Best States for Small-Business Owners

Some regions, like California's Bay Area, are synonymous with startups. (Think Google, Apple, Uber and even Gap and Levi Strauss & Co.). But, that doesn't mean you must move to the ultra-pricey Bay Area, or even California, if you want your new business to be a success.

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There are plenty of states across the U.S. where entrepreneurs are thriving. To pinpoint those places, GOBankingRates used data from the Kaufman State Report on Early-Stage Entrepreneurship to determine which states provide the most promising environment for entrepreneurs.

The report measures five benchmarks among new businesses: the rate of new employer business actualization, which is the percentage of all new businesses that make a first payroll within eight quarters of business application; rate of new entrepreneurs; the opportunity share of new business — the percentage of businesses founded out of opportunity instead of need; the number of jobs created in the first year; and the percentage of new businesses surviving one year. These factors usually indicate a strong environment for small businesses.

If you have the entrepreneurial bug but aren't sure how to proceed, an essential step is to determine how business-friendly your state is.

Take a look at the 15 best states to start a small business.

Last updated: June 18, 2021

New York

• Rate of new employer business actualization: 10.28%
• Rate of new entrepreneurs: 0.39%
• Opportunity share of new entrepreneurs: 83.88%
• Startup early job creation: 5.30
• Startup early survival rate: 77.03%

With more than 8.8 million people, New York City is the most populous in the nation and has no shortage of budding entrepreneurs.In addition to state and federal regulations, the city has its own rules and guidelines. For prospective business owners in both New York City and the rest of the state, Empire State Development is full of programs and information to assist small businesses.

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South Dakota

• Rate of new employer business actualization: 14.74%
• Rate of new entrepreneurs: 0.29%
• Opportunity share of new entrepreneurs: 82.97%
• Startup early job creation: 4.23
• Startup early survival rate: 77.28%

South Dakota ranks second in the study in terms of the percentage of businesses that have a payroll within two years of applying to start a business at nearly 15%.

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New Jersey

• Rate of new employer business actualization: 8.25%
• Rate of new entrepreneurs: 0.36%
• Opportunity share of new entrepreneurs: 79.84%
• Startup early job creation: 6.69
• Startup early survival rate: 79.58%

The Garden State is rosy when it comes to job creation, leading the study in the number of new jobs per startup in the first year of business at 6.69.

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Texas

• Rate of new employer business actualization: 10.08%
• Rate of new entrepreneurs: 0.38%
• Opportunity share of new entrepreneurs: 79.63%
• Startup early job creation: 5.60
• Startup early survival rate: 79.63%

According to the Texas Economic Development department, the state leads the nation in job creation over the past 10 years. The state is friendly to both businesses and employees, with no corporate income tax and no personal income tax.

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Alaska

• Rate of new employer business actualization: 12.38%
• Rate of new entrepreneurs: 0.48%
• Opportunity share of new entrepreneurs: 78.44%
• Startup early job creation: 3.74
• Startup early survival rate: 79.09%

Alaska has a healthy percentage of people who start a business at just under one-half of a percent, and 79% of them are still in business after one year.

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Florida

• Rate of new employer business actualization: 7.64%
• Rate of new entrepreneurs: 0.53%
• Opportunity share of new entrepreneurs: 85.72%
• Startup early job creation: 6.17
• Startup early survival rate: 75.78%

Florida leads the study in the percentage of the population to start a business at just over one-half of a percent.

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New Mexico

• Rate of new employer business actualization: 9.78%
• Rate of new entrepreneurs: 0.51%
• Opportunity share of new entrepreneurs: 80.75%
• Startup early job creation: 4.17
• Startup early survival rate: 80.09%

The New Mexico Economic Development Department website is the place to look for information about starting a business in the state.

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Oregon

• Rate of new employer business actualization: 13.47%
• Rate of new entrepreneurs: 0.29%
• Opportunity share of new entrepreneurs: 85.72%
• Startup early job creation: 4.85
• Startup early survival rate: 77.57%

Inc. magazine declared Oregon’s largest city, Portland, one of the best places for entrepreneurs because of its “vibrant startup scene,” owed, in part, to contributions from higher education, angel investors and the abundance of coffee shops where business coaching and shop talk can take place.

