There have been a lot of reports in the news recently about changes in Federal grant policies. Even those who are only casual tourists to this world will have heard about pauses in grant reviews at the various funding agencies, potentially drastic cuts in funding levels, and other general rumblings that the sky is about to fall.
The policies of the new administration vis-à-vis R&D funding are still being finalized, instituted—and, in some cases, litigated. But enough information has now emerged that we can start to draw some reasonable inferences about what all this means for the ~ $4.5B in SBIR/STTR grants that is disbursed every year and that is such an important source of non-dilutive funding for high tech startups. And the answer is…not much.
That’s right. Carry on, nothing to see here, folks.
At AwardIT, we have been getting regularly contacted over the past month or so, with varying levels of panic, about potential changes in SBIR/STTR policies. We thought it might help to gather up a few of the questions and try to answer them as clearly and concisely as possible.
Question 1: I’ve heard that the NIH is going to limit Indirect Costs to 15%? Isn’t that a big deal?
Answer: for Institutes of Higher Education (IHE), it sure is. They have become accustomed to getting >50% (in some cases, up to ~90%) on top of the dollars that directly support the research program being funded at their Institution. That is going to be a wrench to do without—which is why they are challenging the ruling in the courts.
We are grant consultants, not lawyers, but FWIW our view is that this is a legal battle the IHEs are unlikely to win. The executive branch really does have Constitutional authority in these matters. But no matter how that ruling shakes out, it seems clear that this change in IC rates is intended ONLY for IHE grants. We’ve read the NIH Guidance on the recent change in IC policy NOT-OD-25-068: Supplemental Guidance to the 2024 NIH Grants Policy Statement: Indirect Cost Rates (we do stuff like this so you don’t have to). The CFRs cited in that Guidance, such as CF 75.414, make it clear that IHEs and nonprofits are regulated under a different budgetary policy than SBs and for-profit entities.
The above is, more or less, the same policy for the other agencies with the largest SBIR/STTR budgets (NSF, DOE, DOD)
Takeaway: Indirect Cost rates for SBIR grants, as far as we can tell right now, can be expected to remain in the 20%-40% range, where they have always been.
Question 2: is overall funding support for SBIR/STTR going down?
Answer: for Institutes of Higher Education (IHE), it sure is. They have become accustomed to getting >50% (in some cases, up to ~90%) on top of the dollars that directly support the research program being funded at their Institution. That is going to be a wrench to do without—which is why they are challenging the ruling in the courts.
We are grant consultants, not lawyers, but FWIW our view is that this is a legal battle the IHEs are unlikely to win. The executive branch really does have Constitutional authority in these matters. But no matter how that ruling shakes out, it seems clear that this change in IC rates is intended ONLY for IHE grants. We’ve read the NIH Guidance on the recent change in IC policy NOT-OD-25-068: Supplemental Guidance to the 2024 NIH Grants Policy Statement: Indirect Cost Rates (we do stuff like this so you don’t have to). The CFRs cited in that Guidance, such as CF 75.414, make it clear that IHEs and nonprofits are regulated under a different budgetary policy than SBs and for-profit entities.
The above is, more or less, the same policy for the other agencies with the largest SBIR/STTR budgets (NSF, DOE, DOD)
Takeaway: Indirect Cost rates for SBIR grants, as far as we can tell right now, can be expected to remain in the 20%-40% range, where they have always been.
Question 3: review/funding of my grant has been delayed. How long will I have to wait?
Answer: Applicants at all of the big 4 agencies have experienced some delay in processing of grants since January. This is not that unusual during a change in Administration. It’s been a little more pronounced (and announced) this time around, but the reality is a lot of the focus for the internal audit is on academic grant funding, not SBIR/STTR grants. As fas as SBIR/STTR goes: the latest feedback from NIH is that study sections are being convened, reviews are being issued, happy grants are getting funded. Similarly, at DOD SBIR grants have been largely unaffected (Pentagon says small business programs not part of grant funding pause)
The exception is NSF, which is currently undergoing a significant transformation in its overall structure. Budget cuts and personnel layoffs have already taken place at the agency, and more are likely to follow. In the latest twist, on April 24 the NSF director Sethuraman Panchanathan announced he would resign (Trump’s first-term pick to run the National Science Foundation quits: ‘I have done all I can’).
So much change was sure to have an impact and the agency’s April 16 announcement that grant review would be paused was perhaps not a huge surprise. But again, SBIR/STTR seems to be largely sheltered so far: Project Pitches and applications for the upcoming July 2 NSF SBIR/STTR application deadline are still being accepted. Most importantly, as of this writing, the NSF budget for SBIR/STTR grants remains where it was (see above).
Takeaway: if you have a grant application in the queue for Spring 2025, expect some amount of slowdown in getting your review or for funding to flow. This is especially true at NSF. But overall things are still moving forward.
Question 4: You are telling me that things are OK for now. But can’t SBIR grants be abolished by Executive Order? Could they just vanish overnight?
Answer: In a word–no. The SBIR program was established by an Act of Congress over 40 years ago. It has been renewed, with bipartisan support, every 3 years since that time. Our representatives may not be able to agree on much, but they seem to consistently agree on maintaining the SBIR/STTR program, and Federal law cannot be changed just with the famous “stroke of a pen”.
In summary: there is no doubt that US R&D funding priorities have changed with the advent of a new administration. What else is new? The answer is to stay flexible and shift grant strategy in response to the new realities. We at AwardIT have been grant consultants for a long time and have seen this happen more than once. Despite alarmist reports, it does not appear that any of the recent news will have much impact on Federal agencies overall SBIR/STTR spending or review processes. Onward!
Want to learn more? Reach out to AwardIT at https://awardit.net/ or email me at neal@awardit.net. It’s a world of smart ideas, we look forward to learning more about yours.