Accounting compliance is what turns NIH SBIR funding into a sustainable path for research, development, and eventual commercialization.
Securing funding is often the difference between a promising healthcare idea and a breakthrough that reaches patients. The NIH Small Business Innovation Research (SBIR) program helps bridge that gap, offering more than a billion dollars each year to startups and small businesses driving medical innovation.
This guide breaks down the latest NIH SBIR details, from program basics and application steps to the financial systems that keep your funding secure and your business moving forward.
What Is the NIH SBIR Program?
The NIH Small Business Innovation Research (SBIR) program is often referred to as “America’s Seed Fund” in health and medical innovation circles. Through SBIR (and its close cousin STTR), NIH invests more than $1.4 billion annually in small businesses that want to translate scientific discoveries into health technologies. While NIH has 27 institutes and centers, 24 of them now participate in SBIR funding to support small businesses.
Eligibility: Who Can Apply?
To be eligible:
- The entity must be a for-profit U.S. small business.
- The company must have 500 employees or fewer, including all affiliates.
- The principal investigator (PI) must have their primary employment with the small business (for SBIR), unless a waiver is given.
- For STTR, the small business must formally partner with a nonprofit research institution. The research institution must conduct a minimum of 30% of the work, and the small business must perform at least 40% of the work.
SBIR vs STTR: Key Differences
Though SBIR and STTR share many goals, the differences matter—especially for planning your project:
- Partnership requirement: STTR requires a nonprofit research institution partner; SBIR allows one but does not mandate it.
- Effort share: Under STTR, the nonprofit institution must perform at least 30% of the work. In SBIR, a research institution may participate, but cannot exceed 33% in Phase I or 50% in Phase II (unless notable exceptions).
- Principal investigator rules: SBIR generally requires the PI to be primarily employed by the small business. STTR is more flexible on PI employment, as long as the collaboration agreement is in place.
The Three-Phase Funding Structure
NIH uses a three-phase model (though direct-to-Phase II is possible):
- Phase I (Feasibility / Proof of Concept)
Test technical feasibility, explore risks, and initial proof of concept.
- Phase II (Full R&D / Further Development)
Continue the R&D effort based on Phase I results, with more depth, scale, and resources.
- Phase III (Commercialization / Market Transition)
NIH does not fund Phase III via SBIR/STTR. At this stage, awardees are expected to obtain private or non-federal funding to commercialize their technology.
As of now, NIH’s budget caps are:
- Phase I: approximately $314,363 (for direct + indirect costs)
- Phase II: approximately $2,095,748
These caps may be adjusted in future years as the NIH reviews inflation, policy, and program priorities.
Phase I → Phase II Transition Benchmarks
NIH (following guidance from the Small Business Administration) enforces transition rate benchmarks. If a company has received over 20 Phase I awards within a five-year period (excluding the most recent year), it must maintain a Phase II-to-Phase I ratio (transition rate) of at least 0.25 (25%). Falling below that benchmark renders the company ineligible to apply for new Phase I, Fast-Track, or Direct Phase II awards for a period of one year.
How to Apply for NIH SBIR Funding
Here’s a roadmap of how NIH solicits SBIR proposals and what you need to know about deadlines, special pathways, and the review process.
Finding Funding Opportunities
The NIH publishes notices of funding opportunities (NOFOs)—historically referred to as FOAs or funding opportunity announcements—for SBIR and STTR funding. The most common approach is via omnibus/parent solicitations, which allow investigator-initiated proposals across scientific areas.
- The SBIR/STTR Omnibus Solicitations use standard receipt dates: September 5, January 5, and April 5 (or the next business day if a date falls on a weekend or holiday).
- Some NIH institutes issue solicitation-specific NOFOs (e.g., targeted health areas). These may include SBA-approved waiver topics, which allow higher budgets than the standard caps for projects meeting specific priorities.
- The HHS list of approved waiver topics is periodically updated. If your project aligns with a waiver topic, it is recommended that you engage NIH program staff early.
