Key takeaways
- Washington is the friendliest state for small companies due to its strong small enterprise exercise, ample expert labor and plentiful 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 town’s effort to revitalize its downtown.
“Our downtown has gone via loads of ups and downs through the years, 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 tens of millions of People who’ve began their very own companies within the years following the worldwide shutdown. During the last 12 months, Lynch discovered the best way to construct a marketing strategy, undertaking money circulation and secured financing for her bookstore cafe, which is able to open by January 2025, due to the assistance of a free state useful resource often called the Washington Small Enterprise Improvement Heart.
“I couldn’t have gotten the place I’m now with out it, and the truth that it was free is wonderful,” Lynch says.
It bought 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 Research, Washington landed the highest spot because the friendliest state for small companies due to its robust small enterprise surroundings, expert workforce and ample small enterprise funding. Louisiana got here in final for its small enterprise surroundings.
Whereas innovation and ingenuity are taking place 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 properly in our rankings.
— Ted Rossman, Bankrate senior analyst
Which states are higher positioned for small enterprise progress?
Small companies aren’t that small when it comes to their financial influence. In response to the U.S. Chamber of Commerce, they make use of almost half of all U.S. employees and account for almost 44 p.c of America’s gross home product (GDP).
That stated, each state’s small enterprise surroundings appears to be like completely 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 obtainable 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 bins, states with comparatively favorable circumstances in lots of of those classes have been more than likely to rank larger on our record.
Right here’s the place states landed within the prime 10 and backside 10 of our rating:
Prime 10: Most pleasant states for small companies |
Backside 10: Least pleasant states for small companies |
|---|---|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankrate knowledge heart
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.
See extra
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 surroundings
Washington stands out in three classes we examined: entry to capital, the robustness of small enterprise exercise and the provision 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 surroundings:
Entry to capital
Washington has over 600,000 small companies and was authorized for nearly $965 million in 7(a) loans via the Small Enterprise Administration (SBA) through 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 p.c) of Washington’s workforce was employed by small companies as of 2021, based on 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 enhance of 16,544. That places Washington within the prime 10 for the biggest internet enhance of small companies per capita.
Availability and high quality of labor
In response to the Bureau of Labor Statistics’ (BLS) Enterprise Employment Dynamics knowledge, small companies in Washington contributed a internet enhance of 161,791 jobs between 2021 and 2022. That’s 86.2 p.c 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 obtainable employees for each job opening amid a nationwide employee scarcity disaster, based on the U.S. Chamber of Commerce. Moreover the abundance of obtainable labor, Washington additionally seems to have among the most succesful employees within the nation, based on at the very least one measurement. When the Nationwide Heart for Training Statistics measured the schooling stage 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 larger than many of the nation. Increased wages can cut back earnings for small enterprise homeowners as a result of they typically have smaller revenue margins. It’s additionally tougher for small enterprise homeowners to move on added bills to their clients to make up for these labor prices in comparison with giant companies.
Coverage and regulation
Washington scored properly for enterprise insurance policies. In response to the SBE Council’s 2019 Small Enterprise Coverage Index, Washington is among the most entrepreneur-friendly states for coverage as a result of it imposes decrease governmental burdens on entrepreneurship, enterprise and funding.
Nevertheless, the state didn’t fare as properly when it got here to its tax surroundings. 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 “typically 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 robust web speeds and strong electrical utility efficiency, it falls quick on its street and bridge circumstances. Stable infrastructure is essential for companies, because it helps clean operations, environment friendly manufacturing, dependable communication, entry to sources and progress.
These states battle with their small enterprise environments
Many states, notably within the South, didn’t fare properly in our rating. The states within the backside 5 spots on our rating embody Louisiana, Mississippi, Rhode Island, West Virginia and Hawaii.
There are a couple of commonalities amongst states on the backside of the rating: They’ve larger 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 influence small enterprise progress.
Why Louisiana got here in final for its small enterprise surroundings
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 surroundings:
Entry to capital
The entire quantity of Small Enterprise Administration 7(a) loans authorized primarily based on the variety of small companies within the state is low, rating thirty fifth. This reveals a niche between the obtainable 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 Heart, says capital is available in Louisiana, however many residents who wish to open companies might battle to qualify for financing due to the state’s larger poverty charges. In response to the nonprofit Louisiana Price range Venture, the general poverty price in Louisiana was 18.6 p.c 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 Heart pointed to Hurricane Ida as a possible purpose. They stated small companies affected by the hurricane confronted storm harm and a scarcity of energy, water and web service. Louisiana additionally landed within the backside 15 states for the bottom per capita actual GDP, signaling a weaker total financial system.
Availability and high quality of labor
Louisiana is dealing with a worsened employee scarcity, evidenced by the truth that there are solely 55 employees for each 100 open jobs, based on the U.S. Chamber of Commerce. It additionally has among the lowest common literacy and numeracy scores for adults within the nation, in comparison with different states. BLS knowledge exhibits 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 typically scored higher on our rating as a result of worker wages generally is a vital value for small enterprise homeowners.
Coverage and regulation
Louisiana ranks poorly for its tax surroundings and is in the course of the pack for its small enterprise insurance policies. During the last 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. Nevertheless, the state nonetheless ranks fortieth for its total enterprise tax surroundings within the Tax Basis’s 2024 State Enterprise Tax Local weather Index. The state’s enterprise insurance policies are additionally structured in a manner 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 total 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 homeowners have it higher than others merely due to the place their enterprise is located.
The placement of your enterprise can have an effect on the whole lot from enterprise prices to what you pay in taxes, making it one of the vital essential components that drives its success. In fact, location will matter extra should 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 homeowners flock to the highest states on our rating. Moderately, it’s essential for them to grasp that their state’s small enterprise surroundings presents its personal distinctive challenges and alternatives. Understanding these variations may help small enterprise homeowners make higher, extra knowledgeable enterprise selections of their respective states.
