Best States For Small Businesses In 2023

As a record number of businesses opened in the last two years, Lendio.com reveals the top states for entrepreneurs.

Post-pandemic America is an outstanding place to start a small business because a staggering 10 million new small businesses began in 2021 and 2022—a record for such applications, according to a statement released on Jan. 17, 2023, from the White House. The 2020s have been one of the most challenging decades in history for small business owners. The economic impact of the global pandemic continues to ripple through the American and global economies. Inflation, remote working, and the unprecedented migration of educated workers to new locations have been just a few of the challenges that small businesses face. Amid such paradigm shifts in how—and where—Americans work and live, Lendio commissioned this study to see the state of the small business landscape across the country.

small businesses hit record heights in 2022

Key Findings

We explored trends in nine metrics that are critical to the success of small business owners in 2023’s rapidly changing and uncertain landscape. These metrics included small business lending, cost of living, real estate data, educated worker migration, corporate tax rates, state-level incentives for business owners, and more. Our key findings include:

Top states – Texas, Florida, and Ohio rank top in our list due to low taxes, mass migration of educated workers, sufficient business funding, and the fact that more than half of all startups had survived at least five years in each state, which was above average.
Bottom states – Hawaii, Maine, and New Hampshire are the bottom three states due to low business funding and venture capital availability, limited local incentive programs, high tax rates, and high cost of living.
The states that rank highest are those that experienced large influxes of migration with reasonable costs of living. The availability of business funding, venture capital and local incentive programs were also important factors that impacted the rankings.

Top 10 Best States for Small Businesses

10. Utah

Utah boasts 12.6 million small business loans per 100,000 residents, the second-highest in the U.S. It also had $15,000 in VC funding per $1 million GDP, ranking No. 7 in the U.S. in 2022. The reason Utah did not rank higher in our list is that it has become an increasingly popular destination, and as a result, it has seen the highest cost of living increase in the country at 16.3% annually.

9. Georgia

Georgia is also a great place for businesses, as it is within the top states with the most small business loans approved—over 10 million small business loans per 100,000 residents. Georgia has seen an influx of 81,406 people move in, making it the sixth-best state in this crucial category. Although the housing prices remain reasonable, Georgia has the second-highest growth in cost of living.

8. South Carolina

Half of all startups in the Palmetto State have survived at least five years, and the state government offers 77 different incentives for small business owners—only two states offer more incentives than South Carolina. The state has a low 5% corporate income tax rate. In addition, housing prices and cost of living are among the lowest of all states, and 84,030 people moved in in 2022, making it the 4th-hottest place to relocate.

7. Oklahoma

This state boasts some of the most favorable local incentives in the country for business owners, with 75 inventive programs in total. Housing prices and cost of living are lower compared to other states. Combined with a low 4% corporate income tax rate, this creates an environment many entrepreneurs will find attractive.

6. Colorado

If you are in Colorado, you may have the best chance to land a small business loan. Colorado ranks No. 1 in the U.S. for issuance of small business loans, with 13 million small business loans per 100,000 residents. It also has the 6th highest amount of venture capital per $1 million GDP. With 55,768 educated workers moving here and a 5% corporate income tax rate, business owners can find a good place to start a small business.

5. North Carolina

North Carolina has been a hot place for in-migration, with 99,796 people relocating there in 2022 (the 3rd highest in the U.S.). Businesses here have an above-average five-year survival rate. The state also has a low corporate tax rate of 3% and above-average access to business loans. With low housing costs, business owners find it an attractive location to start and run a small business.

4. Massachusetts

It’s no wonder tech-savvy Massachusetts gets the most amount of venture capital disbursed per $1 million of GDP, ranking No 1. in the U.S. The state offers 74 different incentives for business owners. Massachusetts businesses are also more likely to survive beyond five years than in many other states. On the flip side, it has one of the highest median housing values in the U.S., and it is seeing more people leaving (57,000)—rather than moving to—the Bay State.

3. Ohio

Ohio has no corporate income tax rate. Even with the state’s gross receipt tax rate, which is not strictly comparable to the corporate income tax rate, it’s still considered a low tax state. Ohio is also among the top states that have small business loans approved per 100k residents. With very low housing costs and good local incentive programs for businesses, Ohio is a good place for small businesses to settle.

2. Florida

Florida ranks as the second-best state for small businesses due to a low corporate tax rate (6%) and the mass migration of consumers and companies to the state since COVID-19. The Sunshine State sees more than half of its startup businesses survive to at least five years. It’s also a top recipient of small business loan dollars (11th compared to other states). Its entrepreneurs earned nearly $2 billion in 7a loans and $732 million in 504 loans from the U.S. Small Business Administration in fiscal year 2022.

1. Texas

Texas is the best state to start a business. Businesses in Texas consistently land loan dollars for their operations, with nearly $3 billion in small business loans approved in total, coming in second after California. Of all businesses started in 2017 in the state, more than half survived five years of operations, outlasting those in many other states. According to Census Bureau data, nearly 100,000 people with bachelor’s degrees moved into Texas in 2021, making it a prime location for educated entrepreneurs to spread their wings. Beyond just workers, Texas has become one of the most popular places for Americans to relocate—thanks, in part, to its lack of a state income tax.

