquez focus on lowering barriers for new and diverse entrants into SBIR. Their bill would reauthorize and fund the “FAST” partnership program, which helps all 50 states assist local small businesses in developing competitive grant proposals. It also gives agencies leeway to use a portion of SBIR funds to provide application support – such as workshops or mentoring – to first-time applicants and those in underserved regions. In addition, agencies could create SBIR/STTR internships and fellowships targeting women and socially or economically disadvantaged individuals, in an effort to bring more underrepresented entrepreneurs into the high-tech innovation pipeline.

This expansive approach has won praise from many in the small-business innovation community who worry that strict caps would throw out the proverbial “winners” with the “losers.” Jere Glover, executive director of the Small Business Technology Council (and a key architect of the original SBIR program in the 1980s), endorsed the Markey–Velázquez legislation as building on SBIR’s successes “while maintaining what has made [the programs] successful in the first place.” His group particularly applauds the permanent authorization – a “long-overdue step” in their view – saying small firms thrive on certainty and knowing the government will remain a reliable R&D partner**. The bill has also been endorsed by regional alliances of SBIR companies in states like Massachusetts and New Hampshire, who argue that removing caps and boosting funding will “ensure the best technology is developed to keep America as the world leader” and not arbitrarily shut out experienced R&D firms that have proven their worth.

Debating SBIR’s Direction: Oversight vs. Innovation

The clash between these two bills boils down to a debate over how best to foster innovation with taxpayer dollars. Advocates of reform see a program in need of discipline – they want fewer handouts to perpetual grant-hunters and more incentives for outside investment and rapid results. Longtime supporters see a program that, by many metrics, is already working – and caution that heavy-handed changes could stifle the very innovation the government seeks to promote.

Indeed, recent analyses suggest the phenomenon of serial SBIR awardees may be less dire than some assume. A 2024 review by the Government Accountability Office found that just 22 small businesses received 50 or more SBIR/STTR Phase II awards over the entire decade of 2011–2020 – representing under 1% of all Phase II grant recipients – and those firms garnered about 10% of the SBIR Phase II funding in that period**. Furthermore, when Congress last extended the program in 2022, it imposed new performance standards to push frequent winners toward commercialization (for example, requiring a certain conversion rate of Phase I projects to Phase II). GAO’s report indicates that only a handful of companies failed to meet those benchmarks, and even they face little consequence under the current rules – suggesting that most “multiple award” players are already meeting expectations or naturally aging out of the program. In other words, the data shows only a very small cohort of firms could be considered SBIR “mills,” and reforms targeting them might have limited practical effect.

On the flip side, many of the firms in that elite cohort have made outsized contributions to federal R&D. Program veterans note that some long-running SBIR participants have developed technologies so useful that they were eventually acquired by larger defense contractors or commercialized successfully – exactly the outcome SBIR is meant to produce. From their perspective, the presence of repeat winners is a feature of the program’s success, not a bug. “Multiple award winners have been a very successful and integral part of the program,” Glover argues, pointing out that expertise and deep knowledge in a field often come with time and multiple projects. In his view, attempts to cap awards “promote the concept of picking winners and losers,” which historically the SBIR program avoided, instead letting the best ideas rise through open competition.

The concern among SBIR supporters is that the INNOVATE Act’s restrictions would arbitrarily sideline dozens of high-performing small businesses – the very firms most experienced in delivering useful innovations to agencies. An alliance of R&D companies in New England warned that the proposed $75 million lifetime cap could immediately disqualify over 50 companies nationwide that have accumulated awards over decades, calling it a retroactive punishment for firms that “followed the program’s rules and [were] competitively selected for awards” repeatedly. Such companies often work on cutting-edge problems for the Pentagon, NASA or NIH – eliminating them, the group argues, could weaken defense supply chains and leave agencies without trusted small-business partners in certain niche technologies. Likewise, the steep cut to STTR funding in the Ernst bill has alarmed universities and research institutes, who rely on STTR collaborations to spin breakthroughs out of academia. Critics say halving the STTR program would choke off a pipeline of basic research innovations just to funnel a bit more money into later-stage projects.

To the proponents of reform, however, these fears are overblown. They contend that SBIR, as currently structured, too often rewards persistence over performance – allowing some firms to win award after award for marginal improvements or reports that never transition to a real product. By enforcing limits and encouraging new blood, they say, the program will yield more breakthrough innovations, not fewer. They also note that the landscape of innovation has changed since SBIR’s inception in 1982: back then, a much larger share of R&D was funded by the U.S. government, whereas today venture capital and private industry drive the cutting edge. From this perspective, SBIR needs to integrate better with the modern startup ecosystem. The INNOVATE Act’s supporters argue that introducing small Phase I-A grants and open-topic pitches will make it easier for young, venture-backed companies – who might find the traditional SBIR process daunting – to compete for federal research funding. And by requiring SBIR projects to attract matching private investment at the Phase III stage, they aim to ensure the government is co-funding ideas that markets also believe in, thereby avoiding a dead-end “valley of death.”

