The SBIR Drought Is Over: Ernst and Markey Strike a Deal to Restart Small Business Innovation Funding

The Pentagon threatened to redirect the money. That got Congress moving.

On February 25, Senators Joni Ernst (R-IA) and Ed Markey (D-MA) announced they had reached a bipartisan agreement to reauthorize the Small Business Innovation Research and Small Business Technology Transfer programs for the next five years. The bill — the Small Business Innovation and Economic Security Act — was hot-lined in the Senate and could reach the floor for a vote as early as this week, with House passage expected shortly after.

If it clears both chambers, it will end the longest authorization lapse in the programs' 42-year history. SBIR and STTR expired on September 30, 2025, freezing more than $4 billion in annual funding across 11 federal agencies and shutting the door on thousands of small companies waiting to submit new proposals.

What Broke the Logjam

For months, Ernst and Markey couldn't agree on how to reform the programs while restarting them. Ernst's INNOVATE Act proposed sweeping changes including a controversial $75 million lifetime cap on how much any single company could receive through SBIR. Markey fought it hard, arguing the cap would punish the most successful research firms — companies whose repeated SBIR wins often signal exactly the kind of sustained innovation the programs were designed to support.

The breakthrough came after Pentagon officials reportedly threatened earlier this week to redirect SBIR-designated funds if Congress didn't act. The Space Force's Rapid Capabilities Office had already paused three contracts for satellite communications and warning sensors because of the authorization gap. For a defense establishment increasingly dependent on small-company innovation for everything from hypersonics to cybersecurity, a five-month freeze was no longer an abstract policy problem.

What the Deal Includes

The compromise drops the lifetime funding cap entirely. Instead, SBIR office directors at each federal agency will set annual limits on how many proposals a single company can submit. Those limits come with a safety valve: agency directors can waive the cap for technologies that are time-sensitive or deemed urgent for national security.

The bill also establishes a new Strategic Breakthrough Initiative, designed to help small companies bridge the notorious gap between SBIR Phase II (development) and Phase III (production contracts). That valley of death — where a technology works in the lab but can't find its way to a customer — has killed more SBIR-funded innovations than any technical failure.

Foreign influence provisions round out the package. The bill includes safeguards against Chinese government-linked entities participating in or benefiting from SBIR awards, a provision that had bipartisan support from the start and was never the sticking point in negotiations.

What Happens Next for Applicants

Reauthorization doesn't mean solicitations drop tomorrow. Agencies will need time to reopen their SBIR/STTR offices, draft new topic announcements, and restart review panels. Based on previous lapses (none this long), expect a compressed timeline: agencies will likely publish accelerated solicitation schedules to make up lost ground before the fiscal year ends in September.

Here's what small businesses should do right now:

Finalize your proposals. If you've been sitting on a Phase I concept or refining a Phase II application during the freeze, get it submission-ready. When solicitations reopen, the companies with polished narratives and updated commercialization plans will move first.

Watch your agency. Each of the 11 participating agencies will restart on its own timeline. DOD, NIH, and DOE — the three largest SBIR funders — will likely move fastest. Bookmark the SBIR.gov topics page and your target agency's small business office.

Revisit Phase III opportunities. DHS clarified during the lapse that Phase III contracts could still proceed. With reauthorization imminent, contracting officers across all agencies will have clearer authority to issue Phase III awards. If you have an existing SBIR track record, now is the time to pitch follow-on work.

Understand the new application limits. The annual proposal caps haven't been defined yet — each agency's SBIR director will set them. Companies that previously submitted across multiple topics at a single agency may need to be more strategic about which opportunities to pursue.

Five Months of Lost Ground

The deal is welcome news, but it doesn't erase the damage. Five months of frozen solicitations means five months of delayed technologies, stalled hiring at small R&D firms, and missed signals to private investors who use SBIR awards as validation markers. Some companies didn't survive the wait.

The new five-year authorization at least removes the threat of another lapse until 2031. That stability matters — companies make multi-year R&D investment decisions based on the expectation that SBIR funding will be there when they need it.

For the thousands of small businesses that have been watching Capitol Hill and wondering when the lights would come back on, the answer is finally in sight — and Granted can help you find the right solicitations the moment agencies start publishing them.