How to finance an AI startup in NYC: grants, loans, tax credits and investors

By Solomon Wiesen, editor. Updated October 2026. Editorial standards | How this site is funded

An early AI startup in New York can raise its first several hundred thousand dollars without giving up equity, if it uses the government programs most founders skip. The federal SBIR program came back in April 2026 after a six-month lapse, the National Science Foundation pays up to $305,000 for a first-phase award, New York State matches those awards with up to $100,000 more, and a startup with payroll can apply up to $500,000 a year of the federal research credit against payroll taxes before it earns a dollar of profit.

Below is every option I could confirm on an official page in October 2026: federal, state and city, then private money. Each program links to its own page. Terms change often, so check the official page before you apply.

The short version, by stage

Federal grants and contracts

SBIR and STTR (all agencies)

The Small Business Innovation Research and Small Business Technology Transfer programs are the largest source of non-dilutive money for US tech startups. They lapsed on October 1, 2025 and were reauthorized on April 13, 2026 through September 30, 2031. The Department of Energy’s SBIR page confirms the reauthorization date.

• Amounts: SBIR.gov gives guideline amounts of $50,000 to $275,000 for Phase I and $750,000 to $1.8 million for Phase II; agencies can go higher. The 2026 law also created Strategic Breakthrough awards of up to $30 million for companies that have finished Phase II and can match the money.
• Who qualifies: a for-profit US small business with 500 or fewer employees, including affiliates. STTR requires a partner research institution, such as a university.
• New in 2026: stricter screening for ties to countries of concern, and caps on how many proposals one company can submit, starting in fiscal 2027.
• How to apply: register on SAM.gov and the SBIR.gov company registry, then apply to a specific agency’s solicitation. Eleven agencies take part.

NSF America’s Seed Fund

For most software and AI startups, the National Science Foundation is the best federal fit, because it funds nearly every technology area and takes no equity. Under solicitation NSF 26-510, Phase I pays up to $305,000 over 6 to 18 months and Phase II up to $1,250,000 over about two years. You start with a short Project Pitch at seedfund.nsf.gov; if NSF invites you, you submit a full proposal. The next deadlines are November 4, 2026, March 4, 2027 and July 7, 2027.

Other agencies

• NIH: over $1.4 billion a year for health and life science research, which covers AI for diagnostics, drug development and clinical tools. Start at seed.nih.gov; award caps vary by notice.
• Department of Defense and DARPA: nearly $2 billion a year across 14 components, with AI, autonomy and cyber among the common topics. See the DoD SBIR/STTR program page and DARPA’s small business page.
• Department of Energy: AI for the grid, materials and scientific computing fits DOE topics. DOE’s SBIR program now sits in its Office of Technology Commercialization.

Compute and training, not cash

• NAIRR Pilot: the National AI Research Resource, led by NSF with 14 federal agencies, gives compute, data and model access. It has a Start-Up Projects track. NSF funded an operations center in September 2026.
• NSF I-Corps Teams: customer-interview training for teams of three to five, mostly university spinouts with a recent NSF award. See NSF I-Corps. It is often the step before an NSF SBIR proposal.

Federal tax breaks for AI startups

• R&D credit against payroll tax: if your gross receipts are under $5 million and you had no receipts before the last five years, you can apply up to $500,000 a year of the research credit against payroll taxes, so it pays even when you have no income tax. You elect it on Form 6765 with a timely original return, then claim it quarterly on Form 8974. Details are on the IRS payroll tax credit page.
• The research credit itself: Section 41 credits 20% of qualified research spending above a base amount, or 15.8% with the reduced election. Engineer wages for model development often count. See the Form 6765 instructions.
• Section 174A: for tax years starting after 2024, domestic research and software development costs can be deducted in full in the year you spend them again. From 2022 to 2024 they had to be spread over five years, which made some startups pay tax on paper profits. The IRS guidance is Rev. Proc. 2025-28. The window to amend 2022 to 2024 returns for small businesses closed on July 6, 2026.

