SBA has proposed revised rules for the Small Business Innovation Research Program and Small Business Technology Transfer Program to implement changes adopted by Congress last year.

The law extends eligibility for the programs to small companies that are majority-owned by multiple venture capital firms, private equity firms or hedge funds.

The rules aim to create “bright-line tests” so businesses can easily determine whether they are eligible, said Sean Greene, SBA associate administrator for investment, in a conference call. Eligibility hinges on a company’s size, ownership and affiliation with other firms.

Under the law, no single VC firm, private equity firm or hedge fund may own more than 50% of an eligible company’s voting stock; however, several such firms combined may hold majority ownership.

Opponents of the change argued that VC-controlled companies were not true small businesses. Greene said, “We want to put up all those protections to preclude large businesses from setting up a small business specifically to access this program.”

The issue of participation by VC-controlled companies held up reauthorization of the SBIR program for several years. Under the new law, they will be eligible for up to 25% of SBIR grants from the National Institutes of Health, the National Science Foundation and the Energy Department. Other agencies could award up to 15% of their funds to such companies.

The law increases the maximum size of SBIR grants for the first time in 30 years. The maximum award in Phase I will rise to $150,000, from the present $100,000. In Phase II the maximum will quadruple to $1 million. The percentage of an agency’s R&D funds allocated for small businesses will rise gradually to 3.2%, from the current 2.5%.

Greene said SBA will issue a policy directive by June 30 telling agencies how to administer the SBIR and STTR programs. Congress required the final rule to be in effect by Dec. 31.

SBA’s Office of Advocacy plans two public meetings for comments on the proposed rule: in Washington on June 8 and in Austin, TX, on June 18. To attend, contact Major.Clark@sba.gov.

The proposed rule is RIN 3245-AG46, published in the May 15 Federal Register. Comments are due July 17.