SBIR Fee and Indirect Rates: How Much Profit You Can Budget and How to Set Your Rate
How much SBIR fee (profit) NIH, NSF and DOE let you budget, how a small company builds an indirect rate, and a worked Phase I budget showing both lines with correct arithmetic.
In this article (10)
- Quick Answer: How Much SBIR Fee Can You Budget?
- SBIR Fee: What It Is and What It Is Not
- How Much SBIR Fee You Can Budget, Agency by Agency
- SBIR Indirect Rates: Direct, Indirect and Unallowable Costs
- A Worked SBIR Budget With Indirect Costs and Fee
- No Negotiated Rate: What Each Agency Lets You Claim
- Fee and Rate Pitfalls on an SBIR Budget
- Keeping the Fee Visible When You Track Spending
- FAQ
- A Pre-Submission Checklist for the Fee and Rate Lines
SBIR fee is the profit a small business may add on top of its costs in an SBIR or STTR budget, and SBIR.gov's budgeting tutorial calls it "the most flexible money you will ever get from the Federal government." The limit differs by agency and by phase, so a budget copied from one agency's solicitation can ask for too little or too much at another.
Indirect costs are the other line that trips up first-time applicants: a company with no negotiated rate still has to charge them through a rate it can defend. The two lines move together, because NIH, NSF and DOE compute the fee on direct plus indirect costs. For program basics and registration, see the guide to SBIR and STTR grant management.
Quick Answer: How Much SBIR Fee Can You Budget?
SBIR and STTR awards may include a reasonable fee, requested in the budget. NIH says fee normally will not exceed 7 percent of total costs per phase, DOE caps it at 7 percent per phase, and NSF allows up to 7 percent in Phase I and 10 percent in Phase II. Other agencies set theirs in each solicitation.
SBIR Fee: What It Is and What It Is Not
SBIR fee is an amount above allowable costs that the agency pays as profit, and it is separate from direct and indirect costs. NIH says a reasonable profit or fee may be paid under Phase I, Phase II or the Commercialization Readiness Pilot, and that it must be included in the budget request at the time of application (NIH Grants Policy Statement 18.5.4.2, revised March 2026).
The same section says the fee is not a cost for purposes of allowable use, program income accountability or audit thresholds, may be used for any purpose, including additional effort under the award, and is drawn in increments proportional to the drawdown of direct and indirect costs (NIH Grants Policy Statement 18.5.4.2, revised March 2026). NSF and DOE use close to the same words: the fee is not a direct or indirect cost item and may be used for any purpose (NSF budget preparation instructions, read October 2026; DOE SBIR/STTR Phase I application guide, read October 2026).
The right to ask comes from the SBA policy directive. Except as expressly excluded or limited by statute, agencies must provide for a reasonable fee or profit, and each solicitation must state whether fee or profit will be allowed (section 7(g)(2) and Appendix I section 5(a), effective May 3, 2023). This guide follows that directive, published as 88 FR 19704. S. 3971, signed into law on April 13, 2026, extends SBIR and STTR through fiscal year 2031 (DOE Office of Technology Commercialization, read October 2026); no later SBA directive could be found in October 2026.
SBIR.gov's budgeting tutorial adds that you must ask for the fee, and that requesting only a gap-filler up to the agency's maximum is a common mistake (SBIR.gov budgeting tutorial 1, read October 2026).
How Much SBIR Fee You Can Budget, Agency by Agency
Each agency sets its own fee limit, so the figure that applies to you is the one in your solicitation. NIH, NSF and DOE publish theirs on the pages cited here; every other participating agency states its rule in each solicitation.
At NSF the fee sits inside the proposal ceiling: the Phase I limit of $305,000 and the Phase II limit of $1,250,000 each include direct and indirect costs and the small business fee (NSF 26-510, posted May 22, 2026).