Ask a CPA who handles startup R&D credits before you file; the documentation rules are strict.

Federal loans

• SBA 7(a): up to $5 million through banks, which need to see repayment ability, so pre-revenue AI startups rarely qualify. Lender trade groups report that an SBA procedural notice effective March 1, 2026 requires 100% ownership by US citizens or nationals for 7(a) and 504 loans, which rules out companies with a green card holder among the owners. Confirm it with the lender before you apply.
• SBA 504: long-term fixed-rate loans for real estate and long-life equipment, useful for an AI hardware lab or buildout, not for working capital.
• SBA microloans: up to $50,000 through nonprofit lenders, with an average around $13,000.
• SBICs: private funds licensed by the SBA that make equity and debt investments. Search the SBIC directory for funds that back software or deep tech.
• DoD Office of Strategic Capital: large loans for critical technology companies. It excludes early, pre-revenue firms, so treat it as a later-stage option.

The site’s SBA lender finder shows which banks make SBA loans in your borough.

New York State programs

NY Ventures (Empire State Development)

• Pre-Seed and Seed Matching Fund: $50,000 to $250,000 invested on the same terms as your round, matched at least 1 to 1 by private money. You need to have raised $2 million or less, be headquartered in New York State and have at least one C-suite officer here. Applications go through the NY Ventures portal; the FAQ covers the matching rules.
• NYS Innovation Venture Capital Fund: a $135 million-plus fund that co-invests from seed to Series B, mostly seed and Series A. It names data and AI as a target sector. It does not lead rounds, so you need a lead investor first. Send a deck through the NY Ventures page.

Innovation Matching Grants

New York matches federal SBIR and STTR awards: up to $100,000 on a Phase I and up to $200,000 on a Phase II, never more than half the federal award. You need 100 or fewer employees and a Phase I or II award, or application, within the past 12 months. Rounds open for one week starting the second Wednesday of April and October; the current round runs October 14 to 20, 2026. Rules are on the program page and in the guidelines.

State tax credits

• Excelsior Jobs Program: refundable credits for software and research companies that add at least five net new jobs: up to 6.85% of wages per new job, plus an R&D credit worth 50% of the federal credit tied to New York spending. You must be approved before you hire. See the program overview.
• QETC employment credit: $1,000 per net new full-time New York employee for three years, for qualified emerging technology companies with $10 million or less in product sales.
• QETC capital credit: your New York investors can take a credit of 10% of their investment with a four-year hold, or 20% with a nine-year hold. It is worth mentioning to New York angels.
• Life sciences R&D credit: 15% of New York research spending (20% under 10 employees), up to $500,000 a year, for certified life sciences companies. It only fits AI for biology and drug development.

Loans, climate and compute

• NYS Small Business Revolving Loan Fund: microloans from $500 to $25,000 and larger loans through community lenders such as Accompany Capital, Pursuit, Renaissance EDC and BOC Capital.
• NYSERDA: AI startups working on energy, buildings or the grid can use NYSERDA’s climate tech programs, including grants of $35,000 to $50,000 and The Clean Fight’s up to $100,000. See the 2026 commercialization overview.
• Empire AI: the state’s public AI supercomputing consortium serves researchers at ten member institutions, including Columbia, Cornell, NYU and CUNY. There is no direct route for private startups; the realistic route is a research partnership with a faculty member. See the governor’s announcement.