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Nebraska

• Rate of new employer business actualization: 13.63%
• Rate of new entrepreneurs: 0.27%
• Opportunity share of new entrepreneurs: 82.38%
• Startup early job creation: 4.96
• Startup early survival rate: 79.60%

Nebraska’s Center for Rural Affairs works to make rural areas stronger through the creation of small businesses. It offers business training and technical assistance, networking opportunities and microloans.

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Oklahoma

• Rate of new employer business actualization: 9.84%
• Rate of new entrepreneurs: 0.44%
• Opportunity share of new entrepreneurs: 83.90%
• Startup early job creation: 5.63
• Startup early survival rate: 78.93%

Oklahoma does not require a general business license, unlike many states. However, the state does have license or permit mandates for many types of businesses, and local jurisdictions could have their own permit requirements, too.

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Montana

• Rate of new employer business actualization: 12.38%
• Rate of new entrepreneurs: 0.35%
• Opportunity share of new entrepreneurs: 78.15%
• Startup early job creation: 5.57
• Startup early survival rate: 80.96%

Montana is second in the study in the early survival rate for a new business, with nearly 81% reaching their one-year anniversary. The state’s Small Business Development Center has a full packet of information to assist aspiring business owners.

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North Dakota

• Rate of new employer business actualization: 13.28%
• Rate of new entrepreneurs: 0.32%
• Opportunity share of new entrepreneurs: 95.12%
• Startup early job creation: 4.53
• Startup early survival rate: 78.69%

They’re an entrepreneurial bunch in North Dakota. The state leads the study in the number of people who started a business – 95.12% of them – out of desire and a vision instead of need.

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Maine

• Rate of new employer business actualization: 16.43%
• Rate of new entrepreneurs: 0.40%
• Opportunity share of new entrepreneurs: 85.56%
• Startup early job creation: 4.58
• Startup early survival rate: 78.82%

Maine tops the study when it comes to the percentage of businesses that have a payroll within eight quarters of applying for a business. MaineBusinessWorks provides entrepreneurs with information and education about business development, including how to access financing.

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California

• Rate of new employer business actualization: 13.08%
• Rate of new entrepreneurs: 0.43%
• Opportunity share of new entrepreneurs: 79.69%
• Startup early job creation: 6.43
• Startup early survival rate: 81.83%

From the Bay Area to San Diego, California is known as a hub for tech startups, but it’s a place where a variety of businesses thrive. The state leads the study with nearly 82% of new businesses surviving for one year.

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Idaho

• Rate of new employer business actualization: 14.03%
• Rate of new entrepreneurs: 0.38%
• Opportunity share of new entrepreneurs: 88%
• Startup early job creation: 6.43
• Startup early survival rate: 80.38%

The Idaho Small Business Development Center provides no-cost consulting and low-cost training to entrepreneurs throughout the state. It also maintains the state’s website, which is full of guidance for would-be business owners.

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Joel Anderson contributed to the reporting for this article.

Methodology: To determine the best states for owners of small businesses, GOBankingRates used data from the March 2021 Kaufman State Report on Early-Stage Entrepreneurship. The report measures five benchmarks among new businesses: the rate of new employer business actualization, which is the percentage of all new businesses that make a first payroll within eight quarters of business application; rate of new entrepreneurs; the opportunity share of new business — the percentage of businesses founded out of opportunity instead of need; the number of jobs created in the first year; and the percentage of new businesses surviving one year. 

About the Author

Jami Farkas

Jami Farkas holds a communications degree from California State University, Fullerton, and has worked as a reporter or editor at daily newspapers in all four corners of the United States. She brings to GOBankingRates experience as a sports editor, business editor, religion editor, digital editor — and more. With a passion for real estate, she passed the real estate licensing exam in her state and is still weighing whether to take the plunge into selling homes — or just writing about selling homes.

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