There's a lot gamesmanship that goes on. For some sbir grants you can subcontract out 50% of the work.

So you get a grant to work on some subcomponent of one of the major defense contractors (Raytheon, Lockheed, etc). Then you turn around and subcontract that piece right back to the defense contractor, up to 50%. Then you take the remaining work and give it to ex-Defense employees who become your employees for a bit.

So the small business wins b/c they get some % profit plus can do work at a high dollar amount per hour. The big defense contractor wins b/c they get essentially free R&D work on their subcomponent.

They only target companies that are really good at wading through bureaucracy and who target themselves almost exclusively at government.

That may be the case (I don't know) but sending more funding towards buying from small guys won't fix anything if the barrier to entry is bureaucracy.

The solution is to fix the bureaucracy, not to throw more money at it.