Best States for Small Businesses
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Fast Facts
New Business Applications:
5.5 million
First-Year Survival Rate:
77.6%
Five-Year Survival Rate
50%
Top States for Startups:
Florida, Texas, California
In 2023, Americans filed a record-breaking 5.5 million new business applications, highlighting a surge in entrepreneurial activity nationwide. Despite the challenges faced by new businesses, approximately 77.6% of these startups survive their first year. However, the road to long-term success is steeper, with only about 50% of businesses surpassing the five-year mark. These figures underscore the dynamic and often precarious nature of small business ownership in the U.S., emphasizing the importance of resilience, strategic planning, and access to resources for sustained success.
Location matters when it comes to thriving as a small business. Some states offer a more supportive environment for new enterprises thanks to favorable tax policies, access to funding, and strong economic growth. For instance, states like Florida, Texas, and California see many business applications and boast robust economies and comprehensive support systems for small businesses.
Understanding which states provide the best opportunities can significantly affect the success and longevity of your business venture.
In this article
What are small businesses?
Small businesses are privately owned enterprises with fewer employees and lower revenue than larger corporations. Defined by the U.S. Small Business Administration (SBA) as firms with fewer than 500 employees, they span a wide range of industries, from retail stores and restaurants to tech startups and manufacturing units. These businesses play a crucial role in the economy, accounting for 44% of U.S. economic activity and generating two-thirds of net new jobs in the private sector.
Big Think Capital provides business borrowers with a straightforward and transparent funding platform.
- Business lines of credit from $10k – $1m
- Term as long as 5 years
- Rates as low as 7%
- Decisions as fast as 24 hours
- Quick access to your funds once approved
- Applying won't affect your credit score
Best states for small business
When deciding where to start a new business, location can make all the difference. Various factors, such as the number of business applications, tax incentives, small business grants, and even the median household income of potential consumers, play crucial roles in determining the best states for entrepreneurs to launch their ventures.
We reviewed small business data across the country, including the number of business applications each state received, small business grants awarded, tax policies, and small business rates, and compared them with states' populations, median household income, and gross domestic product growth.
By analyzing these key metrics, we've identified the top 10 states that offer the most supportive environments for new businesses. From economic powerhouses like California and Texas to rising stars like Georgia and North Carolina, these states provide the optimal conditions for entrepreneurs to thrive and succeed.
California
California stands out as a premier state for starting a new business, with 558,011 business applications in 2023, reflecting its dynamic entrepreneurial spirit. Home to a population of 39.24 million, the state's vast market provides ample opportunities for businesses to thrive. California's robust GDP growth of 5.0% underscores its strong economic environment, further bolstered by a high median household income of $78,105, indicating significant consumer spending power.
Entrepreneurs benefit from the state's generous business incentives and access to 900 business grants awarded annually, fostering innovation and growth. Additionally, California boasts a commendable 78.5% one-year survival rate and a 51.0% five-year survival rate, making it an ideal location for new ventures looking to achieve long-term success.
- 2023 business applications: 558,011
- 5-year survival rate: 51.0%
- Median household income: $78,105
Texas
Texas shines as a top destination for new businesses, driven by a robust entrepreneurial ecosystem with 501,398 business applications in 2023. The state's economic vigor is reflected in its impressive GDP growth of 5.7%, supported by a significant population of 30.03 million, providing a vast market for new ventures.
Entrepreneurs are particularly drawn to Texas due to its favorable tax policies—there is no corporate or personal income tax, allowing businesses to reinvest savings directly into their growth. The state's median household income of $67,520 indicates a healthy consumer base with substantial spending power.
Furthermore, Texas offers ample support with 850 business grants awarded annually, fostering a nurturing environment for innovation. With a commendable one-year survival rate of 79.0% and a five-year survival rate of 52.0%, Texas stands out as an ideal location for launching and sustaining a successful business.
- 2023 business applications: 501,398
- 5-year survival rate: 52.0%
- Median household income: $67,520
Florida
Florida's business landscape is particularly inviting for new entrepreneurs, with a record 667,031 business applications filed in 2023, the highest in the country. This economic vitality is further underscored by a stunning 8.8% GDP growth rate, signaling a dynamic and rapidly expanding market. One of Florida's most attractive features is the absence of personal income tax, which offers significant financial benefits to business owners and allows them to reinvest more into their operations.
The state's population of 22.04 million provides a substantial and diverse customer base, ideal for various business ventures. Although the median household income is $61,580, the state's robust economic growth and extensive opportunities make it a prime location for startups. Furthermore, Florida fosters innovation and growth by awarding 600 business grants annually. With a one-year survival rate of 77.4% and a five-year survival rate of 50.8%, Florida supports new businesses and provides a solid foundation for long-term success.
- 2023 business applications: 667,031
- 5-year survival rate: 50.8%
- Median household income: $61,580
Big Think Capital provides business borrowers with a straightforward and transparent funding platform.
