What small businesses need to know about NIH SBIR funding, project budgets, and accounting once an award is in place.
NIH SBIR funding helps small businesses develop and commercialize biomedical, health, and life science technologies.
Once an NIH SBIR award is in place, the company also has to keep clear records of how grant funds are being used, including employee time, project expenses, and indirect costs.
This guide covers NIH SBIR funding, application requirements, current budget guidelines, and the accounting issues companies should be prepared to manage after an award.
What Is the NIH SBIR Program?
The National Institutes of Health participates in the federal Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs.
Twenty-four of NIH’s 27 Institutes and Centers participate in small business funding. NIH provides more than $1.4 billion annually through its SBIR and STTR programs for research and development by U.S. small businesses.
NIH funds a wide range of biomedical and health-related technologies.
Eligibility: Who Can Apply?
NIH SBIR applicants must:
- Be a for-profit business located in the United States
- Have 500 or fewer employees, including affiliates
- Be more than 50% owned and controlled by U.S. citizens or permanent resident aliens, qualifying U.S.-owned businesses, certain tribal or Native organizations, or a combination of these
- More than 50% ownership by multiple venture capital operating companies, hedge funds, or private equity firms may also qualify, subject to NIH/SBA rules
- Have the principal investigator’s primary employment with the small business during the SBIR project period
Companies with joint ventures, affiliates, or more complex ownership structures should review NIH’s full ownership and affiliation requirements before applying.
SBIR vs STTR: Key Differences
For SBIR, a research partner is optional. The small business normally performs at least 67% of the Phase I research or analytical effort and at least 50% during Phase II.
For STTR, collaboration with a nonprofit research institution is required. The small business must perform at least 40% of the work, while the research institution must perform at least 30%.
Those requirements also shape how costs are tracked. Companies need to separate their own labor and project expenses from costs billed by universities, consultants, CROs, and other research partners.
The Three-Phase Funding Structure
Phase I
Phase I supports feasibility and proof-of-concept work. NIH’s current Phase I budget guideline is $323,090, with a project period generally ranging from six months to two years.
Phase II
Phase II supports continued research and development. NIH’s current Phase II budget guideline is $2,153,927, with a project period generally ranging from one to three years.
These amounts are guidelines rather than universal caps. Individual Institutes and Centers may set different limits, and some topics qualify for higher budgets under SBA-approved waivers. NIH provides the current Phase I and Phase II budget guidelines along with information about waiver topics.
Phase III
Phase III covers commercialization after SBIR or STTR-funded research. SBIR/STTR program funds do not support Phase III, but funding may come from private sources or other federal funding outside the program.
Technical and Business Assistance (TABA)
NIH SBIR and STTR applicants may request funding for Technical and Business Assistance, or TABA, to help move a technology toward commercialization.
Current TABA limits are up to $6,500 for Phase I and up to $50,000 for Phase II.
TABA may cover outside services such as market research, intellectual property, regulatory planning, manufacturing planning, and other commercialization-related assistance.
It does not cover routine business expenses such as bookkeeping, payroll management, or general accounting.
Companies planning to request TABA should review the specific funding opportunity and NIH’s current TABA guidance when building the application budget.
How to Apply for NIH SBIR Funding
New applicants should start federal registrations early. NIH advises companies to allow six weeks or more for the registration process.
A company generally needs SAM.gov registration and a Unique Entity Identifier, eRA Commons registration, Grants.gov registration, and SBA Company Registry registration. NIH outlines the full registration process for SBIR and STTR applicants.
NIH publishes Notices of Funding Opportunities, or NOFOs, for SBIR and STTR funding. Applicants may apply through broad parent announcements or through opportunities focused on a particular Institute, disease area, technology, or research need.
Standard NIH SBIR/STTR parent announcements generally follow three annual application cycles. Specific opportunities may use different deadlines, so the NOFO should always be the source of truth for the application date and requirements.
Some companies may also qualify for Fast-Track or Direct-to-Phase II opportunities when the funding announcement allows them.
NIH SBIR Application Requirements
NIH SBIR requirements can change from one funding cycle to the next, so the current funding opportunity should always be the starting point.
Check the deadline, required forms, budget limits, and project period for the opportunity you plan to apply to. NIH publishes general SBIR budget guidelines, but individual Institutes, Centers, and funding opportunities can set different limits.
If your company plans to submit more than one Phase I, Fast-Track, or Direct-to-Phase-II application in the same fiscal year, review the current NIH and HHS application limits before submitting.
