SBIR Phase I, II, and III, explained

A program office, a prime contractor, or a small business reading a Small Business Innovation Research (SBIR) solicitation or award sees three defined terms: Phase I, Phase II, and Phase III. Phase I tests whether an idea is technically feasible, Phase II develops it, and Phase III is follow-on work paid for with money from outside the SBIR program. Congress defined the phases in 15 U.S.C. 638(e)(4), in the 2024 edition of the U.S. Code, and the U.S. Small Business Administration (SBA) sets the operating rules in its SBIR/STTR Policy Directive.

The Small Business Technology Transfer (STTR) program uses the same three-phase structure and is defined in the same section of the code.

What each phase is for

Phase I determines, as far as possible, the scientific and technical merit and feasibility of ideas that appear to have commercial potential. The Policy Directive states the object of the phase in nearly the same terms.

Phase II further develops proposals that meet particular program needs. The statute says awards are based on technical merit and feasibility as shown in Phase I, with commercial potential considered, and it bars any invitation, pre-screening, or pre-selection process for Phase II eligibility. The directive describes the object of Phase II as continuing the research or research and development effort from the completed Phase I, and states that Phase I awardees are the ones eligible, subject to exceptions it lists.

Phase III is, where appropriate, work that derives from, extends, or completes efforts under earlier SBIR funding agreements. The statute describes two funding routes: non-Federal sources of capital, or Federal awards that are not SBIR awards. Neither route uses SBIR program funds.

Award sizes and durations

The figures below are guideline amounts, ceilings, and normal durations, not average awards.

• Duration. The directive says the Phase I period of performance normally should not exceed 6 months for SBIR, or 1 year for STTR, and that Phase II normally should not exceed 2 years.
• Guideline amounts. Section 638(j)(2)(D) of the code directs SBA to raise the guideline amounts to $150,000 for Phase I and $1,000,000 for Phase II, and to adjust them every year for inflation.
• Ceilings. Section 638(aa)(1) bars awards that exceed the guidelines by more than 50 percent, and paragraph (aa)(4) lets SBA grant a waiver for a specific topic. SBIR.gov states that as of April 2026 agencies may issue a Phase I award of up to $323,090 and a Phase II award of up to $2,153,927 without seeking SBA approval, and that any award above those levels requires a waiver. The figures appear on SBIR.gov's About page.
• Strategic breakthrough awards. Section 3 of Public Law 119-83 lets an agency award up to $30,000,000 to a small business and its affiliates, with a total period of performance of not more than 48 months. The business must have at least one prior Phase II award. Section 3(d) provides that these provisions cease to have effect on September 30, 2031.

Who can receive an award

Eligibility is set by SBA regulation, 13 CFR 121.702 (Title 13 of the Code of Federal Regulations), in the version of the Electronic Code of Federal Regulations dated October 1, 2026.

An SBIR awardee must be a business concern more than 50 percent directly owned and controlled by one or more individuals who are citizens or permanent resident aliens of the United States, or by certain other qualifying owners that the paragraph lists, including other small business concerns and Indian tribes. For agencies that elect the authority, a concern may instead be more than 50 percent owned by multiple venture capital operating companies, hedge funds, private equity firms, or a combination of these. The awardee, together with its affiliates, must not have more than 500 employees.

The STTR ownership test in paragraph (b) has no venture capital path. These size and ownership tests apply to Phase I and Phase II funding agreements. The directive states that the small business size limits for Phase I and Phase II awards do not apply to Phase III awards.

Section 2 of Public Law 119-83, titled "Bolstering Research Security of SBIR and STTR Awards," directs agencies to evaluate whether a small business presents a security risk.

The authorization end date has moved by statute

The program's authority carries an end date that Congress extends by statute, and three official texts give three dates.

• The 2024 edition of the code states in subsection (m) that the SBIR authorization terminates on September 30, 2025.
• A National Institutes of Health (NIH) notice dated November 17, 2025 states that legislative authority for SBIR and STTR expired on October 1, 2025, and that NIH's open funding opportunities expired with it.
• Public Law 119-83, approved April 13, 2026, replaces the 2025 date in subsection (m) with September 30, 2031.

The Policy Directive posted on SBIR.gov carries a May 3, 2023 effective date. The directive's summary of statutory provisions says the program is authorized until September 30, 2022, or as otherwise provided in law after that date, so that sentence does not state any of the three dates above.

Why it still matters

The phase names in a solicitation or award point to different rules. Phase I and Phase II awards fall under the size and ownership tests in 13 CFR 121.702, and Phase III awards are paid from outside the program and are not subject to the size limits for Phase I and Phase II. The guideline amounts adjust every year for inflation, and the authorization date has changed by statute, so each figure and date above holds as of the date on its source.

Sources

1. 1United States Code, 2024 Edition, Title 15, Section 638 - Research and development · U.S. Government Publishing Office
2. 2Policy Directives (SBA SBIR/STTR Policy Directive) · U.S. Small Business Administration, SBIR.gov
3. 3About SBIR and STTR · U.S. Small Business Administration, SBIR.gov
4. 4Public Law 119-83: Small Business Innovation and Economic Security Act · U.S. Government Publishing Office
5. 513 CFR 121.702 - What size and eligibility standards are applicable to the SBIR and STTR programs? · Electronic Code of Federal Regulations, Office of the Federal Register
6. 6NOT-OD-26-006: Notice of Early Expiration of NIH Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) Notices of Funding Opportunity and Guidance for Existing Recipients · National Institutes of Health