Fast-Track & Direct-to-Phase II Options
- Fast-Track allows you to submit your Phase I and Phase II applications in a single submission. This reduces the delay between phases, but requires you to lay out a credible Phase II plan upfront.
- Direct-to-Phase II is available only in the SBIR program (not STTR). If you already have proof of concept and scientific merit, you can bypass Phase I entirely.
Application Process and Timeline
Once you’ve identified a fitting NOFO:
- Prepare and submit via NIH eRA / grants.gov
Use the SF424 (R&R) forms and follow the application instructions precisely, including the Grant Application Guide.
- Review & Paylines
After submission, your proposal undergoes peer review, programmatic review, and funding decisions. The timeline varies by institute, but you can generally expect 6 to 9 months between submission and award in many NIH SBIR cases.
- Direct-to-Phase II eligibility & timing
If pursuing Direct-to-Phase II, treat the application as a “New” application (not a renewal). It must be clear that your work has already established feasibility before submission.
- Deadlines & clock management
Because the NIH only accepts SBIR/STTR applications at the three standard windows, missing one deadline typically means waiting for another cycle.
- SBA waiver budgets require extra justification
If your project falls under an SBA-approved waiver topic, your budget justification must be particularly rigorous. NIH program staff will scrutinize whether the extra funding is defensible.
How NIH SBIR Differs from Other Programs
NIH’s SBIR/STTR work sits at the intersection of scientific R&D funding and commercialization support. That positioning gives it some unique features—features that change how you plan, budget, and comply with regulations.
Grant-Based Awards vs Contracts
Most NIH SBIR awards are grant instruments, not contracts.
- Flexibility & scope control: With a grant, the applicant generally proposes the scientific scope, milestones, and deliverables (within alignment to NIH interests). There is more room to adapt during the project. With a contract, the NIH (or the specific institute) issues a Request for Proposal (RFP) with predefined deliverables, timelines, and often more precise technical specifications.
- Oversight & reporting burden: Contracts typically carry stricter reporting, multiple progress checkpoints, and enforced deliverables at preset intervals. Grants, especially in Phase I, are subject to lighter oversight, with a greater emphasis on progress reports and final reporting.
- Cash flow & payment timing: Grant awards typically use a “drawdown” or reimbursement model. Costs are incurred, then reimbursed. Contracts may require more upfront alignment of the expenses with deliverables, sometimes requiring structured payments tied to milestones.
- Awarding authority and roles: Under contracts, communications must go through a Contracting Officer (CO), and direct contact with program staff is restricted. Grants involve Program Officers and Grant Management Officials (GMOs) with more interaction.
- Application constraints: Contract solicitations often have strict page limits, format requirements, and tightly defined scopes. Grant NOFOs are more flexible in structure, utilizing standard NIH forms (e.g., SF424) and offering more leeway in narrative design.
Healthcare-Specific Opportunities
The NIH often provides additional support tools for life-science and medtech innovators, tools that many other SBIR sources don’t emphasize.
TABA (Technical & Business Assistance) Funding
The TABA program enables SBIR/STTR awardees to request extra funds to support commercialization and business tasks (beyond core R&D).
- For Phase I, you may request up to $6,500 for technical/business support.
- For Phase II, the allowance increases to a total of $50,000 across all years of Phase II.
- These funds can be used for market research, regulatory planning, IP assistance, commercialization strategy, and manufacturing assessments, among other purposes.
- You must include TABA in your grant application and justify its value. If not requested initially, NIH sometimes allows TABA via supplemental requests.
Regulatory / Commercialization Support & Clinical Strategy
When commercializing a biomedical or healthcare technology, you must contend with regulations, trials, reimbursement, and market adoption. To assist:
- NIH staff and institute programs may assist with reviewing or advising on FDA pathway strategies, clinical trial design, or regulatory consultations.
- SBIR program offices often guide awardees to commercialization resources, investor connections, or partnering opportunities.
- Some institutes offer commercialization readiness pilots (CRPs) or supplemental programs to support later-stage development that is not covered under traditional Phase II funding.