Companies with foreign ownership, collaborators, researchers, or other international relationships should also review the current foreign disclosure and research-security requirements.
You can find current program information in the NIH SBIR/STTR program guidance and in the specific funding opportunity.
NIH SBIR Grants vs. Contracts
NIH issues both SBIR grants and SBIR contracts, and the distinction matters for accounting.
With a grant, the company manages the award under NIH grant policies and the terms in its Notice of Award. NIH’s current Grants Policy Statement provides the standard policy requirements that apply to NIH grants.
NIH SBIR contracts are tied to specific solicitation topics and contractual requirements.
A DCAA or government-contract requirement should not automatically be treated as an NIH grant requirement simply because both involve federal funding.
Companies with federal contracts can learn more about Team 80’s Government Contract Accounting Services.
Managing Your NIH SBIR Award
Many companies reach the accounting stage only after the award is already in place.
Team 80 has seen NIH awardees reach this point before their accounting process is ready for federal funding.
One NIH Phase I company Team 80 spoke with had already received its award and was preparing to hire its first W-2 employees but had not yet implemented a full accounting system. The immediate questions were how to track salary costs, direct expenses, indirect costs, and grant activity.
“Winning an NIH SBIR award is a huge milestone, but it can also be the point when a startup realizes its existing bookkeeping isn’t set up for federal funding. You need to be able to track where grant dollars are going, how employee time is allocated, and how actual project costs compare with the budget throughout the award.”
Need an Accounting Process Built Around Your SBIR Award?
Team 80 handles the recurring accounting work behind federally funded projects, from project cost tracking and timekeeping to indirect rates and monthly financial reporting.
Setting Up Your Accounting for an NIH SBIR Award
NIH does not require every SBIR company to use a specific accounting software platform.
Team 80’s standard accounting setup uses QuickBooks Desktop, along with separate tools for payroll, accounts payable, and timekeeping.
The company’s financial records still need to support the costs charged to the award, regardless of the software being used.
The accounting system should make it easy to see which costs belong to each project, how employee labor is allocated, which expenses are direct, indirect, or unallowable, and how actual spending compares with the grant budget.
Vendor, consultant, and research expenses should also tie back to supporting records.
Time, payroll, project costs, and the grant budget should work together instead of being managed in separate systems or spreadsheets.
Timekeeping and Labor Allocation
Timekeeping matters because payroll can represent a large share of an SBIR budget.
Employee time records should support how labor costs are assigned to the NIH-funded project, especially when someone works across grant-funded research, other federal projects, internal R&D, or administrative work. The accounting record should reflect the work performed and how the related payroll cost was allocated.
For a founder or small team, this may be a bigger change than it sounds. It is much easier to establish the process when the award begins than to reconstruct months of employee time later.
Understanding NIH Cost Requirements
Why does this cost belong to this award?
That is one of the most useful questions to ask when reviewing grant expenses.
Direct Costs
Direct costs are expenses tied specifically to the funded project. Depending on the award, that may include employee labor tied directly to the research, research supplies, CRO or laboratory services, consultants, approved subcontractors, or project-specific equipment.
Being included in the proposal budget does not automatically make an expense allowable. The cost still needs to meet applicable federal and NIH requirements.
Examples:
- Project labor
- RNA sequencing and other project research expenses
- CRO or laboratory costs
Indirect Costs
Indirect costs are shared business expenses that support the company but cannot be tied easily to one specific project.
Depending on how the company’s accounting structure is set up, that may include administrative labor, employee benefits, facilities, software, and other shared operating expenses.
For NIH SBIR awards, the indirect rate should also reflect the company’s actual cost structure as the business grows and adds employees, benefits, space, or other overhead.
Examples:
- Employee benefits
- Health insurance
- Shared administrative costs
- Facilities or office costs
- Shared software and operating expenses
Unallowable Costs
Unallowable costs are business expenses that cannot be charged to the NIH award. They still belong in the company’s accounting records, but they need to be identified separately so they are not included in project costs or indirect-cost calculations where they do not belong.
Whether a cost is allowable can depend on the type of expense, the circumstances, and the terms of the award.
Examples:
- Alcohol
- Entertainment expenses
- Lobbying costs
- Fines and penalties
Drawing Down NIH Grant Funds
NIH grant payments are generally handled through the HHS Payment Management System, or PMS. Awardees should draw funds based on immediate project needs rather than treating the full award amount as cash available to transfer at once.