NIH SBIR Fee
The NIH figure is a norm, not a hard ceiling in the text: the fee is meant to give a reasonable profit consistent with normal margins for research work, and its amount "normally will not exceed" 7 percent of total costs, direct and indirect, for each phase (NIH Grants Policy Statement 18.5.4.2, revised March 2026).
Is 7 Percent the SBIR Budget Fee?
Seven percent is the figure NIH, NSF Phase I and DOE state, but it is not universal. NSF's Phase II limit is 10 percent, and NSF applies the two limits to the Phase I and Phase II components of a Fast-Track proposal (NSF budget preparation instructions, read October 2026). SBIR.gov's undated tutorial describes a typical range of 7 to 11 percent, with 7 percent the most commonly accepted (SBIR.gov budgeting tutorial 1, read October 2026). DOE also asks you to explain the basis and amount of the fee in the budget justification, and its system rounds up, so if it rejects 7 percent, try 6.99 percent (DOE SBIR/STTR Phase I application guide, read October 2026).
SBIR Indirect Rates: Direct, Indirect and Unallowable Costs
An SBIR indirect rate is a percentage that recovers a company's general costs of being in business, calculated as total indirect costs divided by a direct cost base for a period. SBIR.gov's tutorial defines a direct cost as one incurred doing work for a client, most commonly labor, and gives rent, the employer's share of payroll taxes and general management and accounting as indirect examples (SBIR.gov accounting tutorial 3, read October 2026).
The third category is unallowable costs, which the government will not pay. The tutorial says to remove unallowables before calculating the rate (SBIR.gov accounting tutorial 3, read October 2026). The FAR, which NIH names as the cost principles for commercial organizations, requires expressly unallowable costs to be excluded from any billing, claim or proposal on a government contract (FAR 31.201-6, FAC 2026-01), but every item properly in an accepted base still bears a pro rata share of indirect costs (FAR 31.203, FAC 2026-01). An unallowable activity leaves the pool yet may stay in the base.
Four rules matter most for a small company.
- Never use another company's or a nearby university's indirect rate, because it does not reflect your costs (SBIR.gov budgeting tutorial 1, read October 2026).
- A rate is estimated for a calendar or fiscal year; without history, estimate each cost as well as you can and revise later (SBIR.gov accounting tutorial 3, read October 2026).
- The rate should not change project by project and generally cannot change mid-year (SBIR.gov accounting tutorial 3, read October 2026).
- Larger companies divide indirect costs into general and administrative and overhead pools, while smaller companies tend to use a single rate (SBIR.gov accounting tutorial 3, glossary, read October 2026).
The overview of indirect cost rates on federal grants covers nonprofits and universities, and the guide to SBIR accounting requirements covers the records that back a rate.
A Worked SBIR Budget With Indirect Costs and Fee
A worked budget shows the order of the arithmetic: direct costs, then indirect costs on the base your rate uses, then fee on the total of both. The composite follows the tutorial's method of listing annual costs, sorting each into a direct, indirect or unallowable column, and dividing indirect by direct (SBIR.gov accounting tutorial 3, read October 2026).
Example Photonics Co. (composite) estimates its next year as follows.
Illustrative figures, not data from a real organization.
The company's indirect rate is $180,000 divided by $400,000, or 45 percent of total direct costs. Divided by direct labor alone ($250,000), the same pool gives 72 percent; the tutorial says either works if applied to the right base (SBIR.gov accounting tutorial 3, read October 2026). Independent research and development is unallowable under HHS awards, hence its column; NSF instead puts it in the allocation base as a direct cost (NSF SBIR/STTR Phase II Administrative/Financial Reviews page, read October 2026), giving $180,000 over $414,000, or 43.5 percent.
Now the Phase I budget. NIH says a company without a negotiated rate should propose a rate not to exceed 40 percent of total direct costs, so the computed 45 percent cannot be proposed there (NIH Grants Policy Statement 18.5.4.3.1, revised March 2026).
