If a small business has won more than 25 federal Phase II research awards in five years, it has a strong track record by almost any measure. A new Small Business Administration (SBA) plan could still shut it out of the next round.
Now the top Democrats on 3 congressional committees want the SBA to back off. Sen. Edward Markey and Reps. Nydia Velázquez and Zoe Lofgren sent a letter on October 16, 2026 to Joshua Carter, who leads the SBA’s Office of Investment and Innovation.
The dispute is over the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. These programs pay small firms to develop new technology for federal agencies. Phase I funds early feasibility work. Phase II pays for building and prototyping.
The new revenue test
The SBA’s proposal was published in the Federal Register on September 2, 2026. It applies to firms with more than 25 combined Phase II awards in the past 5 completed fiscal years.
- At least 33% of revenue must come from sources other than SBIR and STTR Phase I and II funding for the fiscal 2027 assessment.
- That bar rises to 50% starting with the fiscal 2028 assessment.
- Revenue is measured over the 3 most recently completed fiscal years.
- Firms that miss the mark cannot submit new Phase I or Direct-to-Phase II proposals for 1 year.
Commercial sales, other government contracts and Phase III awards all count as outside revenue, according to an analysis by SSTI. Phase III is the stage where a technology is sold or put to use, paid for with money outside the SBIR budget.
Congress says it already set the rules
The lawmakers say the standard is excessive. They argue it conflicts with commercialization rules Congress wrote into law and reaffirmed in the Small Business Innovation and Economic Security Act, which was signed in April.
They wrote that Congress meant to make sure promising technology “progresses forward to the benefit of the American people,” not to punish firms that win often. They asked the SBA to extend the comment period and delay the rollout.
The SBA’s proposal targets a long-running worry. SSTI says some high-volume award winners, often called “SBIR mills,” keep winning without showing enough progress toward revenue outside the program.
Most SBIR firms will never get close to 25 Phase II awards. If yours is near that number, count your awards now and add up your non-SBIR revenue for the past 3 years. Keep records for every contract that qualifies.
Comments are due October 31, 2026, and the standards are scheduled to take effect November 15, 2026. That gives the SBA about 2 weeks between the last comment and the start date, and that window is exactly what lawmakers want stretched.
