If you have a technology business, idea, or invention, or if you do any type of research, then you should know about the federal government’s SBIR and STTR Programs. The SBIR or "Small Business Innovation Research" Program has been around since 1982; its focus is on small business. The "Small Business Technology Transfer" Program or STTR was started ten years later in 1992. The STTR Program is similar to the SBIR Program except that it funds cooperative research and development projects involving a small business and a research institution such as a university, federally funded R & D Center, or nonprofit research institution.

The purpose of both programs is to encourage small businesses to explore their technological potential and to provide the incentive to profit through the commercialization of their technology. These programs exist because the risk and expense of conducting serious research and development efforts are often beyond the means of small businesses. They fund the critical startup and development stages, and they encourage commercialization, which in turn stimulates the economy. All rights to the technology remain with the company allowing it to profit from the products or services it develops. The programs have three distinct phases:

Phase I – Project Feasibility: The government provides a grant up to $100,000. The phase lasts up to six months for the SBIR program and up to twelve months for the STTR program.

Phase II – Project Development to Prototype: The government provides an additional grant up to $750,000 during Phase II, and the phase may last up to two years.

Phase III – Commercialization: The completion of this phase must be financed with money from the private sector.

In order to qualify for the programs, small businesses must conform to certain requirements including being U.S. for profit small businesses with 500 or fewer employees and performing the work in the U.S. For the SBIR program, a minimum of two thirds of the effort must be performed by the proposing firm during Phase I, and at least one half of the effort must be performed during Phase II. The STTR program requires that the small business perform at least forty percent of the work and that the research institution perform at least thirty percent of the work during both Phases I and II.

Various federal government departments are required to set aside a portion of their research and development funds for these grants. In fact, they claim to be the "largest source of early stage technology financing in the U.S." Total SBIR and STTR funding for fiscal year 2006 is $2.309 billion. The Departments of Agriculture, Commerce, Defense, Education, Energy, Health and Human Services, Homeland Security, and Transportation as well as the EPA, NASA, and the National Science Foundation all provide SBIR and/or STTR grants. The Department of Defense accounts for approximately half of the total funding.