SBIR Phase 1 vs Phase 2: Award Sizes, Timelines and How to Move Up

SBIR Phase 1 vs Phase 2 comes down to what each award pays for. Phase 1, written Phase I in most agency documents, pays a small business to test whether an idea works. Phase 2, written Phase II, pays for the research and development that follows, and it carries most of the money.

The award ceilings, project lengths, Phase II eligibility rules and paperwork all differ by agency. The figures here come from agency pages and the SBA's program rules, read in October 2026.

Quick Answer: What Is the Difference Between SBIR Phase 1 and Phase 2?

Phase I tests technical merit and feasibility, Phase II continues Phase I work that shows results and commercial potential, and Phase III is commercialization paid for outside SBIR. As of April 2026, agencies may award up to $323,090 in Phase I and $2,153,927 in Phase II without SBA approval (SBIR.gov, April 2026). Agencies set their own typical sizes.

SBIR Phase 1 vs Phase 2 Side by Side

Phase I tests feasibility and Phase II funds development. The SBA SBIR/STTR Policy Directive, which sets the program rules every agency follows, describes Phase I awards "to determine, insofar as possible, the scientific and technical merit and feasibility of ideas that appear to have commercial potential" and Phase II awards "to further develop work from Phase I" (section 4(e), effective May 3, 2023).

The ceilings come from the SBIR.gov About page, which adds that "any award above those levels will require a waiver" (read October 2026). The periods come from section 7(h) of the directive, which lets agencies allow longer, and section 4 bars required cost sharing in both phases (effective May 3, 2023).

The ceilings limit what an agency may award without asking SBA, so they are not what every agency pays: "agencies have the discretion to issue awards for less than the guidelines" (SBA Policy Directive section 7(i)(2), effective May 3, 2023). SBA reviews the amounts for inflation every year, so a figure in an older guide may be out of date.

SBIR Phase 1: What It Funds and the Phase 1 Amount

Phase I pays for a feasibility test with "a relatively small agency investment" (SBA Policy Directive section 4(a), effective May 3, 2023).

What Does Phase I Pay For?

Phase I covers work meant to establish "scientific and technical merit and feasibility" before further federal support (section 4(a)). Reviewers still read for commercial potential, because agency criteria must weigh feasibility "along with its potential for Commercialization" (section 4(a)(2), effective May 3, 2023), so a Phase I proposal needs a short account of who would buy the result.

The directive also lets an agency "require the submission of a Phase II proposal as a deliverable item under Phase I" (section 4(a)(4), effective May 3, 2023). Check the award terms for it on day one. The SBIR/STTR grant management guide covers the registrations and agency differences that come before it.

SBIR Phase 1 Amount at NIH and NSF

NIH publishes a Phase I budget of $323,090 for a project timeline "between 6 months to 2 years" (NIH SEED, Understanding SBIR and STTR, read October 2026). NSF's solicitation allows up to $305,000 for projects of 6 to 18 months, an amount that includes indirect costs and the small business fee (NSF 26-510, posted May 22, 2026).

NIH adds that individual institutes "can set their own budget limits" (NIH SEED, read October 2026), and that applications "will not be adjusted after submission" (NIH Grants Policy Statement 18.5.4.1, revised March 2026). At NSF, a full Phase I proposal needs an invitation that follows a Project Pitch (NSF 26-510, posted May 22, 2026).

What Is SBIR Phase 2? Eligibility, Timing and How You Apply

SBIR Phase 2 is an award that continues the research and development begun in Phase I, funded on Phase I results and on the commercial potential of the Phase II plan. The directive says "the Government is not obligated to fund any specific Phase II proposal" (section 4(b)(2), effective May 3, 2023).

SBIR Phase 2 Eligibility

Phase I awardees are the default applicants, and the directive allows a few variations. An agency may fund an SBIR Phase II for an STTR Phase I awardee and the reverse (section 4(b)(1)(i), effective May 3, 2023). NIH, the Department of Defense and the Department of Education may fund an SBIR Phase II for a company with no Phase I for that work, after a written determination that feasibility is shown (section 4(b)(1)(ii)). That text describes a pilot ending September 30, 2022 "unless otherwise extended", so confirm it with the agency; NIH's own pages show Direct to Phase II in use. A Phase I awardee may receive a Phase II from another agency when both agencies determine in writing that the topics are the same (section 4(b)(7)), and a Phase II awardee may receive one additional, sequential Phase II (section 4(b)(5)).

The directive bars "an invitation, pre-screening, or pre-selection process for eligibility for Phase II", and each solicitation must say that all Phase I awardees may apply (section 4(b)(4), effective May 3, 2023). Agencies add their own rules. NSF accepts Phase II proposals only from its own Phase I awardees (NSF 26-510, posted May 22, 2026). NIH offers a Direct to Phase II path for projects that "have already demonstrated feasibility" (NIH SEED, read October 2026).

