II. Supporting Small Business Advancement and Job Generation
The annual Small Business Innovation Research (SBIR) grant program budget should be increased by at least 10% to provide more funding for small businesses to research and commercialize promising new products or services.
The allocation of Small Business Innovation Research grant program funds should be more equally distributed in dollar amount across the 11 participating government departments with no single department representing more than 10% of SBIR funds to provide greater geographic and industry representation of grant awards.
Increase SBIR grants by 10%; Redistribute SBIR grants so no single government agency allocates more than 10% of SBIR grant proceeds
Small business owners employ approximately 40% of America’s technology workers and receive 13 times as many patents per employee than large firms. Further there is considerable research that confirms that small businesses are more likely than large firms to create breakthrough technologies or pursue solutions to important problems in certain healthcare, environmental and clean energy markets that are not considered big enough for larger company attention.
The Small Business Innovation Research program, now over 25 years running, has been an important source for small businesses to receive funding for specific new product or service development projects.
SBIR funds are granted in two phases: Phase I awards provide up to $100,000 to help businesses research and test the feasibility of a new product or service idea. With the successful completion of all Phase I goals, award recipients can then apply for a Phase II grant award of up to $500,000 to help bring innovative technologies to market.
SBIR grants are available through 11 government departments including the Department of Agriculture, Department of Education, Department of Energy, Environmental Protection Agency, Department of Health and Human Services, Department of Homeland Security, Department of Defense, Department of Transportation, Department of Commerce, National Science Foundation and NASA. Every year, each participating department announces research topics to guide upcoming Phase I grant awards.
The value of the SBIR program to business owners is they can fund research and development activities without taking on more debt, diverting funds from existing operations, or selling an equity stake in their businesses to raise capital. And because the size of each grant award is significant, SBIR award recipients can hire more staff, purchase new equipment and test their new ideas in a rigorous way. As such, not only is the SBIR program an “investor” in new technologies but a stimulant to local economies.
The program is also notable in terms of its ability to supply growth capital to promising businesses in industries that are not commonly targeted by financial investors. These industries include education, housing, agriculture or social services.
Despite a generally robust economy, from 2006 to 2007 (2008 results not yet available), total Phase I and Phase II SBIR funding dropped 16%. And in 2007, only 18% of total applicants were awarded Phase I grants, demonstrating the high level of interest in the program.
TakeCommand recommends that the total SBIR program budget return to 2006 program levels of approximately $2.1 billion. Further, we encourage the allocation of additional funds to be awarded to Phase I applicants because earlier stage funds for research and development activities are more difficult for entrepreneurial companies to obtain from financial investors. It is anticipated that additional 350 to 400 companies would receive new product or service development funding each year boosting their companies’ longer-term income generation prospects.
TakeCommand’s second SBIR policy recommendation places a funding cap on the dollar amount of annual awards that can be distributed by any single government department or agency. In recent years, the Department of Defense allocates approximately 50% of SBIR program dollars. In contrast, less than 1% of SBIR funds have been granted through the Departments of Environmental Protection, Agriculture, Education, Transportation and Commerce.
Reallocation of SBIR funds would bring greater geographic and industry diversity to grant awards. Further, funding high caliber entrepreneurs who are advancing healthcare, education, environmental protection, clean energy production, telecommunications and farming technologies are also more likely to produce the desirable “double bottom line” benefit of boosting employment while providing services that directly help people or the planet.
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