There is also a geopolitical urgency underscoring the debate. As the U.S. races to innovate in areas like artificial intelligence, quantum computing, biotech and hypersonics, some lawmakers worry that the current SBIR program isn’t keeping up. They point to China’s aggressive investments in technology and argue that U.S. defense agencies need quicker ways to harness innovations from American startups. Ernst and Williams have argued that their reforms would help “set up the DoD and other agencies to compete” more effectively, by focusing SBIR on truly game-changing technologies and by cutting red tape that slows down awards. Requiring every agency to run open-topic solicitations, for instance, is intended to surface novel solutions that rigid government requirements might miss. In the eyes of the overhaul camp, tightening up SBIR now – even at the risk of discomforting some incumbents – is necessary to ensure the program’s continued relevance and to safeguard U.S. technological dominance.

Outlook: Bridging the Divide

As the September 30 deadline approaches, the fate of SBIR and STTR likely won’t be fully resolved in time – but the programs are almost certain to survive in the near term. Most observers expect Congress to adopt an extension (such as the one-year measure in the House) or include SBIR reauthorization as part of a broader must-pass bill, to prevent any funding lapse. One idea floated has been to attach an SBIR package to the 2026 National Defense Authorization Act, given the importance of the program to the Pentagon. Sen. Ernst has signaled interest in folding her INNOVATE provisions into the defense bill, but there is little expectation the massive NDAA will be finalized by the end of this month, and defense committees have historically been wary of tacking on partisan amendments unrelated to core military funding**. Another likely route, then, is a short-term measure: lawmakers could insert an SBIR/STTR extension into a continuing resolution to fund the government past September, buying time for negotiators to hammer out a longer compromise.

What might that compromise look like? Given the wide gulf between the current House/Senate proposals, a final reauthorization could end up cherry-picking elements from each. For example, Congress could agree to extend SBIR for a few years (not permanently, but not just one year either), implement moderate increases to the funding levels, and adopt some middle-ground oversight measures. Some form of enhanced due diligence on foreign ties is likely to continue regardless, as both sides prioritize safeguarding research from adversaries. We may also see consensus on measures to boost commercialization – perhaps mandating more agency accountability for utilizing SBIR results, an area where there is broad agreement. But on the flashpoint issues like award caps or limits on repeat winners, compromise will be trickier. Lawmakers will have to weigh the political appeal of cracking down on “waste” against the risk of hampering a program widely viewed as an engine of innovation.

Meanwhile, the tens of thousands of small businesses that participate in SBIR and STTR are watching closely – and bracing for changes. Advisors to tech entrepreneurs say firms should continue to pursue SBIR opportunities with vigor, but be prepared to navigate a shifting landscape. In practical terms, that means casting a wide net and applying to multiple agencies and solicitations (since mandated funding levels ensure money will be available across the government), aligning proposals with national strategic priorities (such as defense, supply chain resilience, or climate tech, which are likely to get attention in future SBIR topics), and running lean, results-driven projects. Companies are also being warned to expect increased scrutiny in the proposal process – agencies are now more vigilant about foreign involvement and other security risks, and even references to certain hot-button topics have drawn extra review. For instance, proposals are being “increasingly scrutinized for any foreign involvement, security risks, or anything seen as ‘DEI’” in their content**. Small firms would do well to shore up their compliance, ensure their ownership and partnerships are transparent, and avoid controversies that could delay funding.

Perhaps most importantly, veteran SBIR participants urge patience and persistence. The turmoil of reauthorization and new rules can lead to administrative delays and confusion at agencies – proposal evaluations might take longer, contract officers might change, solicitations could be tweaked last-minute. In this environment, staying in close touch with program managers is key, as is not hesitating to follow up (politely) if communications stall. The silver lining, many note, is that both parties in Congress appear committed to the core premise of SBIR: leveraging small businesses to drive innovation. The program has been reauthorized many times before under far more contentious circumstances, and few believe Congress will ultimately allow it to die.

Exactly what shape SBIR/STTR will take in the coming years – leaner and more targeted, or larger and more inclusive – remains to be decided. But as Washington debates, America’s inventive entrepreneurs are still busy in their labs and workshops, chasing the next breakthrough. For now, they can take heart that the nation’s long-running “innovation seed fund” is very likely to continue, one way or another. And whether the final deal looks more like Ernst’s vision or Markey’s, small R&D companies will adapt as they always have, ready to compete for the opportunity to turn bold ideas into real technologies that fuel the economy and strengthen national defense.