Key takeaways
- Washington is the friendliest state for small companies due to its strong small enterprise exercise, ample expert labor and considerable small enterprise financing.
- Many different Western states, together with Utah, Wyoming, Idaho, Nevada and Oregon, rank within the prime 10 for his or her small enterprise environments.
- Louisiana, Mississippi and Rhode Island are the least pleasant states for small companies.
Entrepreneurship has skyrocketed within the aftermath of the COVID-19 pandemic. Simply ask Morgan Lynch, proprietor of Jupiter’s Eye Cafe in Spokane, Washington. Lynch witnessed the phenomenon firsthand in her hometown and not too long ago joined the town’s effort to revitalize its downtown.
“Our downtown has gone via lots of ups and downs over time, and it’s going via a revitalization post-COVID,” she says. “I needed to go away my mark on it.”
She’s one of many hundreds of thousands of People who’ve began their very own companies within the years following the worldwide shutdown. Over the past 12 months, Lynch realized the right way to construct a marketing strategy, undertaking money movement and secured financing for her bookstore cafe, which can open by January 2025, because of the assistance of a free state useful resource referred to as the Washington Small Enterprise Improvement Middle.
“I couldn’t have gotten the place I’m now with out it, and the truth that it was free is superb,” Lynch says.
It acquired us questioning at Bankrate: Are sure states within the U.S. higher positioned to advertise small enterprise progress, particularly within the years following the pandemic?
We investigated this query by analyzing over a dozen knowledge factors to rank all 50 states primarily based on their small enterprise environments. In Bankrate’s new Small Enterprise Examine, Washington landed the highest spot because the friendliest state for small companies due to its sturdy small enterprise setting, expert workforce and ample small enterprise funding. Louisiana got here in final for its small enterprise setting.
Whereas innovation and ingenuity are occurring everywhere in the nation, our examine reveals that some states are higher positioned than others to advertise small enterprise progress. Many western states fared particularly nicely in our rankings.
— Ted Rossman, Bankrate senior analyst
Which states are higher positioned for small enterprise progress?
Small companies aren’t that small by way of their financial impression. In line with the U.S. Chamber of Commerce, they make use of practically half of all U.S. employees and account for practically 44 % of America’s gross home product (GDP).
That mentioned, each state’s small enterprise setting appears totally different. Some states have native economies concentrated in sure industries, just like the leisure and tourism business in Las Vegas, Nevada. Some states have extra strong economies. Some have higher tax insurance policies, extra accessible employees for rent or higher ecosystems for small enterprise financing.
In our state rating, the 18 knowledge factors we examined match into these broad classes: robustness of small enterprise exercise, availability and high quality of labor, enterprise prices, entry to capital, infrastructure and coverage and regulation. Whereas no state can tick all these containers, states with comparatively favorable circumstances in lots of of those classes have been almost certainly to rank increased on our record.
Right here’s the place states landed within the prime 10 and backside 10 of our rating:
High 10: Most pleasant states for small companies |
Backside 10: Least pleasant states for small companies |
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Bankrate knowledge middle
Each week, Bankrate publishes proprietary surveys, research and price knowledge, offering the most recent data-driven insights on the state of People’ private funds — together with bank card debt, homeownership, insurance coverage, retirement and past.
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Western states have the friendliest small enterprise environments
Many Western states, together with Utah, Wyoming, Idaho, Nevada and Oregon, ranked within the prime 10 for his or her small enterprise environments. Washington took the No. 1 spot.
“Typically talking, these states are tax-friendly, they’ve good infrastructure and a extra educated pool of potential workers,” Rossman says. Washington, Idaho and Oregon have much less favorable enterprise tax environments than Wyoming, Nevada and Utah.
Why Washington ranked No. 1 for its small enterprise setting
Washington stands out in three classes we examined: entry to capital, the robustness of small enterprise exercise and the supply of expert employees. Washington’s greatest areas for enchancment in our rankings are its enterprise prices and tax insurance policies.
Right here’s an additional breakdown of Washington’s small enterprise setting:
Entry to capital
Washington has over 600,000 small companies and was authorised for nearly $965 million in 7(a) loans via the Small Enterprise Administration (SBA) throughout the 2024 fiscal 12 months. That put Washington within the No. 2 spot within the nation for entry to capital for small companies, after Utah. The 7(a) SBA mortgage program is the SBA’s main enterprise mortgage program for offering monetary help to small companies and one of the vital standard small enterprise loans.
Robustness of small enterprise exercise
Roughly half (49 %) of Washington’s workforce was employed by small companies as of 2021, in line with the U.S. Census Bureau’s Statistics of U.S. Companies. Washington’s per capita actual gross home product (GDP) in 2023 was $86,682, the third highest within the nation. Between March 2021 and March 2022, 29,963 small companies opened and 13,419 closed, for a internet improve of 16,544. That places Washington within the prime 10 for the biggest internet improve of small companies per capita.
Availability and high quality of labor
In line with the Bureau of Labor Statistics’ (BLS) Enterprise Employment Dynamics knowledge, small companies in Washington contributed a internet improve of 161,791 jobs between 2021 and 2022. That’s 86.2 % of whole internet job creation in Washington, one of many highest percentages amongst all 50 states. Washington additionally has one of many highest ratios of accessible employees for each job opening amid a nationwide employee scarcity disaster, in line with the U.S. Chamber of Commerce. Moreover the abundance of accessible labor, Washington additionally seems to have a few of the most succesful employees within the nation, in line with at the least one measurement. When the Nationwide Middle for Training Statistics measured the training degree of adults residing within the state, it discovered that Washington’s adults have been extra literate and extra succesful at math than their counterparts in different states.