Illustrative figures, not data from a real organization.
An NIH Phase I application carries the capped column, and unless the company negotiates a rate with a federal agency it cannot charge above the awarded 40 percent (NIH Grants Policy Statement 18.5.4.3.1, revised March 2026), so it carries the $3,700 gap itself. A common slip is applying 7 percent to direct costs only: that gives $5,180 and leaves $2,072 of fee unrequested, because NIH counts the fee on total costs, direct and indirect (NIH Grants Policy Statement 18.5.4.2, revised March 2026). For a layout to build this in, see the grant budget template spreadsheet.
No Negotiated Rate: What Each Agency Lets You Claim
A company with no negotiated rate can still budget indirect costs, but each agency sets its own limit and documentation, and the figures use different bases.
NSF's de minimis option rests on modified total direct costs, which exclude equipment and the part of each subaward above $50,000 (NSF budget preparation instructions, read October 2026). The guide to the modified total direct costs indirect rate explains that base. The 15 percent de minimis rate itself comes from the 2024 revision of the Uniform Guidance, covered in the 2 CFR 200 overview.
Awarded Rates and What Happens at Year End
At NIH an awarded rate is a ceiling. When a rate of 40 percent or less is awarded, the rate used to charge actual indirect costs to projects cannot exceed it unless the company negotiates a rate, and only actual indirect costs may be charged (NIH Grants Policy Statement 18.5.4.3, revised March 2026). NSF recommends its 50 percent "Safe Rate" when a rate proposal does not reconcile to the financial statements, and will not review a budgeted rate proposal that lacks an actual calculation for the most recently completed fiscal year (NSF Phase II reviews page, read October 2026).
What happens when actual costs differ depends on the award type. On a cost-reimbursement contract carrying the allowable cost and payment clause, the contractor submits a final indirect cost rate proposal within 6 months after each fiscal year ends, based on actual cost experience, and final rates are set from it (FAR 52.216-7, FAC 2026-01). On a fixed price award the company performs the work for an established dollar amount (SBIR.gov accounting tutorial 2, read October 2026), so the rate matters mainly at proposal time. A company whose costs drift mid-year may need to adjust spending to fit its rate (SBIR.gov accounting tutorial 3, read October 2026).
Fee and Rate Pitfalls on an SBIR Budget
Most errors come from treating fee and indirect costs like ordinary lines.
Fee on Subcontract Costs
Fee belongs to the prime. NIH says it applies solely to the company receiving the award (which may still pay a contractor's normal profit on routine goods or services), and NSF says a subawardee may not request profit (NIH Grants Policy Statement 18.5.4.2, revised March 2026; NSF budget preparation instructions, read October 2026). DOE tells applicants to weigh work done by consultants and subawardees when setting the amount (DOE SBIR/STTR Phase I application guide, read October 2026).
Unallowable Costs in the Pool
An unallowable cost in the indirect pool inflates the rate. NSF says patent and patent-related expenses, sales and marketing, business development, and manufacturing and production are not funded as part of indirect pools, and that indirect salaries above 35 percent of total salary and wages, less paid time off, are considered unreasonable and reclassified as direct (NSF Phase II reviews page, read October 2026). NIH says a negotiated rate used in an application must be adjusted for independent research and development, which is not allowable under HHS awards (NIH Grants Policy Statement 18.5.4.3, revised March 2026).
A Rate That Changes With a Second Award
The tutorial says the rate should hold constant for the year and be used consistently across projects (SBIR.gov accounting tutorial 3, read October 2026), so a second award is not a reason to propose a new one; re-derive it at the next period.
Skipping the Solicitation's Fee Statement
Each solicitation must state whether fee or profit will be allowed and the cost basis of the award, such as fixed price, cost reimbursement or cost plus fixed fee (SBA SBIR/STTR Policy Directive, Appendix I section 5(a), effective May 3, 2023). Read both before you fill in the fee cell.