- Business lines of credit from $10k – $1m
- Term as long as 5 years
- Rates as low as 7%
- Decisions as fast as 24 hours
- Quick access to your funds once approved
- Applying won't affect your credit score
New York
New York's commitment to fostering a robust business environment is evident in its survival rates, with 78.0% of new businesses making it through the first year and 51.5% surviving past five years. The state received 313,481 new business applications in 2023, reflecting its vibrant startup culture, and its economy, supported by a 4.6% GDP growth rate, provides a stable and thriving market for new ventures. The state also encourages business development through various incentives and grants, with 700 business grants awarded annually to support innovation and expansion.
Home to a diverse population of 19.84 million, New York presents a rich customer base and ample networking opportunities for business owners. Financially, New York is attractive, with a median household income of $74,870, indicating strong consumer purchasing power.
- 2023 business applications: 313,481
- 5-year survival rate: 51.5%
- Median household income: $74,870
Georgia
Georgia's moderate tax rates and supportive economic policies create an inviting atmosphere for new businesses. With a population of 10.71 million, the state offers a diverse and sizeable market for entrepreneurs. The state’s economy is growing steadily, evidenced by a 4.5% GDP growth rate, which provides a solid foundation for business operations and expansion.
In 2023, Georgia saw 277,626 new business applications, demonstrating its appeal to aspiring business owners. The median household income of $61,800 indicates a healthy consumer base with good spending power.
Entrepreneurs in Georgia benefit from substantial support, including 750 business grants awarded annually, which foster innovation and growth. The state also boasts a 76.5% one-year survival rate for new businesses and a 50.5% five-year survival rate, reflecting its conducive environment for long-term business success.
- 2023 business applications: 277,626
- 5-year survival rate: 50.5%
- Median household income: $61,800
New Jersey
Backed by various business incentives and a high median household income of $82,545, one of the highest in the nation, New Jersey provides a robust environment for new businesses. The state’s economy, with a solid 4.8% GDP growth rate, offers a stable foundation for entrepreneurial ventures.
In 2023, New Jersey saw 160,996 new business applications, indicating strong interest in the state’s business potential. With a population of 9.27 million, entrepreneurs have access to a diverse and affluent customer base. The state supports its businesses with 680 annual business grants, promoting innovation and expansion.
New Jersey also excels in business sustainability, boasting a 79.0% one-year survival rate and a 52.5% five-year survival rate, the highest among the top states.
- 2023 business applications: 160,996
- 5-year survival rate: 52.5%
- Median household income: $82,545
North Carolina
Home to a population of 10.70 million, North Carolina offers a broad and diverse market for entrepreneurs. The median household income of $61,900 supports a healthy consumer base with good spending power. In 2023, North Carolina saw 170,924 new business applications, showcasing its attractiveness to aspiring business owners.
North Carolina stands out for its favorable business environment, particularly due to its low corporate tax rate, which provides significant financial advantages to new enterprises. The state’s economy is robust, with a 4.7% GDP growth rate reflecting steady economic progress and opportunities for growth.
The state also offers considerable support through 720 annual business grants, encouraging innovation and expansion. Additionally, North Carolina boasts a commendable 78.5% one-year survival rate and a 51.0% five-year survival rate, indicating a strong environment for sustaining long-term business success.
- 2023 business applications: 170,924
- 5-year survival rate: 51.0%
- Median household income: $61,900
Illinois
Illinois offers a thriving environment for new businesses, supported by a population of 12.67 million that provides a vast and diverse market. The state's economy is steadily growing, with a 4.2% GDP growth rate that underscores its economic stability and potential for expansion.
In 2023, Illinois recorded 174,667 new business applications, reflecting strong entrepreneurial activity. The state supports this growth with various business incentives designed to foster innovation and development. Additionally, Illinois awards 650 business grants annually, providing crucial financial support to new ventures.
The median household income in Illinois stands at $68,380, ensuring a healthy consumer base with significant spending power. The state also demonstrates a commitment to business sustainability, with a 77.0% one-year survival rate and a 50.0% five-year survival rate. These factors collectively make Illinois an attractive destination for entrepreneurs looking to establish and grow their businesses in a supportive and dynamic environment.
- 2023 business applications: 174,667
- 5-year survival rate: 50.0%
- Median household income: $68,380
Big Think Capital provides business borrowers with a straightforward and transparent funding platform.
- Business lines of credit from $10k – $1m
- Term as long as 5 years
- Rates as low as 7%
- Decisions as fast as 24 hours
- Quick access to your funds once approved
- Applying won't affect your credit score
Pennsylvania
In 2023, Pennsylvania saw 153,599 new business applications, highlighting the state's appeal to aspiring business owners. The median household income of $65,130 ensures a healthy consumer market with substantial spending power. Pennsylvania supports its businesses through various incentives and the annual awarding of 630 business grants, fostering innovation and growth.
