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NIH/NSF SBIR Budget Limits for Phase I & Phase II: Planning Non-Dilutive Funding Budgets in 2023

Updated: Feb 15, 2023

As we begin a new year, let’s talk about the budget funding limits for 2023 NIH and NSF SBIR proposals.

One of the top questions I get from many startups is, “how do I put together the budget for my SBIR proposal?” The solicitations provided with each SBIR opportunity can be very particular in terms of restrictions on how to go about the budget which is often long and confusing.

To give you some clarity, in this article, I’m going to provide some high-level, yet effective guidance to help you break down your SBIR Phase I or Phase II budget.

I’ll focus mostly on NIH and NSF opportunities, but everything can be applied to many other SBIR federal agencies as well. Just don’t forget to read any provided requirements and solicitations to ensure you are following their specific budget guidelines since it all can vary depending on which agency you apply to.

And, if you read all the way to the end, I share the budget funding limits you should keep in mind for an NIH or NSF application in 2023.

SBIR Application Budget Categories

Whether you are going for an NIH or NSF Phase I or Phase II proposal, there are 3 main categories to consider when preparing your budget: Direct Costs, Indirect Costs, and the Small Business Fee (or profit).

Direct Costs

The direct costs in your budget are considered to be any costs that are needed to directly carry out your proposed research efforts in the way they are described in your SBIR application.

Usually, when I work with clients on a budget, I first hammer out the details with them as to what we’re going to propose and our plan to implement it. Then I advise them to lay out the direct costs needed to carry out that plan.

So what kinds of expenses are considered to be direct costs? Well, direct costs can be labor, such as the senior personnel like the Principal Investigator of the application along with the rest of the team, such as engineers and scientists, that will be assisting the start-up in the implementation of the proposal.

Direct costs can also include Fringe benefits, materials and supplies, required travel, publication, documentation, consultants, and sub-awards, among other things.

Indirect Costs

The second category is your indirect costs which you should consider after you have your direct costs laid out. Indirect costs are the expenses necessary for business operations that are separate from those specifically allocated to the proposed SBIR project.

In other words, you can think of indirect costs as the general and administrative expenses you will need to run your business as you carry out the proposal. These are costs such as rent, electricity, postage, office supplies, and the occasional legal counsel.

Typically, indirect costs are calculated as a percentage of your direct costs. For academic universities in the US, this indirect cost rate can vary since they are negotiated with the federal agency.

However, for start-ups that do not have a negotiated rate like the universities, the percentages you can claim are:

  • 50% of the total budgeted salary and wages on the project or 10% de minimis on MODIFIED total direct costs on the project for an NSF Phase I or Phase II SBIR application.

  • For an NIH Phase I or Phase II SBIR application, start-ups can claim up to 40% of the total direct costs of the project.

So for example, if a start-up is applying for an NIH SBIR Phase I application and their total direct costs total $100,000, the start-up can ask to claim up to 40% or $40,000 for indirect costs. [put the numbers on the screen]

It is important to know that you can propose a lower rate for your indirect costs but whatever you do, don’t exceed these rates.

Small Business Fee

Now the last category is the Small Business Fee, sometimes known as profit, which is my personal favorite budget category. So what is this fee? The NSF states that the small business fee is “intended to be consistent with normal profit margins provided to profit-making firms for R&D work.”

The cool thing is, the fee is not considered a direct or indirect budget item so the startup can use these funds for any purpose, including additional research effort or for a few expenses that may be considered “ineligible” or “prohibited” under the award regulations such as some equipment, foreign travel, or patent filing costs.

If you are unsure what is considered eligible or ineligible expenses, the restrictions can be found on the solicitation or by asking your program officer for clarification.

For start-ups, the small business fee percentages you can claim on your budget are:

  • Up to 7% of the total direct and indirect budgeted costs in a Phase I application or 10% for a Phase II application for an NSF opportunity

  • Up to 7% of the total direct and indirect budgeted costs for both an NIH Phase I or Phase II application

If we go back to the example of our start-up that is applying for an NIH SBIR Phase I grant with a budget for direct costs totaling $100,000 and indirect costs totaling $40,000, this puts their total direct and indirect costs at $140,000. This means our example start-up can propose up to 7% of $140,000, or $9,800, for their small business fee or profit.

Again, you can always propose a lower rate for the small business fee, but whatever you do, don’t exceed these rates. Also, if you have a sub-award in your budget, the small business fee can only be allocated to the start-up and not to the sub-award – hence the name “small business” fee.

2023 NSF & NIH Grant Budget Limits

So by now, I know you are begging for the answer to the big question: “what are our budget limits for 2023?” Well, here we go.

NSF Budget Limits

For the NSF in 2023, if you are applying for a Phase I SBIR grant, you can request up to $275,000 in total funding for a proposed 6-12 month-long project.

For the Phase II SBIR grant, you can request up to $1,000,000 in funding for a proposed project lasting up to 24 months.

NIH Budget Limits

Now for NIH in 2023, if you are applying for a Phase I grant, you can request up to $295,924 in funding for a proposed 6-12 month-long project.

For Phase II, you can request up to $1,972,828 in funding for a proposed project taking a maximum of 24 months.

It is important to note that all of these budgets are the final total of direct costs, indirect costs, and the small business fee. And again, going over these budget limits is not a good idea!

Final Advice

Now if you are doing an SBIR Phase II budget, you should break down your budget based on Year 1 and Year 2 separately. Also, if you are requesting Technical and Business Assistance (TABA) funding which some federal agencies allow, it has to be included in these budget limits as well.

That is all for today! I hope you found the tips in this article helpful as you plan out your SBIR budgets in 2023. To learn more about non-dilutive start-up funding, subscribe to our YouTube channel where each week we dive into a new topic!

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