Consider a company with a large sequencing or CRO invoice coming due. The accounting team needs to know whether the expense is allowable, which project it belongs to, when payment is due, how much grant cash should be drawn, and how that drawdown will be recorded against the award.
Team 80 has worked through this kind of timing issue with NIH Phase I companies managing large upcoming research expenses and the three-business-day cash rule.
Preparing Your Accounting for Phase II
Phase II usually brings more financial activity as companies add employees, CROs, consultants, vendors, and other research expenses. The accounting process needs to keep up with that growth without creating more manual cleanup each month.
Before Phase II, the company should be able to see how much has been spent against the project budget, tie labor costs back to employee time, identify CRO and consultant costs, separate direct and indirect expenses, and trace project costs back to invoices, receipts, payroll records, or time entries.
If producing that information requires several spreadsheets or significant month-end cleanup, the accounting process may need more structure before activity increases.
One company Team 80 spoke with was preparing for a three-year Direct-to-Phase-II NIH project and wanted accounting, reporting, and budget management in place before the award began.
Preparing for Phase II?
A larger award can mean more employees, research partners, project costs, and financial activity to track. Team 80 manages the accounting as those requirements grow.
Staying Compliant Throughout Your NIH SBIR Award
A useful accounting process gives the company a current view of what has been spent, what remains in the budget, and whether the records behind those costs are complete.
Track Your Budget and Project Costs
Monthly project-cost reporting helps management catch issues before they become reporting or closeout problems.
Labor may run above budget, a CRO may invoice faster than expected, or a planned research expense may be delayed. Indirect costs can shift as the company grows, and transactions can end up charged to the wrong project.
Working With Research Partners
Universities, CROs, consultants, and other research partners add another layer of cost tracking. The company needs to separate its own labor and expenses from subcontractor invoices, consultant costs, research-institution charges, and other vendor expenses.
For STTR awards, work-share requirements also need to be considered when planning and tracking the project. The partner agreement and the terms of the NIH award should guide how the work and related costs are handled.
Financial Reporting and Audits
Reporting requirements vary by NIH award, so companies should follow the terms of the specific award and applicable NIH guidance.
For-profit NIH recipients also have specific audit requirements. Under current NIH policy, a for-profit recipient that expends $750,000 or more in federal awards during its fiscal year is subject to NIH audit requirements. NIH provides more information about current audit requirements.
Companies below that threshold still need to keep grant-related financial and supporting records that can be reviewed by authorized officials. NIH generally requires those records to be retained for at least three years from the applicable reporting date, with longer periods in some situations such as an open audit, claim, or litigation.
An NIH grant should not automatically be treated as though it requires an SF 1408 government-contract accounting-system review.
Team 80 NIH SBIR Accounting Services
Some NIH SBIR companies come to Team 80 before they apply. Others already have an award and need an accounting process that can track labor, project costs, indirect expenses, and grant activity month after month.
Team 80’s NIH SBIR accounting services include:
- Bookkeeping and monthly accounting
- Project cost tracking
- Payroll and labor allocation
- Timekeeping
- Accounts payable
- Direct, indirect, and unallowable cost tracking
- Indirect-rate calculations
- Monthly financial reporting
- Grant budget reviews
- PMS drawdown calculations
- Accounting as a company moves from Phase I into Phase II
Team 80 handles grant accounting as part of the company’s regular monthly accounting, so project costs, labor, indirect rates, and company-wide financials can be reviewed together.
That gives founders a clearer view of how the NIH project is tracking against its budget and what is happening financially across the rest of the company.
Need Help With Your NIH SBIR Accounting?
Sarah Sinicki
Team 80 CEO
Sarah is a leader focused on serving small businesses in various industries. She has worked with a multitude of companies over the last 25 years and loves helping business owners find success. Sarah is genuinely committed to unburdening Team 80 clients so that they have the freedom to focus on their business. In her free time, you can find her spending time with her husband, two kids, and her Yorkies, Marley and Ziggy. When she is not helping business owners, you can find her in a Reb3l Groove class dancing it out. Sarah is also an avid Colorado Avalanche fan, so if you ever want to talk about hockey, she’s your gal.
Table of Contents
- What Is the NIH SBIR Program?
- How to Apply for NIH SBIR Funding
- NIH SBIR Application Requirements
- NIH SBIR Grants vs. Contracts
- Managing Your NIH SBIR Award
- NIH Cost Requirements
- Drawing Down NIH Grant Funds
- Preparing Your Accounting for Phase II
- Staying Compliant Throughout Your NIH SBIR Award
- Team 80 NIH SBIR Accounting Services
