How do I fund research and development?
Federal research awards, the research tax credit, and the investors who back new technology, cheapest first.
Research is hard to borrow for, because lenders want cash flow and collateral, so most of the money comes from awards, tax credits and investors.
SBIR and STTR are federal research awards run by 11 agencies and coordinated by the SBA. They are not loans and take no ownership. As of October 16, 2026, agencies can award up to $335,937 for Phase I and $2,239,578 for Phase II without an SBA waiver.
The research credit reduces your federal tax by part of what you spend on qualified research. A young business with gross receipts under $5 million can use up to $500,000 a year of it against payroll taxes instead. Since the 2025 budget law, domestic research spending can also be deducted in the year it is paid, for tax years beginning after December 31, 2024.
11 routes to look at, cheapest first
Compare the first 4 side by side- L0
Free or nearly free
Little or no cash cost, though most take time and admin. Some bring money in, and a few have small fees.- Grants, tax credits and prizes
Prize competitions and accelerators
Cash prizes from federal agencies and others for solving a set problem, and accelerator or incubator programs that give coaching, contacts and sometimes money. Prizes take no ownership; many accelerators do, so read the terms.
6 months or more - Grants, tax credits and prizes
Research and development tax credit
A federal tax credit for qualifying research spending. Young companies with little or no income tax to pay can use up to $500,000 a year of it against their payroll taxes instead.
Months - Grants, tax credits and prizes
SBIR and STTR research awards
Federal research and development funding for small US businesses, won in competitions run by 11 federal agencies. Nothing to repay and no ownership given up, but your project must match an agency's published topic.
MonthsUp to $2.2m - Grants, tax credits and prizes
State and local grants
Money from a state, county or city that you do not repay, usually tied to creating jobs, investing in a place or a set purpose. Rare, competitive and slow, and the field is full of "free government grant" scams.
6 months or more
- Grants, tax credits and prizes
- L3
Specialist secured debt
Borrowing secured on specific assets such as invoices or inventory, with more fees and conditions than mainstream debt. - Equity rungs. These routes cost no interest, but you give up part of the ownership and control of your business. They are ranked by how much you give up, not by a made-up interest rate. Over time, equity can be the most expensive money of all.E1
Light dilution
You sell a small share of the company, usually to many small investors or people you know, and keep control of how it is run.- Private equity investment
Friends and family
Money from people you know, as a loan, convertible debt or shares, usually at the very start. Quick and flexible, but even a small round is usually a securities offering, and a failure can strain relationships.
WeeksLoans, or shares if you choose - Hybrid instruments
Convertible notes
A loan from investors that usually turns into shares at your next funding round. It puts off agreeing a valuation, but until it converts it is real debt, with interest and a repayment date.
WeeksMay give up shares - Hybrid instruments
SAFEs (simple agreements for future equity)
An investor pays now for the right to shares later, usually when the company raises a priced round. Quick and cheap to agree, with no interest or repayment date, but it is a promise of future ownership, and its terms decide how much of the company you give up.
WeeksGives up shares
- Private equity investment
- E2
Significant dilution and investor rights
Investors take a meaningful stake and usually get rights such as a board seat, a veto over big decisions, or a preferred return.- Private equity investment
Angel investors
Wealthy individuals, alone or in groups, buy a stake in an early-stage company and often bring advice and contacts. It is a securities offering, usually made under the SEC's Regulation D, mostly to accredited investors.
MonthsGives up shares - Private equity investment
Corporate venture capital
A large company invests its own money in a smaller one whose product or technology matters to its business, in return for shares. You can gain a customer, a partner and a route to market, but you share plans with a company that may compete with you or want to buy you.
6 months or moreGives up shares - Private equity investment
Venture capital
Investment from venture capital funds in fast-growing companies, in return for shares (usually preferred stock) and a say in how the company is run. Large sums for growth, but only for a few businesses, and at the cost of ownership and control.
6 months or moreGives up shares
- Private equity investment
Worth knowing
- Keep records of each project as you go, including what you were trying to solve, the experiments and the staff time, for both SBIR applications and the research credit.
- SBIR and STTR money comes through each agency's own solicitations, with their own deadlines.
Sources
- SBIR.gov: About SBIR and STTR (award limits as of October 16, 2026) · checked October 18, 2026
- IRS: Instructions for Form 6765 (revised December 2025) · checked October 17, 2026
- IRS: Research credit against payroll tax for small businesses · checked October 17, 2026
Facts about each route are sourced on its own page.