How Long You Have Between Phase 1 and Phase 2

NIH says an applicant can apply for Phase II "even before the end of the Phase I award" and up to six receipt dates after the Phase I budget period expires, which its policy statement calls "normally 2 years beyond the completion date of the Phase I award" (NIH SEED, read October 2026; NIH Grants Policy Statement 18.5, revised March 2026). NSF requires the Phase II proposal "between 6 to 24 months after the start date" of the Phase I award (NSF 26-510, posted May 22, 2026).

The two windows start counting at different points: NIH from the end of the Phase I budget period, NSF from the start of the award. For a 6-month NSF Phase I, the window stays open 18 months after the project ends; for an 18-month Phase I, it closes 6 months after the project ends (NSF 26-510, posted May 22, 2026). Calendar the closing date when the Phase I award arrives. The fiscal-year deadline guide covers the solicitation cycles.

What the Phase II Application Adds

The commercial section carries more weight in Phase II. The directive lists what can show commercial potential, including "Phase II funding commitments from private sector or other non-SBIR/STTR funding sources" and Phase III follow-on commitments (section 4(b)(3), effective May 3, 2023). NSF asks for a commercialization plan, three letters of support from potential users or customers, and the Phase I technical narrative. It allows only one Phase II proposal per Phase I award and does not allow a declined one to be resubmitted (NSF Apply for Phase II page, read October 2026).

SBIR Phase 2 Funding Amount by Agency

The SBIR Phase 2 funding amount is $2,153,927 or less without SBA approval (SBIR.gov, April 2026), and NIH and NSF publish different working numbers.

Sources for the table are the NIH SEED page (read October 2026), NIH Grants Policy Statement 18.5 (revised March 2026) and NSF solicitation 26-510 (posted May 22, 2026); the SBA directive leaves the award type to each agency (section 7(g)(1), effective May 3, 2023).

DOE is not in the table because it is restructuring its programs. It now runs SBIR and STTR through its Office of Technology Commercialization, and new participants "will submit a single application to enter the program and may progress to subsequent phases through a series of Go/No-Go decision points" (DOE Office of Technology Commercialization, read October 2026). DoD components, NASA, USDA and the other agencies publish their own figures in each solicitation.

The April 2026 Reauthorization and These Figures

S. 3971, the Small Business Innovation and Economic Security Act, was signed into law on April 13, 2026 and extends SBIR and STTR through fiscal year 2031 (DOE Office of Technology Commercialization, read October 2026). The program rules in this guide are those of the SBA directive effective May 3, 2023, published as 88 FR 19704, because no later directive could be found on SBIR.gov in October 2026. Where an agency's current solicitation differs, the solicitation controls for that agency.

What Changes in the Money and the Paperwork Between Phases

The move to Phase II raises the award size, adds a financial review and lengthens the reporting list, and the fee and indirect rules can change. NSF allows a fee of up to 7 percent in Phase I and up to 10 percent in Phase II (NSF budget preparation instructions, read October 2026), while NIH's fee normally will not exceed 7 percent of total costs in either phase. NIH will not negotiate indirect rates for Phase I, but its rate office negotiates Phase II requests above 40 percent of total direct costs (NIH Grants Policy Statement 18.5.4.2 and 18.5.4.3, revised March 2026).

Accounting expectations rise as well. SBIR.gov's tutorial says agencies usually expect a basic system in Phase I and more in Phase II (SBIR.gov accounting tutorial 2, read October 2026), and NSF puts a potentially meritorious Phase II proposal through an administrative and financial capability review (NSF Apply for Phase II page, read October 2026). The directive notes that at some agencies progress payments would require an audited accounting system, which can delay an award (section 7(g)(1), effective May 3, 2023). The guide to SBIR accounting requirements covers what those reviews ask for.

Reporting grows. An NSF Phase I ends with a final report due within 15 days of the end date, and its payments are one drawdown for all but $25,000, with the final $25,000 released after NSF approves the final report and receives a project outcomes report (NSF Phase I terms and conditions, effective May 19, 2025). An NSF Phase II cooperative agreement adds interim reports on a six-month schedule, with payments released as NSF approves them (NSF Phase II cooperative agreement terms, effective May 19, 2025).

The Phase II application also triggers a data update. Awardees must update commercialization data on prior Phase II awards in the Commercialization Database on SBIR.gov "when submitting an application for an SBIR/STTR Phase II award and upon completion of the last deliverable for that award" (SBA Policy Directive section 10(g), effective May 3, 2023). The federal grant compliance checklist lists the controls a larger budget will test.

SBIR Phase III, Phase IIB and Other Add-On Awards

SBIR Phase III is work that derives from, extends or completes Phase I or Phase II work and is funded by sources other than the SBIR and STTR programs. The directive says it "is typically oriented towards Commercialization of SBIR/STTR research or technology" (section 4(c), effective May 3, 2023). There is "no limit on the number, duration, type, or dollar value of Phase III awards made to a business concern" (section 4(c)(5)), and agencies pursuing technology developed under SBIR "shall issue Phase III awards relating to the technology, including sole source awards, to the Awardee that developed the technology" to the greatest extent practicable (section 4(c)(7)).

