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Federal Government Grants for Startup Businesses

government grants for startup businesses

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There is nothing entrepreneurs love more than “free money,” which is why government grants for startup businesses have become such a popular source of funding. Unlike taking out a loan or striking a deal with investors, there’s nothing to pay back and no equity that needs to be given up. In short, grants can be the Holy Grail of startup funding.

While this may sound great in theory, few entrepreneurs actually take advantage of startup grant money. Not because they don’t want the extra funding, but because they have no idea what grants are even available for startup businesses or where to start looking. Just take one look at the convoluted database that is grants.gov and you’ll be just as perplexed.

To make sure that you’re not leaving free money on the table, we’ve put together a beginners guide to the two most popular federal government grants for startup businesses.

The SBIR and STTR Programs

If you’re looking for government grants for startup businesses, there are only two awards you really need to know about: The Small Business Innovation Research (SBIR) program and the Small Business Technology Transfer (STTR) program. Known as “America’s Seed Fund,” these awards are powered by the US Small Business Administration (SBA) and serve as “the largest sources of early-stage capital for technology commercialization in the United States.” Both are designed to help American-owned and operated small businesses to engage in the research and development needed to commercialize their ideas. More specifically, the program aims to:

  • Stimulate technological innovation.
  • Meet Federal R&D needs.
  • Encourage innovation and entrepreneurship.
  • Increase private-sector commercialization of innovations derived from Federal funding.

While both the SBIR and STTR programs provide startups with a valuable source of funding, there are a few important differences between the two programs:

  1. Principal Investigator
  • Under SBIR the Program Director/Principal Investigator must be primarily employed with the small business at the time of award and for the duration of the project period.
  • Under the STTR program, primary employment is not stipulated, so the Program Director/Principal Investigator may be primarily employed by either the small business concern or the collaborating non-profit research institution at the time of award and for the duration of the project period.

2. Non-Profit Research Partner

  • Research partnerships are encouraged, but not required, under the SBIR program.
  • The STTR program requires that the small business concern formally collaborates with a non-profit research institution. The research institution must perform at least 30% of the work.

You can see the differences in greater detail below.

Federal Grants Description Qualifications
Small Business Innovation Research Program (SBIR) Provides funding to small, high-tech businesses to research, design, develop, and test new technology ideas related to specific needs defined in competitive solicitations floated by the federal agencies. To qualify, you must operate a for-profit business with less than 500 employees and fulfill all eligibility requirements.
Small Business Technology Transfer Program (STTR) The program funds cooperative R&D partnerships between a small business and a research institution such as a university, Federal R&D center, or a non-profit research institute. To qualify, you must operate a for-profit business with less than 500 employees and fulfill all eligibility requirements.

The Agencies that Participate in the SBIR and STTR Programs

How the programs work is that each year, Federal agencies with extramural R&D budgets that exceed $100 million are required to allocate a certain percentage of their budget to the SBIR and STTR programs. There are five main federal agencies that participate in the SBIR and STTR programs and these agencies are the ones that actually award monetary contracts and/or grants:

  1. The National Science Foundation: accepts proposals in the fields of engineering, science, or medicine (though specific topics change from year to year).
  2. NASA: looks for proposals related to energy efficiency, alternative/renewable energy, or efficient ways of building spacecrafts.
  3. National Institutes of Health: accepts proposals from companies researching and developing commercially innovative biomedical technologies.
  4. The Department of Energy: accepts proposals in the fields of environmental science, clean energy, and material science.
  5. The Department of Deference: accepts proposals to advance defence initiatives and efforts.

There are also a few governmental agencies that offer small business grants for the SBIR program only:

  1. The National Institute of Food & Agriculture: accepts proposals on topics related to forestry, food science and nutrition, aquacultural, biofuel products, animal protection, and more.
  2. The Institute of Standards & Technology: accepts proposals on topics related to cybersecurity, manufacturing, software, and trade.
  3. The Environmental Protection Agency: accepts proposals related to green technology and sustainable scientific developments.
  4. The Department of Transportation: accepts proposals on topics related to developing technology regarding aviation, railroads, and highways (though specific topics change from year to year).
  5. The Department of Homeland Security: accepts proposals related to areas of border and maritime security, chemical and biological defense, cybersecurity, explosives, or first responder group technology.
  6. The Department of Education: accepts topics related to a wide variety of educational technologies.
  7. The National Oceanic & Atmospheric Administration: accepts proposals for the development and research of coastline communities and economies, healthy ocean monitoring, climate adaptation and mitigation, and more.

Three-Phase Program

In addition to knowing which agencies you’ll receive money from, it’s also important to know how the SBIR and STTR work. Both the SBIR and STTR programs are divided into phases. However, these phases vary slightly between the two programs.

The SBIR grant is a gated process made up of three phases:

  1. Phase I is Concept Development to establish the technical merit, feasibility, and commercial potential of the project (awards normally do not exceed $150,000 total costs for 6 months).
  2. Phase II is Prototype Development to continue the R&D efforts initiated in Phase I (awards normally do not exceed $1,000,000 total costs for 2 years).
  3. Phase III is Commercialization to pursue objectives resulting from the Phase I/II (no grants awarded).

The STTR is also a gated process made up of three phases:

  1. Phase I is Concept Development to establish the technical merit, feasibility, and commercial potential of the project (awards normally do not exceed $150,000 total costs for 1 year).
  2. Phase II is Prototype Development to continue the R&D efforts initiated in Phase I  (awards normally do not exceed $1,000,000 total costs for 2 years).
  3. Phase III is Commercialization to pursue objectives resulting from the Phase I/II (no grants awarded).

As is clear from the above, both programs are long processes that span several years. This means that if you’re looking for a quick funding boost, rather than to develop and build an idea from the ground up, you may want to rethink applying for these federal grant programs.

Small Business/Startup Eligibility Criteria

Beyond award size and timeline, there are other criteria to take into consideration before applying to the SBIR or STTR programs. For one, only US businesses are eligible for the funding. Applicants must also meet the SBA’s specific definition of small business, which can be found online. As a general rule, businesses must meet the following criteria:

  • Is an organized for profit, with a place of business located in the US, which operates primarily within the US.
  • Is in the legal form of an individual proprietorship, partnership, limited liability company, corporation, joint venture, association, trust or cooperative.
  • Has, including its affiliates, not more than 500 employees.

Applying for SBIR and STTR Funding

If you’re eligible for the SBIR or STTR programs, the next thing to consider is the application process, which can be broken down into the following steps:

  1. Double check your eligibility to ensure you qualify as an SBC.
  2. Review the proposal requirements.
  3. Identify the Opportunity (Solicitation) on SBIR.Gov for which you’d like to apply.
  4. On the SBIR.Gov Portal, identify a match opportunity.
  5. Fulfill the online portal requirements for submissions.
  6. Your application will then be reviewed and evaluated.
  7. If you receive an award, you must meet the requirements of the STTR or SBIR program.

While these steps may seem simple at first glance, the application process is both be long and complicated—especially for those who have never submitted a grant application before. For a more thorough breakdown of the process, you’ll want to consult the SBIR and STTR “RoadMap.”

If you are applying for SBIR or STTR, you should also keep in mind that the submission process alone may take 6-8 weeks, so you need to start as early as possible. For more information on the application process, there is a helpful infographic available from the National Institutes of Health.

 

Of course, if federal funding sounds like it is not the right fit, you may want to consider state grants or corporate grants as an equally fruitful source of startup grant funding.

 

 

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