After a brief lapse, Congress has reauthorized the Small Business Innovation Research and Small Business Technology Transfer programs through Fiscal Year 2031. President Trump signed the Small Business Innovation and Economic Security Act, S. 3971, into law on April 13, 2026. The legislation restores certainty to two of the federal government’s most important funding programs for small business research and development, but it is not a clean extension. The reauthorization makes several meaningful changes to the way agencies will evaluate applicants, manage Phase II and Phase III awards, and screen foreign investment risk.
Background
The Small Business Innovation and Economic Security Act is a reauthorization of the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, which fund small business research, development and commercialization efforts. The programs, administered by SBA with participating federal agencies, had expired on September 30, 2025 halting the issuance of new awards across federal agencies for six months.
The bill reauthorizes SBIR/STTR through September 30, 2031, extends required funding levels through fiscal year 2031, and allows agencies to carry over unobligated fiscal year 2026 funds into fiscal year 2027. Agencies appear poised to move quickly. Immediately after reauthorization, the Department of War stated they issued multiple solicitations, including more than 90 topics seeking innovative capabilities.
What Changed?
Expanded National Security Review
The most significant change for many applicants is the expanded national security review. Under the new law, agencies must evaluate whether a small business presents a security risk before making a SBIR or STTR award. That review may include the statutory due diligence process, applicant disclosures, and coordination with the intelligence community and law enforcement.
The due diligence review is also more detailed. Agencies are directed to assess, using a risk-based approach: cybersecurity practices, patent analysis, employee analysis, foreign ownership, financial ties and obligations, foreign affiliations of covered individuals or key personnel, investment relationships involving countries of concern, technology licensing agreements, joint ventures or joint-venture-like arrangements, and business relationships involving foreign countries of concern. Agencies also must examine connections to several restricted-party lists, including the UFLPA Entity List, BIS Entity List, Military End User List, OFAC’s Non-SDN Chinese Military-Industrial Complex Companies List, FCC covered equipment and services list, and other related lists.
For applicants, this means SBIR/STTR submissions should now be treated as more than technical proposals. Companies should be ready to explain their ownership, investor rights, foreign relationships, cybersecurity practices, and key personnel. Agencies retain broad discretion to deny awards on national security grounds. If denied, applicants must receive written notice identifying the basis for the determination, but applicants remain eligible to reapply in future cycles.
New Strategic Breakthrough Phase II Awards
The Act creates a new “strategic breakthrough” Phase II pathway for agencies with SBIR obligations above $100 million. Under this authority, eligible agencies may use up to 0.5 percent of their extramural research and development budget for awards of up to $30 million to a single small business, including affiliates, through a single award or series of milestone-based awards. The project period may not exceed 48 months and agencies are required to execute contract awards within 90 days of proposal receipt.
This is a potentially important new pathway for companies that have already moved beyond early proof-of-concept work. To qualify, a company must have at least one prior Phase II award, demonstrate 100 percent matching funds from new private capital, non-SBIR/STTR government funding or a combination of both, and show that its technology is an effective solution based on market research. For Department of War awards, the company must also meet additional specific requirements for technology readiness and funding sources.
Proposal limits
Beginning in fiscal year 2027, each participating agency must set limits on the number of Phase I proposals and direct-to-Phase II proposals that any small business may submit. Agencies may set those limits by fiscal year, solicitation or topic. Waivers are available if the topic is time-sensitive and urgent to the mission of the federal agency, but waivers are capped at 5 percent of topics in a fiscal year.
This change appears aimed at reducing administrative burden and curbing high-volume proposals. Companies that previously submitted broadly across many topics may need to be more selective. Applicants should focus on opportunities that closely match their technology, commercialization plan, and likely agency customer.
Greater Focus on Phase III Commercialization
The reauthorization places more attention on moving SBIR/STTR-funded technology into follow-on government contracts. SBA, in coordination with other agencies, must develop training for contracting officers and acquisition personnel on SBIR/STTR authorities, Phase III agreements, Phase III data rights and Phase III sole-source contracts. Agencies also must develop more standardized procedures, model contracts and solicitation language for Phase I, Phase II and Phase III awards. This should help companies understand what information they need to show Phase III eligibility.
These changes should help companies turn SBIR/STTR-funded technology into follow-on government contracts. They may also make Phase III rights easier to review in M&A transactions. Agencies will be expected to track Phase III prime contracts and subcontracts, identify when non-SBIR contracts use SBIR/STTR-funded technology, and connect those contracts to the relevant prior SBIR/STTR award numbers.
More Flexible Technical and Business Assistance
Award recipients will have more flexibility to use technical and business assistance funds, and the Act would allow award recipients to use funds for technical assistance, cybersecurity support, and workforce development. Phase I recipients may use up to $6,500 per project, and Phase II recipients may use up to $50,000 per project, for eligible assistance.
M&A and Investment Considerations
The reauthorization has several implications for buyers, investors, and companies preparing for a sale. First, SBIR/STTR eligibility remains heavily dependent on ownership, control, size, and affiliation. Under SBA’s regulations, an SBIR or STTR awardee must meet applicable eligibility requirements at the time of award, and the company, together with affiliates, generally may not have more than 500 employees. Merger agreements can affect control and should be reviewed carefully.
Second, foreign ownership and foreign influence will receive more scrutiny. The new Act directs agencies to examine foreign ownership, equity and debt obligations, investment relationships, covered individual and key personnel affiliations, licensing agreements, joint ventures and other relationships involving countries of concern. As a result, a proposed investment or acquisition could affect not only small-business eligibility, but also the agency’s security-risk assessment.
Third, Phase III rights will remain valuable in an acquisition. SBA has previously clarified that successor-in-interest entities may be eligible to receive Phase III awards, including where the acquirer has obtained all assets or the portion of assets involved in performing the award. If the transfer occurs during performance, the awardee should verify with the agency whether a novation is required.
Key Takeaways
The SBIR/STTR reauthorization is good news for small businesses, universities, investors and government customers that rely on early-stage federal R&D funding. Applicants however should expect a more compliance-heavy program than before. Proposal strategy, ownership structure, foreign relationships, cybersecurity, and commercialization planning will all receive more scrutiny.
For companies pursuing awards, the near-term priority should be updating internal diligence materials before new submissions. The value of an SBIR/STTR portfolio will depend not only on the amount of funding received, but also on whether the company can preserve eligibility, manage foreign-risk issues, and convert federally funded research into Phase III revenue.
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