- Collaboration with clinical research institutions can open doors to trial networks, IRB pathways, and validation cohorts.
Managing Your NIH SBIR Award
Once the award is in hand, your ability to manage it reasonably determines whether it helps or hurts your company.
Required Accounting Systems
Success starts with the proper financial infrastructure.
- Applicable federal grant standards: NIH awards fall under the Uniform Guidance (2 CFR Part 200), and for HHS, the companion HHS Grants Policy Statement (note: as of October 2025, HHS is fully adopting 2 CFR 200 and rescinding 45 CFR 75).
- Cost segregation & classification: Your accounting system must clearly distinguish between direct costs, indirect (F&A) costs, and unallowable costs, with clear rules for how each is allocated or excluded.
- Chart of accounts design: Use a structured numbering system that aligns with project-based tracking. Typical layout features major cost categories (personnel, materials, travel, subcontractors, etc.) plus subaccounts to support audit traceability and internal review.
- Timekeeping controls: Every person whose salary or wages are charged (even partially) to an NIH project must maintain contemporaneous, credible time records showing the percentage of effort devoted to the project.
- Internal control & consistency: Policies must be uniformly applied across all cost centers (federal and non-federal). Any deviation or exception must have documented justification.
Understanding NIH Cost Requirements
Beyond system setup, you need to master how costs work under an NIH SBIR.
Phase I (Firm-Fixed-Price) vs Phase II (Cost-Reimbursable)
- Phase I awards are often firm-fixed price, meaning you are awarded a set payment for defined deliverables. You must absorb cost overruns, but you also may retain savings if you’re efficient.
- Phase II awards shift to cost-reimbursement mode. You propose a budget, incur costs, and then submit for reimbursement (subject to allowability and prior approval).
Indirect Rate Changes & Policy Uncertainty
In early 2025, the NIH issued NOT-OD-25-068, instituting a flat 15% indirect cost rate (F&A) for many NIH grants, replacing individually negotiated rates. However, implementation is under legal and administrative challenge, so the environment is unsettled. For NIH SBIR/STTR awards, NIH recognizes a de minimis 15% indirect cost rate for entities without a negotiated rate under 2 CFR 200.414(f). You must closely monitor NIH Notices (NOTs) and your Institute’s guidance—an administrative shift mid-award is not impossible.
Allowable vs Unallowable Costs
The NIH’s cost principles (updated April 2024) define what constitutes allowable expenses under a given project, in accordance with cost principles and NIH-specific rules. Common allowable costs include salaries, fringe benefits, supplies, travel, publication costs, consultant fees, and conference costs (when justified). These are all subject to reasonableness, allocability, and prior approval.
Unallowable costs include lobbying, fines and penalties, general advertising unrelated to project aims, entertainment, and expenses disallowed under OMB guidance. However, even allowable items require good documentation, such as invoices, timesheets, purchase orders, justification narratives, and a clear audit trail.
Monthly Reporting & Fund Drawdowns
Many NIH SBIR awards operate on a reimbursement basis. You incur costs first, then request funds (drawdowns) via NIH’s payment systems (e.g., eRA Commons, GMS). You must submit financial reports (typically quarterly or more frequently), which show actual costs incurred, budget variances, and justification of expenditures. If costs deviate materially from approved budgets or exceed thresholds for prior approval, you must seek NIH consent (via “prior approval requests”) before revising.
Preparing for Phase II Success
Your financial and compliance infrastructure must scale with Phase II. If you think of Phase I as a proof-of-concept sprint, Phase II is a marathon.
Enhanced Accounting System Requirements
When you transition to Phase II, NIH (or its reviewers) may expect or require a more comprehensive and robust financial foundation.
- Financial stability evaluation & audit readiness: Before awarding a Phase II, reviewers may assess whether your business has the financial wherewithal to execute a multi-year project. In some SBIR programs (though less so at NIH), a “pre-award survey” (audit of your accounting system and financial status) is required.
