As generous and useful as SBIR grants may be, they are not an all-expenses-paid kind of funding.

There are allowable and unallowable expenses under the SBIR program. It’s up to grantees to understand the difference and adhere to the rules.

Expenses come in three forms:

  • Generally Allowable
  • Allowable with Limitations
  • Generally Unallowable

This link from the NIH Allowability Guidelines is very informative and is summarized in this post.

Generally allowable costs are things like research and development costs incurred that reflect the action that a prudent person would take when the decision to incur the cost was made.  Costs that are allowable with limitations include labor, fringe benefits, consultants, equipment, travel, outsourced services, and other costs. For example, when covering wages, organizations will often provide documentation to show that the proposed wages are reasonable compared to the rest of the industry.

Generally not allowed are two types of costs: sales and intellectual property (“IP”).  The exception for IP is discretionary technical assistance with more details below.

Within categories there are areas that are different from one another — salaries and wages vary based on who is being paid for what work.  Meal costs are allowable in some cases while alcoholic beverages are not an allowable cost.

The types of cost include Direct Costs, Indirect Costs (or Fixed & Administrative) and Profit.  Direct costs are what you might expect: salaries, benefits, materials & supplies, outsourced services, consultants, equipment.  Indirects are things like salaries for internal operations roles that spread across the whole company, rent, legal, insurances, and other overhead costs.  Profit is maximum allowed at seven percent (7%) and is applied as a percentage of the sum of direct and indirect costs.   Keep in mind that the current cap for salaries is $189,600 per year; keep in mind that not all people on a grant can secure this salary.

Discretionary Technical Assistance

Discretionary Technical Assistance, a direct cost, is one that is identified with your particular project, program, or activity. These expenses are for things that directly benefit your grant-supported undertaking.  This is the only category where cost reimbursement for intellectual property can be secured.

Then, there are costs for objectives that aren’t as easily connected to the specific grant-supported project or plan. These are facilities and administration costs, for things like operation and maintenance, depreciation, and administrative expenses.

It’s important to know the difference between these two categories. Direct costs and F&A costs look different within SBIR allowable expenses. Some F&A costs are covered by SBIR grants, but can be waived by the organization.

Important Unallowable Expenses to Know

Intellectual property costs, including invention, copyright, patent, and licensing costs, are unallowable as a direct cost unless specifically authorized as part of the grant award.

Selling and marketing costs are also unallowable, except as direct costs with prior approval when necessary for the performance of the award.

When working with SBIR grant money, it is vital to understand what your grant sets out as allowable costs and unallowable costs, and what is direct technical assistance versus F&A.


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