New York City programs

• NYC AI Nexus: the city’s applied AI accelerator, run for NYCEDC by C10 Labs and Plug and Play. It offers pilots with real customers, workspace, mentorship and help with fundraising; no cash amount is stated. NYCEDC’s AI page lists the city’s other AI programs.
• NYC Catalyst Fund: city money invested in outside venture funds, including Harlem Capital, Antler, MetaProp and Open Opportunity Fund. You pitch those funds directly.
• Venture for NYC: NYCEDC’s founder and investor network, formerly Venture Access NYC. Its Founder Fellowship for first-time founders closed for 2026; watch for the 2027 call. The NYC Startup Internship Program places paid CUNY interns and gives priority to AI startups.
• NYC Future Fund: loans of $25,000 to $500,000 at 7.5% with principal tied to revenue, relaunched in March 2026 with $80 million. You need 12 months in business and $50,000 in revenue, so it fits AI agencies and services firms, not pre-revenue startups. The site’s Future Fund guide has the full terms.
• NYC Small Business Services financing help: free advisers, the NYC Funds Finder, and a Contract Financing Loan Fund of up to $1 million at 3% for companies working on city contracts. More at NYC SBS.

Closed programs and common mix-ups

• START-UP NY stopped taking new applicants on January 1, 2026.
• The Innovate NY Fund is fully invested and closed; ESD points founders to the NYS Innovation Venture Capital Fund instead.
• The NYC Small Business Opportunity Fund paused intake in 2023; the Future Fund is the city’s current loan product.
• The NYC AI Action Plan covers how city government uses AI. It is not a funding program, and there is no city “AI fund” for startups. The city’s economic strategy for AI is NYCEDC’s 2025 AI report.

Private money

• Venture capital: the site keeps a list of 25 venture firms with New York offices, and a running list of NYC startups that raised money in 2026 shows who is writing checks this year.
• Angels: New York Angels has run for more than 20 years; Golden Seeds invests in women-led companies.
• Crowdfunding: Regulation Crowdfunding lets you raise up to $5 million in 12 months through an SEC-registered portal.
• Venture debt and revenue-based financing: venture debt usually goes to companies that already have venture investors, and revenue-based financing to companies with steady recurring revenue. Both cost more than they first look; compare the annual cost before you sign, as you would with any merchant cash advance.
• Universities: Cornell Tech’s Runway program pays recent PhDs a salary and research budget to build a company; NYU Tandon Future Labs runs incubators with the city; Columbia runs a Lab-to-Market accelerator network.
• Free advice: the New York Small Business Development Center helps with SBIR proposals and loan applications at no cost.

How the pieces can stack

An illustration, not a promise: a three-person AI startup in Brooklyn wins an NSF Phase I award of $305,000. It applies the same month for a New York Innovation Matching Grant, which can add up to $100,000 (the cap, and less than half the federal award). With $600,000 of engineering payroll, its research credit could be worth roughly $60,000 to $90,000 a year depending on the calculation, applied against payroll taxes. If it then raises $250,000 from angels, NY Ventures can match up to $250,000 on the same terms. That is roughly $1 million, of which only the NY Ventures money and the angel round cost equity.

Common questions

Can an AI startup get a government grant in New York?

Yes. The main routes are the federal SBIR and STTR programs, especially the NSF Seed Fund, which pays up to $305,000 for Phase I, plus New York’s Innovation Matching Grants of up to $100,000 for Phase I. The city’s AI program, NYC AI Nexus, is an accelerator rather than a grant.

Can a pre-revenue AI startup get an SBA loan?

Rarely. SBA 7(a) lenders need to see how the loan will be repaid, and since March 1, 2026 lender groups report that SBA 7(a) and 504 loans require 100% ownership by US citizens or nationals. Grants, tax credits and equity fit pre-revenue companies better.

Does New York City have a fund just for AI startups?

No dedicated city AI fund exists as of October 2026. The city backs AI startups through NYC AI Nexus, the NYC Catalyst Fund’s venture managers and the Venture for NYC network, while New York State’s Innovation Venture Capital Fund names AI as a target sector.

Is the NY Innovation Matching Grant open now?

The current round runs October 14 to 20, 2026. After that, the next round opens the second Wednesday of April 2027.

General information, not legal, tax or investment advice. Program terms come from each agency’s page as checked in October 2026 and can change without notice.