SBIR is not the payer. An NIH institute's program page states that "the NIH SBIR/STTR programs do not fund Phase III, and NIH does not generally provide any Phase III funding to small businesses" (NIMH SBIR/STTR program structure, read October 2026).

Phase IIB, Sequential Awards and Strategic Breakthrough

The directive lets agencies "offer special SBIR/STTR awards, such as Phase IIB awards, that supplement or extend Phase II awards", some of which "require third party matching of the SBIR/STTR funds" (section 4(b)(6), effective May 3, 2023). At NIH, the one additional sequential Phase II is called Phase IIB, and some institutes offer Phase IIB awards for projects that require extraordinary time and effort (NIH Grants Policy Statement 18.5, revised March 2026). NSF's Phase IIB supplement is $50,000 to $500,000 and needs third-party commitments of at least $100,000, and the financial package process must begin within 23 months of the Phase II start date (NSF 26-510, posted May 22, 2026; NSF supplement overview, read October 2026). NSF also takes Strategic Breakthrough proposals, by invitation of the program officer, for requested amounts up to $30,000,000 (NSF 26-510).

Should You Apply for SBIR Phase 2 Now? A Decision Table

Apply for Phase II when the Phase I milestones are met, the window is open and a buyer or investor has shown interest. The table matches common situations to a next step.

NSF's Phase I reporting page confirms a Phase II proposal "may be submitted either before or after your Phase I project ends" (NSF Phase I reporting page, read October 2026).

A Phase I closeout, a Phase II window, interim reports and an SBIR.gov update can all fall due in the same few months. GrantCue keeps those dates in one pipeline, with tasks, deadlines and notes on each opportunity, an ICS calendar feed and simple email reminders on every plan, including Free (grantcue.com, October 2026). It does not submit anything to an agency system. See GrantCue for SBIR and startups.

FAQ

How much is an SBIR Phase I award?

As of April 2026, agencies may issue a Phase I award of up to $323,090 without SBA approval (SBIR.gov, April 2026). NIH publishes that figure for projects of 6 months to 2 years, and NSF allows up to $305,000 for 6 to 18 months, fee included (NIH SEED, read October 2026; NSF 26-510, posted May 22, 2026). Agencies may award less, and waiver topics can go higher.

How much is an SBIR Phase II award?

As of April 2026, the ceiling without SBA approval is $2,153,927 (SBIR.gov, April 2026). NIH publishes that figure for projects of 1 to 3 years, and NSF allows up to $1,250,000, typically over 24 months (NIH SEED, read October 2026; NSF 26-510, posted May 22, 2026). Supplements and sequential awards can add to the total at some agencies.

Can you skip Phase I and go straight to Phase II?

At some agencies, yes. The SBA directive names NIH, the Department of Defense and the Department of Education as able to issue a Phase II SBIR award without a Phase I, after a written determination that feasibility is shown (section 4(b)(1)(ii), effective May 3, 2023). NIH offers Direct to Phase II (NIH SEED, read October 2026). NSF accepts Phase II proposals only from its own Phase I awardees (NSF 26-510, posted May 22, 2026).

How long does SBIR Phase II last?

The SBA directive says Phase II "normally should not exceed 2 years", and agencies may allow longer (section 7(h)(3), effective May 3, 2023). NIH describes Phase II projects of 1 to 3 years (NIH SEED, read October 2026), and NSF Phase II projects "typically run for 24 months" (NSF 26-510, posted May 22, 2026). The award notice states the dates that apply to your project.

What is SBIR Phase III?

SBIR Phase III is work that derives from, extends or completes earlier SBIR or STTR work and is paid for by sources other than the SBIR and STTR programs, such as private capital or non-SBIR federal funds. The SBA directive sets no limit on the number, duration, type or dollar value of Phase III awards (section 4(c)(5), effective May 3, 2023).

Is SBIR Phase II automatic after Phase I?

No. The SBA directive says "the Government is not obligated to fund any specific Phase II proposal" (section 4(b)(2), effective May 3, 2023). Phase I awardees may apply, and agencies may not screen them out by invitation or pre-selection (section 4(b)(4)). Funding follows Phase I results and the commercial potential of the Phase II plan.

A Phase II Readiness List to Work Through Before You Apply

Start with the Phase I award terms and find out whether a Phase II proposal is a Phase I deliverable. Write down when your agency's Phase II window opens and closes.

Then gather the evidence reviewers want: Phase I results against each milestone, a commercialization plan, letters or written commitments from customers and investors, and any Phase III interest. Check your indirect rate and fee against the agency's budget rules, update your SBIR.gov records, and ask the program officer before the deadline whether your project should go to Phase II, wait, or move to a different agency.