Eligibility as a Small Business Concern Isn’t Fixed

Funding News Edition: July 07, 2022
See more articles in this edition

“Small business concern” is NIH’s vocabulary term for an organization eligible to receive NIH grants allocated to support small business, e.g., a Small Business Innovation Research (SBIR) Grant - Phase II (R44) or a Small Business Technology Transfer (STTR) Grant – Phase I (R41).

To qualify as a small business concern (SBC), an organization must be:

  1. Organized for profit, with a place of business located in the United States, which operates primarily within the United States or makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials, or labor.
  2. In the legal form of an individual proprietorship, partnership, limited liability company, corporation, joint venture, association, trust, or cooperative, except where the form is a joint venture, there must be less than 50 percent participation by foreign business entities in the joint venture.
  3. More than 50 percent directly owned and controlled by U.S. citizens or permanent resident aliens; or by other business concerns that are themselves more than 50 percent owned and controlled by U.S. citizens; or by an Indian tribe, Alaska Native Corporation, or Native Hawaiian Organization; or any combination of these.*
  4. No larger than 500 employees, including its affiliates.

*See NIH’s Eligibility Criteria for full details, including additional requirements for SBCs established as joint ventures or owned by multiple venture capital operating companies, hedge funds, and private equity firms.

It is not unusual for SBCs to merge with one another or be acquired by a larger company. These legal actions often impact aspects of the organization like its size, location, or ownership. If a legal action would change the status of an SBC such that it no longer meets NIH’s eligibility parameters, the organization is no longer eligible for funding through NIH’s small business programs.

What About Ongoing Awards?

In a June 13, 2022 Guide notice, NIH clarified that “if a legal action occurs, such as a merger, acquisition, or successor-in-interest, that changes the organizational status of an SBC so that it is no longer eligible for the SBIR/STTR programs, existing SBIR/STTR awards to this organization cannot be awarded additional funds, including noncompeting continuation awards and supplements to award.”

Practically, that means NIAID will stop funding ongoing SBIR/STTR grants to an organization no longer eligible as an SBC as each grant reaches the anniversary date of the start of its project period.

Before that happens, we will negotiate bilateral termination with the grantee to ensure NIAID-funded research is concluded responsibly, the procedures for which are detailed in NIH Grants Policy Statement Section Change in Recipient Organizational Status.

If your SBC is considering a legal action that would impact its eligibility to maintain ongoing SBIR/STTR grants, we highly recommend you contact the grants management specialist(s) listed in your Notice(s) of Award as early as possible.

What If the SBC Maintains Eligibility?

It’s possible that an SBC undergoing a merger or acquisition may complete the legal action still eligible for SBC funding, and thus still eligible to continue receiving support for ongoing SBIR/STTR grants.

“Successor-in-interest” is the process whereby the rights to and obligations under an NIH grant are acquired incidental to the transfer of all the assets of the recipient or the transfer of that part of the assets involved in the performance of the grant. The term applies when an NIH grantee organization is subsumed or purchased by another organization, which includes the scenario above.

To complete the process of transferring rights and obligations for ongoing grants, the organization that is incidentally acquiring the grant must submit a Type 6 application through Successor-in-Interest (Type 6, Parent Clinical Trial Optional). Once again, we highly recommend you contact the grants management specialist listed in a grant’s Notice of Award well in advance of any legal action taking place to discuss your situation.

Contact Us

Email us at deaweb@niaid.nih.gov for help navigating NIAID’s grant and contract policies and procedures.

Content last reviewed on