What are the best US states for small businesses?

Are you thinking of starting your very own business in the next year or so? Maybe you’ve finally had that winning business idea, or perhaps you want to step out on your own and become an entrepreneur – either way, starting a new business is no easy task.

With that being said, the good news is that there is plenty of support available out there for small American businesses, including government-funded loans and cuts on corporation tax. But just where in America is the best place to begin your budding startup?

To find out just which US state is the most suitable for small businesses, we looked at all 50 (as well as the District of Colombia) and assessed them on the following criteria:

  • The number of SBA loan approvals so far in 2023 (looking at 7(a), 504 and microloans).
  • The number of innovative cities present in each state.
  • The level of Corporate Income Tax levied by the state.
  • The number of employer and non-employer establishments present.
  • The average business survival rate.
  • The average internet speed available.
  • The average cost of living.

With these criteria to hand, we then ranked each factor accordingly to give each state a total score out of 100, using this score to rank each of them from best to worst.

So, without further ado, here are the top US states for American entrepreneurs and startups!

1. Ohio

Sitting in first place as the best state for new businesses is Ohio. Ohio saw over 1,640 7(a) loans approved so far in 2023, the most common loan type provided by the SBA, as well as 380 microloans, putting it in the top 5 for loan approvals overall.

Any new business owner knows how vital the loan process is, but alongside this, Ohio also offers 0% Corporation Tax and a relatively low cost of living score at just 91.3, making it one of the best states for businesses looking to save money.

2. Washington

Following up Ohio in second place, we have the state of Washington. Although the SBA in Washington has only handed out 636 7(a) loans and 23 microloans respectively, it scores very highly in our rankings thanks to its 0% Corporate Tax and low business failure rate.

In fact, Washington State has the lowest average business failure rate of any state in the country at just 10.9%. Combine this with a good internet speed of 149Mbps on average and Washington State is clearly well-suited to those entrepreneurs who favor either local or online businesses.

3. Texas

As one of America’s biggest and most inventive states, perhaps it should come as no surprise that Texas scored very highly in our rankings. Again, this is helped massively by the state having 0% Corporate Tax, though Texas SBA staff have also handed out 1,713 7(a) loans so far this year.

But there’s more than just a lack of Corporation Tax and high loan count going for Texas. With 6 cities ranking in the innovation index, Texas is a hub of up-and-coming companies, making it the perfect environment for entrepreneurs and small business startups alike.

4. Colorado

Positioned comfortably in our fourth spot, like Washington State, Colorado also ranks outside the top ten for the number of loans approved, with only 621 approved in 2023 right now. It’s also the first state in our top 5 to apply Corporate Tax, which currently sits at 4.4%.

But where Colorado stands out is in its low numbers of employer and non-employer establishments, both of which sit at 175,965 and 550,568 respectively. This means that competition faced by new businesses is much lower than in other states, minimizing the chances of fresh startups failing.

5. Oklahoma

Finally, our fifth best state for startups is Oklahoma, which might come as a surprise when you consider that the number of 7(a) loans approved so far this year is just 223! And much like Colorado, Oklahoma also asks for a similar Corporate Tax of 4%.

However, as with Colorado, Oklahoma has a very low employer and non-employer establishment number, with only 296,422 non-employer businesses in the state. But where Oklahoma really shines is in its internet speed and cost of living. Offering an average connection of 168.8Mbps and an index score of 87.9, it’s a good state for online startups.

States that are less suited to new businesses

Naturally, if there are states favoring new startups, then there are also those which can make starting your new business rather tricky.

The state ranked the lowest for new businesses was Hawaii, mainly due to its shocking business failure rate of 25.4% – the worst of any state! Top this with low loan approvals in general and Hawaii is likely somewhere where only specialized new businesses will thrive.

Other low-ranking states included the District of Columbia, which holds a similar business failure rate at 25.1%, but also comes packing one of the highest Corporation Taxes at 8.25%.

And finally, although it ranked fairly high on our list, California is also the state with the most employer and non-employer establishments, meaning competition for any new startup will likely be fierce right from day one.

Why are small businesses so important?

While it’s true that big corporations and large businesses certainly have a role to play in the US economy, it cannot be overstated just how important small businesses are for job creation and boosting local communities.

US CEO Richard Culberson, from Moneypenny, had this to say on the matter:

“While larger businesses can be great for providing a wide range of product diversity and delivering large-scale solutions for other businesses, where small businesses really shine is in providing for their local community.

“From offering local alternatives to larger, more expensive brands, to creating fresh jobs and more bespoke services, there’s always a desire for new startups, especially for anyone looking for a more tailored touch.”

With that being said, even small businesses need a helping hand when it comes to customer services, which is exactly where Moneypenny can help. From managing incoming calls with our virtual receptionist service to operating the live chat on your website, get in touch today to see how our team can take your business even higher.