Building a USDA SBIR Phase I budget is not just about listing costs—it’s about demonstrating that your proposed research is both feasible and thoughtfully planned. Reviewers and program officers will scrutinize your budget for signals of technical realism, operational readiness, and alignment with USDA goals. That makes early budget design a strategic exercise, not a formality.
The USDA Small Business Innovation Research (SBIR) program, managed by the National Institute of Food and Agriculture (NIFA), funds early-stage research that supports food, agriculture, and rural community priorities. Phase I projects are designed to assess technical feasibility—not to build a final product or reach market. Your budget should reflect this mandate clearly.
Each Phase I topic area comes with its own funding cap. Most allow up to $175,000 for direct costs, but proposals under Topic Area 8.6 (Rural and Community Development) and 8.12 (Small and Mid-size Farms) are limited to $125,000. Applicants must choose their topic area carefully and scale their scope of work accordingly. If your project could reasonably fit under a higher-cap topic area and still align scientifically, that may be the smarter path.
Importantly, USDA Phase I projects have a standard duration of eight months. Your budget must support not only the technical tasks but the timeline in which they must be completed. Overly ambitious plans with compressed budgets are red flags to reviewers.
Important clarification
SBIR awards are not startup capital—they are grants for carrying out a specific research project.
As we explore each budget component, keep one principle in mind: every dollar requested must directly support the technical aims described in your project narrative. Budgeting is not just math—it’s messaging.
Understanding Federal Cost Principles
Before you assign numbers to your USDA SBIR Phase I budget, it’s essential to understand the four federal cost principles that determine whether your expenses will hold up to scrutiny: allowability, reasonableness, allocability, and consistency. These principles are based on the Federal Acquisition Regulation (FAR Part 31.205) and USDA-specific guidelines. Missteps here can lead to budget rejections or post-award disallowances.
Each of these principles is evaluative. Reviewers expect applicants to apply them proactively and be ready to justify every dollar—not just respond reactively if questioned.
Personnel & Fringe Benefits
Personnel costs often make up the largest share of a USDA SBIR Phase I budget—and they’re the first place reviewers look for signs of realism. The key is to align each person’s effort directly with the technical aims of the project and back up their compensation with market evidence.
For senior/key personnel (e.g., Principal Investigator, Co-Investigator), you must specify the person-months they’ll dedicate, their base annual salary, and the corresponding cost requested. For example, if your PI earns $160,000 per year and will work 3 person-months on an 8-month project, you’d request $40,000, not including fringe. If the PI is not devoting sufficient time to lead a technical feasibility project, that’s a red flag.
“Other personnel” such as technicians, grad students, or interns must also have clear roles and effort levels. Reviewers want to see who’s doing what and whether the time commitment makes sense given the technical work plan.
Best Practice
Tie personnel effort directly to project aims and include rationale in your budget justification.
Fringe benefits should be listed as a percentage of salary and must reflect your company’s actual policies. If you don’t have a negotiated fringe rate with a federal agency, you’ll need to itemize what’s included—e.g., health insurance, FICA, workers’ comp—and how the rate was calculated.
Keep in mind that SBIR Phase I projects require the PI to be primarily employed by the applicant small business (more than 50% of their time) for the duration of the award. If you plan to budget a PI who’s a university professor or works at another company, check the eligibility requirements closely.
A well-structured personnel budget proves not only that your team is qualified—but that you’ve thought through the labor required to achieve your goals.
Equipment & Materials
USDA SBIR reviewers expect clear justification for any equipment purchases, especially in a Phase I budget where feasibility—not full-scale development—is the goal. Equipment is defined as any item with a per-unit cost of $5,000 or more and a useful life of more than one year, unless your organization’s capitalization threshold is lower. If you’re requesting something that meets this threshold, you must demonstrate that it is essential to achieving a specific technical aim and not available through lease, core facilities, or partnerships.
General-purpose items—like standard office computers—are usually considered indirect costs. If you must include one as a direct cost, explain why it is uniquely allocable to the research and cannot be shared across other projects. In most cases, laptops and routine lab gear will not be approved as direct costs.