The state's economy grows at a steady 4.4% GDP rate, making it robust. Its population of 12.96 million offers entrepreneurs a large and diverse customer base.
The state's commitment to sustaining new ventures is evident in its strong survival rates, with 78.5% of businesses surviving their first year and 51.5% making it past five years.
- 2023 business applications: 153,599
- 5-year survival rate: 51.5%
- Median household income: $65,130
Maryland
Maryland offers a highly supportive environment for new businesses, bolstered by a strong median household income of $84,500, indicating significant consumer spending power. The state's economy is solid, with a 4.6% GDP growth rate that provides a stable foundation for entrepreneurial ventures.
With a population of 6.17 million, Maryland presents a diverse and affluent market for new businesses. In 2023, the state recorded 96,733 new business applications, reflecting its appeal to entrepreneurs. Maryland also encourages business development through various incentives and annually awards 540 business grants, promoting innovation and growth.
Additionally, Maryland demonstrates a commitment to business sustainability, with a one-year survival rate of 77.5% and a five-year survival rate of 50.5%.
- 2023 business applications: 96,733
- Median household income: $84,500 (highest income for spending)
- 5-year survival rate: 50.5%
Biggest challenges to small businesses
Startups face numerous challenges that can impede their growth and success. Securing funding is often the most significant hurdle, as attracting investors or obtaining loans can be difficult for new businesses without an established track record.
Small businesses can find funding from various sources, each with unique advantages and requirements. Personal savings are often the first resource entrepreneurs tap into, using their own funds to invest in their ventures. Friends and family are another common source, where loans or investments from close relations can provide the necessary capital, although it's important to formalize these agreements to prevent misunderstandings.
Traditional bank loans are also popular, offering substantial funding with relatively low interest rates, but they require a solid business plan and credit history. Additionally, the U.S. Small Business Administration (SBA) offers various loan programs to support small businesses, often with more favorable terms than conventional bank loans.
Related: Best Small Business Loans
Venture capital and angel investors are viable options for businesses with high growth potential, providing significant funding in exchange for equity. Crowdfunding platforms like Kickstarter and Indiegogo allow businesses to raise small amounts of money from a large number people, offering a modern approach to funding.
Lastly, government grants and subsidies are available for specific industries and projects, providing non-repayable funds to support business growth and innovation.
Even with initial funding, managing cash flow remains a critical challenge, as startups need to balance expenses and revenues, especially during the early stages when income might be inconsistent.
FAQs
What are the most common types of small businesses?
Small businesses span a wide range of industries, but some of the most common types include retail stores, restaurants, consulting services, real estate agencies, personal care services (such as hair salons and spas), and tech startups.
Where can I find funding for my small business?
Funding can come from personal savings, friends and family, bank loans, SBA loans, venture capital, angel investors, crowdfunding platforms, and government grants. Each source has its own requirements and benefits, so it’s important to explore multiple options.
How can I improve my chances of business survival?
Improving your business's chances of survival involves thorough market research, strategic planning, effective financial management, strong customer service, continuous marketing efforts, and adaptability to market changes. Building a reliable team and leveraging business support resources can also enhance your business’s resilience.
How do I register my small business?
Registering your small business involves choosing a unique business name, registering with state and local governments, and obtaining any required licenses and permits. The exact process varies by location and business type, so it’s important to check with local regulatory agencies for specific requirements.
What licenses and permits do I need for my small business?
The licenses and permits required depend on your business type, location, and industry. Common requirements include business licenses, health permits, zoning permits, and professional licenses. Researching and complying with local, state, and federal regulations is essential.
How can I manage my small business’s finances effectively?
Effective financial management involves setting up a reliable accounting system, monitoring cash flow, budgeting, managing expenses, and regularly reviewing financial statements. Utilizing accounting software and consulting with a financial advisor can help maintain healthy finances.
Big Think Capital provides business borrowers with a straightforward and transparent funding platform.
- Business lines of credit from $10k – $1m
- Term as long as 5 years
- Rates as low as 7%
- Decisions as fast as 24 hours
- Quick access to your funds once approved
- Applying won't affect your credit score
The bottom line
Starting and running a small business involves careful planning, strategic decision-making, and continuous adaptation to market conditions. From securing funding and managing finances to navigating regulatory requirements and building a customer base, entrepreneurs face numerous challenges.
However, with the right resources and support, such as leveraging diverse funding options, developing a robust business plan, and employing effective marketing strategies, small businesses can thrive and contribute significantly to the economy.
By understanding and addressing the key factors influencing business success, aspiring entrepreneurs can turn their visions into reality and achieve long-term growth and sustainability.
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Writer
Lissa Poirot is an award-winning journalist and editor with a focus on finance, travel and health. Her work has appeared online and in print, and she has often been cited as a source on both. She currently resides in Pennsylvania.
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