Texas businesses conducting research and development have access to some of the most substantial government funding programs available. From SBIR grants to R&D tax credits, the combined value of R&D incentives can significantly reduce the cost of innovation. This guide covers the major research and development grants, tax credits, and supporting programs available to Texas businesses.
SBIR and STTR Grants
Small Business Innovation Research (SBIR)
SBIR is the federal government's largest program for funding small business R&D. Eleven federal agencies participate and collectively award billions of dollars annually. The program has three phases:
- Phase I (Feasibility): Awards typically range from $50,000 to $275,000 depending on the agency. The purpose is to establish technical feasibility of the proposed innovation. Duration is typically 6-12 months.
- Phase II (Development): Awards typically range from $500,000 to $1.5 million. The purpose is to continue development based on Phase I results. Duration is typically 2 years.
- Phase III (Commercialization): No SBIR funding is provided, but the business is expected to pursue commercialization through private investment, sales, or non-SBIR government contracts.
Participating agencies include the Department of Defense (largest SBIR budget), NIH, NSF, DOE, NASA, USDA, and others. Each agency publishes its own solicitation topics aligned with its mission needs.
Small Business Technology Transfer (STTR)
STTR is similar to SBIR but requires a formal collaboration between the small business and a nonprofit research institution (such as a university or federal lab). Five agencies participate: DoD, NIH, NSF, DOE, and NASA. The research institution must perform at least 30% of the work in Phase I and 40% in Phase II.
Texas is well-positioned for STTR because of its strong university research infrastructure — UT Austin, Texas A&M, Rice, UT Southwestern, Baylor College of Medicine, and others are active STTR partners. Startup grant programs.
CPRIT Grants
The Cancer Prevention and Research Institute of Texas (CPRIT) is a state-funded program that provides grants for cancer research, prevention, and product development. While primarily focused on academic research and nonprofit institutions, CPRIT also provides commercialization grants to for-profit companies developing cancer-related products and therapies. CPRIT awards can reach several million dollars and represent one of the largest state- level research funding programs in the country.
Federal R&D Tax Credit
The federal Research and Development Tax Credit (IRC Section 41) provides a tax credit for qualifying research expenditures. This is not a grant — it reduces your federal income tax liability — but it is one of the most valuable R&D incentives available. Key features:
- Available to businesses of all sizes in virtually all industries
- Covers wages for employees performing qualifying research, supplies used in research, and contract research expenses
- The credit rate varies based on the calculation method (regular or simplified) but typically ranges from 6% to 10% of qualifying expenses
- Qualifying small businesses can apply the credit against payroll tax liability (up to $500,000 per year for businesses with less than $5 million in gross receipts)
- Unused credits can be carried forward for up to 20 years
Texas R&D Franchise Tax Credit
Texas offers a franchise tax credit for qualified research expenses conducted in the state. This state-level credit mirrors the federal R&D credit and can be claimed in addition to the federal credit. The credit applies against the Texas franchise tax, which most Texas business entities are subject to. Franchise tax credits guide.
DOE and NASA Programs
Department of Energy
The DOE funds small business R&D through SBIR/STTR and also operates programs including the Advanced Research Projects Agency-Energy (ARPA-E), which funds high-risk, high-reward energy technology projects. Texas's position as the top energy-producing state makes it a natural fit for DOE-funded innovation. Energy incentive programs.
NASA
NASA Johnson Space Center in Houston is one of the largest NASA facilities, and NASA actively funds small business R&D through SBIR/STTR. Topics include aerospace technology, materials science, life sciences, robotics, and related fields. Texas businesses benefit from proximity to Johnson Space Center for collaboration and Phase III contract opportunities.
University Partnership Opportunities
Texas businesses can leverage university research resources through several mechanisms:
- STTR collaboration: Required partnership for STTR grants
- Sponsored research agreements: Direct research contracts with university labs
- Technology licensing: License university- developed technology for commercialization
- NSF I-Corps: Customer discovery program accessed through university nodes
- Incubator access: University-affiliated incubators often provide lab space and equipment. Incubator programs guide.
Building an R&D Funding Strategy
The most effective approach combines multiple R&D incentives:
- Apply for SBIR/STTR grants to fund the research itself
- Claim the federal R&D tax credit on qualifying research expenses (including your cost-share on grant-funded projects)
- Claim the Texas franchise tax R&D credit on Texas-based research expenses
- Partner with universities through STTR or sponsored research to access specialized equipment and expertise
- Pursue Phase III contracts or private investment for commercialization
Identify All Available Programs
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