Enterprise prices
Washington’s hourly median wage, as soon as adjusted for the price of residing ($26.24), is increased than many of the nation. Greater wages can cut back income for small enterprise house owners as a result of they usually have smaller revenue margins. It’s additionally tougher for small enterprise house owners to go on added bills to their clients to make up for these labor prices in comparison with giant firms.
Coverage and regulation
Washington scored nicely for enterprise insurance policies. In line with the SBE Council’s 2019 Small Enterprise Coverage Index, Washington is without doubt one of the most entrepreneur-friendly states for coverage as a result of it imposes decrease governmental burdens on entrepreneurship, enterprise and funding.
Nonetheless, the state didn’t fare as nicely when it got here to its tax setting. It has decrease particular person revenue tax charges than different states; nevertheless, the Tax Basis says Washington imposes gross receipts taxes on companies as an alternative of company taxes, that are “usually regarded as extra economically dangerous.” General, the state lands in thirty fifth place on the Tax Basis’s 2024 State Enterprise Tax Local weather Index.
Infrastructure
Washington ranks seventeenth for infrastructure. Whereas the state has sturdy web speeds and strong electrical utility efficiency, it falls quick on its street and bridge circumstances. Stable infrastructure is vital for companies, because it helps clean operations, environment friendly manufacturing, dependable communication, entry to assets and progress.
These states battle with their small enterprise environments
Many states, notably within the South, didn’t fare nicely in our rating. The states within the backside 5 spots on our rating embrace Louisiana, Mississippi, Rhode Island, West Virginia and Hawaii.
There are a number of commonalities amongst states on the backside of the rating: They’ve increased poverty charges, decrease ranges of small enterprise exercise, weaker economies, extra extreme employee shortages and fewer educated workforces. Some states on the backside of our rating are additionally extra vulnerable to pure disasters, which might financially devastate small enterprise communities and impression small enterprise progress.
Why Louisiana got here in final for its small enterprise setting
Louisiana is the least pleasant state for small companies of all 50 states, rating poorly in a number of metrics we analyzed. Right here’s an in depth breakdown of its small enterprise setting:
Entry to capital
The whole quantity of Small Enterprise Administration 7(a) loans authorised primarily based on the variety of small companies within the state is low, rating thirty fifth. This reveals a niche between the accessible capital for small companies in Louisiana and the entities that may really entry that funding. The state acquired over $333 million in SBA 7(a) loans in fiscal 12 months 2024 and has over 450,000 small companies.
Bryan Greenwood, state director on the Louisiana Small Enterprise Improvement Middle, says capital is available in Louisiana, however many residents who wish to open companies could battle to qualify for financing due to the state’s increased poverty charges. In line with the nonprofit Louisiana Funds Venture, the general poverty price in Louisiana was 18.6 % in 2022, the second highest within the nation.
Robustness of small enterprise exercise
Louisiana is the one state that skilled a internet lower in small companies between March 2021 and March 2022. State specialists on the Louisiana Small Enterprise Improvement Middle pointed to Hurricane Ida as a probable motive. They mentioned small companies affected by the hurricane confronted storm harm and an absence of energy, water and web service. Louisiana additionally landed within the backside 15 states for the bottom per capita actual GDP, signaling a weaker general financial system.
Availability and high quality of labor
Louisiana is going through a worsened employee scarcity, evidenced by the truth that there are solely 55 employees for each 100 open jobs, in line with the U.S. Chamber of Commerce. It additionally has a few of the lowest common literacy and numeracy scores for adults within the nation, in comparison with different states. BLS knowledge reveals Louisiana added the second-fewest small enterprise jobs to its financial system between March 2021 and March 2022.
Enterprise prices
When adjusted for the price of residing, Louisiana’s hourly median wage ($21.93) is decrease than in most states. That is the one metric wherein Louisiana scored significantly higher than different states. States with decrease priced-adjusted median wages usually scored higher on our rating as a result of worker wages is usually a vital price for small enterprise house owners.
Coverage and regulation
Louisiana ranks poorly for its tax setting and is in the midst of the pack for its small enterprise insurance policies. Over the past two years, Louisiana made some vital modifications to its enterprise tax construction by reducing company and private revenue tax charges and eliminating the company franchise tax. Nonetheless, the state nonetheless ranks fortieth for its general enterprise tax setting within the Tax Basis’s 2024 State Enterprise Tax Local weather Index. The state’s enterprise insurance policies are additionally structured in a means that imposes on small enterprise progress, rating twenty ninth within the SBE Council’s 2019 Small Enterprise Coverage Index.
Infrastructure
The state’s poor infrastructure — from web velocity to street situation to general utility efficiency — additionally dragged it down on the rating. It ranks forty eighth on this class.
The underside line
There’s no denying that some small enterprise house owners have it higher than others merely due to the place their enterprise is located.
The placement of your corporation can have an effect on all the things from enterprise prices to what you pay in taxes, making it one of the vital essential elements that drives its success. In fact, location will matter extra when you’re opening a enterprise that depends on in-person interactions, like a retail retailer or restaurant, in comparison with an online-only enterprise.
We’re not suggesting small enterprise house owners flock to the highest states on our rating. Moderately, it’s vital for them to know that their state’s small enterprise setting presents its personal distinctive challenges and alternatives. Understanding these variations will help small enterprise house owners make higher, extra knowledgeable enterprise selections of their respective states.
