The House Small Business Committee will hold a hearing on June 25, 2026, to examine the Small Business Administration’s Office of Investment and Innovation, the division responsible for overseeing the country’s primary startup financing and scale-up programs.
The hearing comes as the SBA operates under a 33 percent budget reduction for fiscal year 2026 and follows a series of significant disruptions to the federal startup funding ecosystem. Those disruptions include the cancellation of 17 Regional Innovation Cluster contracts by the Department of Government Efficiency, a six-month lapse in SBIR and STTR funding that halted more than $1.2 billion in NIH-administered research awards, and a series of regulatory and organizational changes affecting how the agency allocates capital access resources.
For early-stage companies that rely on non-dilutive federal funding as a key path to commercialization, the combined impact represents a meaningful contraction in the federal support infrastructure available to startups.
Congress Turns Its Attention to Key SBA Innovation Programs
The June 25 hearing is scheduled for 10:00 a.m. in Room 2360 of the Rayburn House Office Building. It will be chaired by Rep. Roger Williams (R-TX), with Rep. Nydia Velázquez (D-NY) serving as ranking member.
Lawmakers will focus on the Office of Investment and Innovation, the SBA division responsible for overseeing the Small Business Innovation Research (SBIR) program, the Small Business Technology Transfer (STTR) program, the Small Business Investment Company (SBIC) program, and the recently restructured Regional Innovation Clusters initiative.
The SBIR and STTR programs, which together serve as the federal government’s primary vehicle for directing non-dilutive research and development funding to small businesses, expired on September 30, 2025, after Congress failed to reauthorize them on schedule.
Although both programs were eventually renewed, the six-month funding gap created immediate challenges. NIH alone halted access to more than $1.2 billion in funding. Indirect cost reimbursements were reduced from 40 percent to 15 percent during the lapse, and review processes were interrupted before later resuming.
The Regional Innovation Cluster program, which had enjoyed bipartisan support for 15 years, was also eliminated when the Department of Government Efficiency canceled all 17 active contracts. The SBA later announced plans to establish up to 20 replacement clusters, but the new initiative received only $9 million in FY2026 appropriations. That funding level raises questions about whether the replacement program can replicate the reach and impact of the previous network.
The agency has also implemented new SBIC regulations. Amendments finalized in January and effective February 2, 2026, are intended to modernize the program and improve the flow of capital to growth companies.
Administrator Kelly Loeffler said the rule “modernizes decades-old regulations and strengthens the public-private partnership to ensure capital flows more efficiently to qualified emerging growth companies.”
Federal Funding Cuts Hit Early-Stage Startups Harder Than Established Businesses
The effects of these budget reductions are not evenly distributed.
Established businesses often have access to venture capital, private equity, commercial lending, or other financing options that can replace lost federal support. Early-stage startups generally do not.
A large corporation can often absorb the loss of a federal grant or regional innovation partnership. A 12-person deep-tech startup that built its Phase II SBIR pipeline around a regional cluster hub has far fewer alternatives available at comparable cost and terms.
The SBA’s own figures highlight this imbalance. Administrator Loeffler has told Congress the agency expects to guarantee approximately $72 billion in 7(a) loans and $16 billion in 504 loans during FY2026, while supporting approximately $6 billion in private capital through the SBIC program.
Those programs primarily serve established companies with existing revenue streams and collateral. SBIR, STTR, and Regional Innovation Clusters, by contrast, were specifically designed for pre-revenue and early-revenue businesses that often cannot qualify for traditional debt financing.
As a result, the impact of the cuts falls disproportionately on companies at the earliest stages of growth.
Pressure could increase further under the White House’s proposed FY2027 budget, which includes a 67 percent reduction in total SBA funding, reducing the agency’s budget from roughly $1 billion to $329 million.
The proposal would also eliminate 15 of the SBA’s 16 entrepreneurial development programs, which currently serve nearly one million small businesses each year. In addition, it would introduce new fees on SBA lending that critics argue could further limit access to capital.
Senate Small Business Committee Democrats have warned that the proposal “would have a devastating impact on America’s Main Streets,” while administration officials have defended the reductions as a necessary effort to eliminate wasteful and duplicative programs.
The National Science Foundation has attempted to address part of the innovation funding gap through initiatives that include a $250 million deployment for small business innovation funding. However, NSF’s mission and program structure differ substantially from the SBA’s startup-focused infrastructure.
Funding Delays and Program Closures Are Already Affecting Founders
For startups that held active SBIR Phase I awards when the programs expired on September 30, 2025, the six-month lapse created immediate operational challenges.
Disbursements were frozen, indirect cost recovery fell from 40 percent to 15 percent, and uncertainty emerged around whether Phase II applications would have a functioning review process available.
Many founders had built budgets and hiring plans around expected Phase II timelines. When those timelines slipped, companies were left facing unexpected funding gaps without a comparable private-market substitute. For many startups, Phase II awards represent access to between $750,000 and $2 million in non-dilutive capital.
The loss of Regional Innovation Clusters created a different challenge.
In many regions, the clusters served as connective infrastructure linking universities, federal procurement opportunities, research institutions, and commercialization partners. Their cancellation removes a support system that private markets have historically struggled to replicate, particularly in second- and third-tier metro areas.
The replacement program is also likely to operate at a smaller scale. With $9 million allocated across as many as 20 clusters, the average award would be approximately $450,000 per cluster, substantially below funding levels under the previous model.
The SBA’s internal restructuring introduces another layer of uncertainty.
Loeffler has told Congress that the agency plans to eliminate approximately 2,700 positions, representing a 43 percent reduction in staff as part of an effort to return the SBA to its size during the first Trump administration.
For small business owners navigating SBIC applications or startups working through compliance issues tied to federal awards, reduced staffing could translate into slower processing times, longer wait periods, and less institutional support.
Some states have attempted to fill these gaps through targeted grant programs. New Jersey, for example, has expanded support for women-owned and minority-owned startups. However, state-level initiatives generally operate at a fraction of the scale available through federal programs.
The Next Round of Budget and Oversight Decisions Will Shape Startup Funding
The June 25 House Small Business Committee hearing represents the most immediate milestone for startup founders, investors, and small business owners monitoring federal innovation policy.
The committee’s questioning of SBA leadership will help establish a congressional record regarding recent disruptions and may reveal whether lawmakers intend to restore, modify, or further reduce the Office of Investment and Innovation’s responsibilities.
Key developments to watch include:
- House Small Business Committee hearing – Scheduled for June 25, 2026, at 10:00 a.m. in Room 2360 of the Rayburn House Office Building. Lawmakers will examine the operational impact of SBA restructuring, program cuts, and innovation funding changes.
- FY2027 appropriations negotiations – The proposed 67 percent SBA budget reduction and elimination of entrepreneurial development programs are expected to be major points of debate as Congress determines the agency’s future funding levels.
- Regional Innovation Cluster replacement awards – The SBA has announced opportunities for up to 20 new clusters under the FY2026 appropriation. Award announcements will reveal which regions receive support and whether the replacement program reaches communities previously served by the canceled contracts.
- SBIC regulatory implementation – The revised SBIC regulations took effect on February 2, 2026. Industry response will help determine how much private capital continues flowing through the program to emerging growth companies.
- Senate oversight activity – Additional hearings focused on SBA staffing reductions, agency reorganization, and regional innovation strategy are expected as lawmakers assess the effects on local startup ecosystems and capital access.
The outcome of these discussions will determine whether federal startup support programs stabilize, continue shrinking, or evolve into a fundamentally different model. For many early-stage companies, the decisions made over the next year could directly affect their ability to secure funding, scale operations, and bring new technologies to market.