- Indirect cost rate proposals & justification packages: If you don’t already have a negotiated indirect cost (F&A) rate, or if you are revising it, you must submit a strong justification package.
- Advanced cost accounting & internal controls: Phase II often involves more cost categories, more subcontractors, higher dollar amounts, and multi-year performance. That means your internal controls must scale:
- Segregation of duties
- Formal approval hierarchies
- Cost pool definitions & allocations
- Clear policies for overhead, fringe, travel, and equipment charges
- Audit trail for every transaction
*If your accounting practices are still informal or loosely controlled, you’ll run into trouble at this step.
Common Preparation Challenges
Even with awareness, many teams stumble in these places:
- System upgrades between Phases I and II: Sometimes teams try to “retrofit” a Phase I setup for Phase II. That often fails. You may need to invest in upgraded accounting software (or modules), workflow automation, or external consultants to ensure your system can handle the volume, complexity, and audit demands of a Phase II award.
- Documentation gaps that delay processing: Missing or weak documentation is a top cause of NIH pushing back or rejecting award budgets. These gaps include:
- Lack of backup for overhead rate calculations
- Unjustified or overly general budget narratives
- Missing subcontractor cost proposals or scopes
- Incomplete or inconsistent timesheets
- Absent internal policies or memos about cost allocation
- Timeline pressures & compliance readiness issues: Phase II proposals often require simultaneous development of technical slides, regulatory plans, clinical strategies, and financials. Delays in any one arm can push back the budget, making your justification less sharp or even non-compliant under evolving rules.
Staying Compliant Throughout Your Award
Winning the award is only the first step. Staying compliant requires consistent attention to how you manage budgets, partnerships, and audits throughout their lifecycle. Here’s how:
Manage Your Budget and Expenses
Indirect costs can be provisional or final. Provisional rates are used until actual expenses are reconciled, whereas final rates require complete documentation and may result in adjustments to reimbursement. The NIH also requires prior approval for significant budget changes, including reallocations, scope shifts, or revisions to subcontractors. Missing this step often delays funding. Common mistakes that trigger problems include charging unallowable costs, moving funds between categories without approval, and failing to keep supporting documentation ready for review.
Work with Research Partners
STTR projects require cost sharing between the small business and a nonprofit partner, with at least 40 percent of the work performed by the company and 30 percent by the institution. Subcontractors and consultants must submit detailed budgets, invoices, and time records to ensure that costs are allocable and defensible. For universities, financial management is more complex, and alignment on indirect rates, effort reporting, and fiscal calendars is critical.
Prepare for Reviews and Audits
NIH monitors awards through regular reporting and compliance checks. All financial and programmatic records must be retained for at least three years after the Federal Financial Report is filed, or for an extended period if audits or disputes are ongoing. Businesses with negotiated indirect cost rates must also submit annual reports of incurred costs. Weak or missing documentation is the most common reason costs are questioned during review.
Team 80's NIH SBIR Accounting Services
Team 80 specializes in accounting requirements unique to NIH grants, helping small businesses stay aligned with federal expectations from start to finish.
Specialized NIH Grant Compliance Expertise
Expertise spans both NIH grant and contract requirements, giving small businesses a clear understanding of what reviewers and grant officers expect at each stage. With experience across Phase I and Phase II awards, Team 80 supports projects from early feasibility through the more complex requirements of multi-year development.
Healthcare startups rely on this track record to manage the added financial layers of clinical research, regulatory planning, and subcontractor oversight. QuickBooks systems are tailored with NIH-compliant charts of accounts so direct, indirect, and unallowable costs are cleanly separated and easy to audit.
During Phase I, the focus is on establishing a solid accounting foundation that meets the NIH’s baseline compliance standards and sets the stage for future growth. As companies transition into Phase II, systems are expanded with stronger internal controls and detailed documentation, as required by NIH for higher budgets and longer timelines.
Monthly financial monitoring and reporting provide ongoing visibility, helping to spot issues before they disrupt project progress. Grant management continues throughout both phases, keeping accounting aligned with NIH requirements from award setup to final reporting and closeout.
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.
