Grants 101: What is F&A?

If you’re new to grants, you’ve probably come across the term “F&A” or “indirect costs.” But what does it actually mean for your grant budget? Let’s break it down.

What is F&A?

Facilities and Administrative (F&A) costs, also known as indirect costs, are expenses that help keep your business running but aren’t tied to a specific research task or project. Think of them as the overhead costs of doing business—things like rent, utilities, office supplies, legal fees, business tools, and administrative salaries.

For NIH SBIR/STTR grants, small businesses without a negotiated F&A rate can typically charge up to 40% of Modified Total Direct Costs (MTDC) for indirect costs in Phase I awards—without needing extra justification. This is a big deal because it allows you to recover some of the general operating costs required to run your research project.

How do I calculate F&A

All grant budgets use the following formula:

Direct costs + indirect costs (i.e., F&A) = total cost

Direct costs are expenses specific to the project, such as a project manager, researcher, research materials, participant incentives, and work done by CROs.

Direct costs are then broken down further into MTDC and other direct costs. In other words, not all expenses fall under the MTDC bucket, and only the MTDC expenses can be included in the F&A calculation.

Other direct costs are things like:

• Equipment costing $5,000 or more per unit

• Patient care costs

• Subcontractor expenses over $25,000

For example, if your direct costs total $150,000, but $30,000 of that is for a subcontractor (of which only $25,000 is allowable under MTDC), then your MTDC would be $145,000 ($150,000 - $5,000 in excluded costs).

Now let’s calculate F&A:

$145,000 × 40% = $58,000

So, the maximum F&A money you can request on your budget is $58,000. This means the total cost is $145,000 (direct costs) + $58,000 (F&A) = $203,000.

Sometimes grant opportunities will say something like…”The budget cannot exceed $200,000 total cost”. Based on the example above, you would need to trim a bit to ensure the budget does not exceed that amount.

SBIR F&A Example:

Let’s say you’re applying for an NIH SBIR Phase I grant, and your direct costs (like salaries, materials, and subcontractors) are capped at $150,000 total cost (I totally made this number up).

Here is a very simple budget:

The MTDC amount is $80,000 (salaries) + $25,000 (subcontracts limit) + $1,000 (laptop) = $106,000

Thus, the F&A would be:

$106,000 × 40% = $42,400

And the total costs for the grant are:

$106,000 + $42,000 = $148,400.

Double check we are under the budget limit:

$148,400 < $150,000 —> YAY!

F&A has been in the news…

Recently, NIH proposed a flat 15% F&A rate for all grants, including SBIR/STTR awards (NOT-OD-25-068). Here’s what that could mean for you:

• Instead of the default 40%, small businesses without a negotiated rate would only be allowed 15% of MTDC.

• Using our example budget above, instead of receiving $42,400 in F&A, you’d only get $15,900.

• This means you’d need to absorb more overhead costs yourself, potentially reducing your funding for critical business expenses.

Is This Policy Official?

Not yet! This proposal has been met with pushback from research institutions and small businesses, and it’s likely to face legal challenges. As of February 11, 2025 (article by STAT news), the implementation timeline is uncertain, so keep an eye out for NIH updates.

What Should Founders Do?

If you’re applying for an SBIR/STTR grant, here’s how to navigate the F&A landscape:

1. Check NIH Guidelines Regularly: Policies can change, so make sure you’re working with the most up-to-date information.

2. Talk to NIH Program Officers: They can help clarify what F&A rate applies to your application.

Final Thoughts

For SBIR/STTR applicants, F&A rates can significantly impact your total budget. While the 40% rate is still in place for now, the proposed 15% cap could change how much funding you receive for overhead expenses. Stay informed, be strategic in your budgeting, and make sure you’re maximizing your available funds!