SBA wants repeat winners of research grants to prove they have real customers

The Small Business Administration (SBA) has proposed a new test for companies that win research grants again and again. Under the idea, a firm with more than 25 Phase II awards in five years would have to earn most of its revenue from commercial customers, not from grants. Miss the mark, and the firm could be barred from new grants for one year.

What changed

The proposal covers two federal programs: Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR). They fund small companies building new technology, in the hope that the work leads to military or commercial customers.

Senator Joni Ernst, an Iowa Republican who chairs the Senate Small Business Committee, backs the benchmark. She said it rewards companies that turn research into customers and follow-on contracts, while limiting new seed awards to firms that have made SBIR grants their revenue model.

Why it is happening

The worry is that some companies treat the grants as steady income instead of a launching pad. A State Science and Technology Institute analysis found that 0.7% of participating companies won more than 21% of all SBIR and STTR awards from 2009 to 2019. Critics say that can crowd out newcomers.

Who it affects

The test as described targets heavy repeat winners, meaning firms above 25 Phase II awards in five years. Most small businesses are not in that group. Still, the direction matters for anyone who relies on these grants, especially early-stage companies, which may find it hard to build customer revenue quickly.

• Repeat winners must show most revenue comes from customers.
• Firms that miss the benchmark could lose grant eligibility for one year.
• Newer firms may gain a fairer shot at awards.

What to do

Companies that depend on these grants can start now. The article suggests stronger customer acquisition, more than one source of revenue, marketing investment, commercialization partnerships, and mentorship from business accelerators.

What is not known yet

The material does not say when the rule would take effect, whether it will change before it is final, or exactly which kinds of revenue count as commercial. Those details will decide how many firms are really affected. Readers can find Senator Ernst's full letter through the original release.