Keeping the Fee Visible When You Track Spending
Give the fee its own line in your tracker. At NIH the fee is not a cost and is drawn in proportion to the drawdown of direct and indirect costs, so a fee folded into a cost line will not match the award budget in a budget-versus-actual report (NIH Grants Policy Statement 18.5.4.2, revised March 2026).
In GrantCue, post-award budgets and payment schedules keep the approved budget next to what has been spent, and they sit on every plan, Free included, beside the award's tasks and deadlines (grantcue.com pricing, October 2026). GrantCue does not calculate fee or indirect rates and is not an accounting system. The SBIR and startup page describes the workflow.
FAQ
How much profit can you make on an SBIR grant?
Up to your agency's fee limit, if you request it in the budget. NIH says fee normally will not exceed 7 percent of total costs per phase, DOE caps it at 7 percent per phase, and NSF allows 7 percent in Phase I and 10 percent in Phase II. Other agencies set the figure in their solicitations (NIH Grants Policy Statement 18.5.4.2, NSF budget preparation instructions and DOE application guide, read October 2026).
Is SBIR fee included in the award?
Yes, when you request it. NIH requires the fee in the budget request at the time of application, and the NSF and DOE budget forms carry it as its own line after total costs. It is not a direct or indirect cost and may be spent for any purpose, including more work on the award (NIH Grants Policy Statement 18.5.4.2, revised March 2026; NSF budget preparation instructions and DOE application guide, read October 2026).
Can you charge indirect costs on an SBIR?
Yes, through an indirect rate. NIH says to use a currently effective negotiated rate if you have one, adjusted for independent research and development, and otherwise to propose an estimated rate within its limits. Only actual indirect costs may be charged to the project. NSF sets its own no-justification limits (NIH Grants Policy Statement 18.5.4.3, revised March 2026; NSF budget preparation instructions, read October 2026).
What indirect rate should a startup use?
Use a rate derived from your own estimated costs, sorted into direct, indirect and unallowable columns, never another company's or a nearby university's. Where you have no negotiated rate, the agency's limit applies: NIH Phase I, for example, allows no more than 40 percent of total direct costs (SBIR.gov accounting tutorial 3 and NIH Grants Policy Statement 18.5.4.3.1, read October 2026).
Does STTR allow fee?
Yes. NIH's fee section covers both the SBIR and STTR programs, and DOE and NSF apply their fee rules to SBIR and STTR awards. The fee goes to the small business, not to the research institution partner, and NSF says a subawardee may not request profit in its own budget (NIH Grants Policy Statement 18.5.4.2, revised March 2026; NSF budget preparation instructions, read October 2026).
Do you need a negotiated rate for SBIR?
Not to apply. NIH Phase I does not negotiate rates and caps a proposed rate at 40 percent of total direct costs, and NSF lets a company with no negotiated rate and no prior rate negotiation claim up to 50 percent of salary and wages or the 15 percent de minimis without justification. A negotiated rate matters when you want more (NIH Grants Policy Statement 18.5.4.3, revised March 2026; NSF budget preparation instructions, read October 2026).
A Pre-Submission Checklist for the Fee and Rate Lines
Run this before you upload the budget.
- Find the solicitation's statement on whether fee is allowed and the cost basis of the award.
- Compute fee on total costs, direct plus indirect, at or under the agency's limit, and give it its own line.
- Confirm the indirect rate method matches what the agency allows when you have no negotiated rate.
- Check that unallowable costs, including independent research and development where NIH applies, are out of the pool.
- Make sure the rate is your own, built from your estimated costs, and used the same way across proposals for the period.
- Where the agency asks for it, write the basis for the fee in the budget justification.
- Confirm the request fits the agency's ceiling (at NSF the ceiling includes the fee).
NIH says applicants must request an appropriate level in the competing application and that applications will not be adjusted after submission (NIH Grants Policy Statement 18.5.4.1, revised March 2026).