State-Level Data in Every Category

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State	Overall Z-Score	Ranking	5-year Survival Rates	SBL per 100k	Incentive Programs	VC Per $1M GDP	Corporate Income Tax Rates	Educated Worker Mobility	Hottest Relocation Markets	Median Housing Value	Personal Consumption Expenditures


TEXAS	0.62	1	50.90%	9,328,508	39	5,037.69	0.00%	99,862	230,961	237,400	1,332,116
FLORIDA	0.61	2	50.10%	8,783,679	39	5,090.61	5.50%	127,305	318,855	290,700	1,104,069
OHIO	0.42	3	53.10%	8,838,886	50	3,557.42	0.00%	28,077	-9,165	180,200	519,370
MASSACHUSETTS	0.41	4	55.00%	4,677,583	74	57,498.28	8.00%	29,388	-57,292	480,600	408,832
NORTH CAROLINA	0.40	5	53.90%	7,026,304	31	5,699.60	2.50%	58,867	99,796	236,900	463,815
COLORADO	0.36	6	50.60%	13,191,330	38	16,125.93	4.55%	55,768	5,376	466,200	310,212
OKLAHOMA	0.35	7	51.10%	7,221,606	75	669.26	4.00%	14,319	26,791	168,500	154,084
SOUTH CAROLINA	0.35	8	50.00%	6,483,553	77	987.67	5.00%	31,753	84,030	213,500	224,785
GEORGIA	0.29	9	49.60%	10,640,429	47	6,177.24	5.75%	43,227	81,406	249,700	469,589
UTAH	0.25	10	51.50%	12,627,999	35	15,375.14	4.85%	16,380	12,898	421,700	142,374
OREGON	0.16	11	58.40%	9,449,935	40	6,115.87	7.60%	25,446	-17,331	422,700	202,877
PENNSYLVANIA	0.16	12	54.20%	6,434,662	81	7,430.30	8.99%	48,125	-39,957	298,598	635,754
NORTH DAKOTA	0.15	13	51.40%	5,632,567	67	1,384.51	4.31%	4,199	-2,710	224,400	37,338
MONTANA	0.12	14	54.30%	7,325,676	47	8,614.24	6.75%	8,507	16,003	322,800	52,880
WASHINGTON	0.12	15	46.50%	10,370,164	36	13,370.04	0.00%	44,016	-3,580	485,700	400,487
SOUTH DAKOTA	0.12	16	55.70%	3,884,477	21	2,983.69	0.00%	3,075	8,424	219,900	42,745
INDIANA	0.10	17	53.30%	7,207,837	37	1,225.70	4.90%	18,720	5,230	182,400	290,592
MISSISSIPPI	0.09	18	55.20%	4,486,328	43	162.82	5.00%	6,550	-5,716	145,600	107,510
MARYLAND	0.07	19	51.10%	5,376,402	97	5,201.96	8.25%	32,096	-45,101	370,800	299,934
MICHIGAN	0.07	20	52.30%	8,108,046	43	2,581.89	6.00%	26,344	-8,482	199,100	458,227

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Final Thoughts

The state where your business operates has a direct impact on your ability to effectively run your company. As an entrepreneur, you get to decide which of these factors matters most to you.

Texas consistently performed in the top tier for business owners, earning it a No. 1 spot for its top small business loan dollars, mass migrations of educated workers and consumers, and reasonable housing cost. Meanwhile, California, District of Columbia, New Hampshire, and Hawaii ranked last, in part because of their high costs of living and housing, less incentive programs for businesses, and fewer workers with bachelor’s degrees than many other states.

Wherever you work, each state presents opportunities and challenges. Navigate those factors successfully and you can run a competitive, impactful business. Do the right research. Decide which criteria matter most. Make sure you’ve got the capital to build your dreams. Then take on calculated risk to start something great with products and services that benefit all of us.

Methodology

We used publicly available data from a variety of federal government and nonprofit sources to identify the best and worst states for small businesses in 2023. We used a Z-score distribution to scale each metric relative to the mean across all 50 states and Washington, D.C. Overall, we examined nine factors including:

Resource:

Five-year startup survival rate from 2016-2021 (Bureau of Labor Statistics)
Small business loans, 2022 (7a and 504 loans). (Small Business Administration)
Small Business Incentives, 2022 (Council for Community and Economic Research)
Corporate income tax rates, 2023 (Tax Foundation)
Educated worker mobility, 2021 (Census Bureau)
Hottest relocation markets, 2022 (Census Bureau via National Association of Realtors)
Personal consumption expenditures, 2020-2021 (Bureau of Economic Analysis)
Median housing value of owner-occupied housing units, 2021 (Census Bureau)
Venture capital disbursed per $1 million of GDP, 2021 (National Science Foundation).

Note: In addition to regular income taxes, many states impose other taxes on corporations, such as gross receipts taxes and franchise taxes. Some states also impose an alternative minimum tax and special rates on financial institutions. Nevada, Ohio, Texas, and Washington do not have a corporate income tax but do have a gross receipts tax with rates not strictly comparable to corporate income tax rates.