Materials and supplies—which include consumables like reagents, labware, or field test components—should be categorized and costed realistically. You don’t need to itemize every small purchase, but large-ticket items should be listed with estimated unit prices and quantities. Quotes or catalog prices are helpful evidence for review.
Travel Costs
In a USDA SBIR Phase I proposal, travel costs are only appropriate when they directly support technical feasibility. This means travel for commercialization planning, investor meetings, or conference networking—while valuable—should not appear in your Phase I budget unless the activity is critical to proving the concept.
Instead, allowable travel might include visiting a research site, collaborating with a specialized facility, or consulting with stakeholders if those interactions are necessary to carry out technical aims. If your project falls under Topic Area 8.6 (Rural and Community Development), for instance, modest travel for field assessments or community meetings may be justified—so long as the narrative makes their technical value clear.
Reminder
Use GSA per diem rates for lodging and meals in domestic travel budgets.
All travel must be detailed in the budget justification: who is traveling, to where, for what purpose, when, and at what cost. For example, “PI travel to [University Lab] in Month 5 to conduct specialized imaging experiments unavailable in-house” makes a strong case. Include airfare, lodging, ground transport, and per diem in your estimates, using rates from the General Services Administration (GSA) as your guide.
A well-justified travel line can strengthen your budget. A vague or speculative one can sink it.
Subawards & Consultants
USDA SBIR Phase I proposals must be led and executed primarily by the small business applicant—not by a university lab or a team of external consultants. Specifically, no more than 33% of total research—measured by budget—can be performed by outside parties. This includes both subawards and consultant costs combined.
Consultants are independent experts paid for specific deliverables, such as a statistical model or engineering review. Subawardees are typically institutions (e.g., universities or non-profits) with a defined scope of work and a separate budget. Both require detailed justification in your budget narrative.
Eligibility Risk
Exceeding 33% external work makes your proposal ineligible for SBIR Phase I funding.
If your proposal includes a subaward, you must submit a full subaward budget and justification. Consultants, meanwhile, should be budgeted at an hourly or daily rate and described by name (if known), role, rate, hours, and output. For instance, “Dr. Smith, a biosystems engineering expert, will provide 30 hours of design consultation at $150/hour based on prior SBIR experience and BLS benchmarks.”
Reviewers are looking for strategic use of outside expertise—not outsourcing of core R&D. Demonstrate that your team is leading the project and that external contributors are filling well-defined gaps, not doing the heavy lifting.
Indirect Costs and TABA Funds
Indirect costs and Technical and Business Assistance (TABA) funds often trip up first-time applicants—but when used correctly, they can strengthen your proposal and preserve direct budget flexibility.
- Indirect Costs
- TABA Funds
If your business has a federally negotiated indirect cost rate, you can use that rate—just include a copy of the agreement. If you don’t have one, you may elect a 10% de minimis rate on Modified Total Direct Costs (MTDC). MTDC excludes equipment over $5,000, subaward amounts over $25,000, and some other exclusions.
Indirect costs cover general business expenses that support the project but aren’t easily assigned to a single activity—such as utilities, office space, or administrative support. These are valid and expected costs, and using the 10% de minimis rate can reduce complexity while still recovering overhead.
TABA funds provide up to $6,500 (in addition to the $175,000 Phase I budget cap) for activities that strengthen the commercialization potential of your research. This might include market research, IP strategy consulting, or customer discovery services.
To request TABA, include a one-paragraph description in your budget justification explaining what services will be obtained, why they are necessary, and who will provide them. These funds are not awarded automatically—you must ask for them and defend their value.
Handled properly, these categories can enhance your budget’s competitiveness without draining funds from direct R&D work. Use them strategically to fill gaps and strengthen your project’s foundation.
Tips for Budget Justification Narrative
Your USDA SBIR budget justification is more than an explanation—it’s a key opportunity to reinforce the feasibility, planning, and logic of your project. Reviewers don’t just read the numbers; they want to see how each cost ties to a technical need and how your team will use resources wisely.
The most common mistakes in budget narratives are vague descriptions, mismatches between the work plan and expenses, and copy-paste boilerplate language. Avoid these pitfalls by treating the narrative as a technical document, not a financial one.
A well-written budget justification will make your reviewer’s job easier—and show that you’ve done yours.