Best Practices

The 10 Best States to Start a Business

by Jim Hughes   Date Published: Sep 07, 2022

According to the Small Business Administration (SBA), around 600,000 new businesses open annually in the United States. But unfortunately, not all of them get through the initial startup stage.

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Some new businesses are unable to get up and running due to taxes, competition, or lack of funding in the state. As such, the state you decide to open your new business matters significantly.

In this blog, we turn to the 10 best states to start a business in the U.S. We pay specific attention to the overall economy, costs of running a business, and the startup environment in each state. Read on to find out why we think Utah is the most business-friendly state and if your home state is also on the list.

Factors to Consider

Before determining where to open a new business, one must research the state's taxes, economy, capital, and other influential factors.

We have collected these factors into five different categories. Then, considering various economic indicators and indices, we have come up with an aggregated ranking of the best states to start a business. These are the factors that helped us determine them:

Economy

Here we looked at each state’s economic indicators, including the gross domestic product (GDP) per capita and the GDP change over the years. The GDP per capita shows the total value of economic output each person produced on average in a year. A positive trend hints at the state’s economic growth and favorable conditions for running a business.

Business Costs

Starting a business comes with many startup costs. As a business owner, you have to rent an office space, cover electricity and internet bills, and pay taxes. Some states have lower-than-average tax rates that you can benefit from.

Workforce

Employees are an integral part of each business. In this category, we include indicators such as college completion rate, average hourly wage, and projected population growth.

Capital

Metrics in this category include the availability of infrastructure and venture capital investments in each state. Some states offer more funding opportunities to startups than others. We analyze the value of venture capital investments in each state to see which states received higher amounts of investment in recent years.

Economic Climate

Finally, the economic climate index takes into account the early survival rate of startups, new employer business actualization rate, and the rate of new employer businesses. The early startup survival rate denotes what percentage of all startups are still active after one year of operation. The higher this percentage, the higher the chance of survival your startup may have.

Now that you know the underlying factors, let’s get right into the top 10 best states to start a business.

1. Utah

Utah

GDP per capita: $54,788

Corporate income tax rate: 4.95%

Value of venture capital: $4.15 billion

College completion rate: 34%

Labor supply rank: 2

Startup early survival rate: 76.76%

Economic climate rank: 8

Utah observed 11 consecutive years of economic growth before the pandemic hit. GDP per capita has been growing rapidly and is the highest it has ever been at $54,788. The state offers below-average corporate income taxes, which are 4.95% for small business owners. It also attracts a total of $4.15 billion in venture capital investments, with 101 small businesses receiving about $11.5 million in funding in 2019. Popular industries include aerospace, IT, health technology, travel and tourism, and natural and sporting goods.

Utah ranks second in the labor supply rank, with 34% of the population having a college degree. It also has around a 77% startup survival rate. This has contributed greatly to scoring a top 10 spot on the economic climate rank.

2. North Carolina

GDP per capita: $50,524

Corporate income tax rate: 2.5%

Value of venture capital: $3.51 billion

College completion rate: 31.3%

Labor supply rank: 9

Startup early survival rate: 78.18%

Economic climate rank: 13

The primary reasons why North Carolina is a great choice are its low corporate income taxes and highly-skilled labor. North Carolina offers the lowest corporate income tax rates at 2.5%, aside from those states that impose no taxes. And thanks to its history in textile and tobacco production, the state has an educated workforce. It ranks ninth in the labor supply index and has a 31.3% college completion rate.

North Carolina is a national leader in financial services, manufacturing, and agriculture. In addition, the economy is expanding rapidly with thriving new industries such as food processing, pharmaceuticals, and vehicle parts. The state also has high venture capital funding per capita, with $3.51 billion for a roughly 10.5 million population. In short, North Carolina is a promising destination for entrepreneurs.

3. Washington

Washington

GDP per capita: $73,437

Corporate income tax rate: None

Value of venture capital: $8.6 billion

College completion rate: 36%

Labor supply rank: 4

Startup early survival rate: 63.43%

Economic climate rank: 6

The Evergreen State has a rapidly growing economy and population. Its GDP per capita is $73,437, which is among the highest in the entire country. Energy, media, construction, hospitality, and finance developments have shaped Washington as a state with an advanced economy and a skillful population. Today, Washington is home to the largest concentration of science, technology, engineering, and math (STEM) workers in the country. Additionally, more than one-third of its workforce has a college degree.

Startups may have an easier time accessing venture capital. Thanks to its competitive tax and regulatory environment, Washington ranks sixth in the economic climate rank. It is one of the few states in America that doesn’t impose a corporate income tax, making it less cumbersome and costly for entrepreneurs to register their businesses here.

4. Colorado

GDP per capita: $62,958

Corporate income tax rate: 4.55%

Value of venture capital: $6.76 billion

College completion rate: 40.9%

Labor supply rank: 1

Startup early survival rate: 76.86%

Economic climate rank: 2

A high startup early survival rate and a significant amount of venture capital make Colorado the next best state to start a business in the United States. Small businesses here employ about 1.1 million people, which is roughly one-fifth of the entire population. Additionally, 40.9% of the state’s population has a college degree, which is one of the main reasons it tops the labor supply ranking.

Colorado observed significant GDP growth over the past few years. Its GDP per capita increased by more than 8.5% during the past five years and currently stands at $62,958. The state is also a runner-up in the business climate rank, which can be attributed to its tax rate of 4.55%. Colorado is also home to a supportive small business environment due to various training programs for new entrepreneurs.

5. Idaho

Idaho

GDP per capita: $40,987

Corporate income tax rate: 6.5%

Value of venture capital: $0.37 billion

College completion rate: 27.6%

Labor supply rank: 19

Startup early survival rate: 80.38%

Economic climate rank: 10

Idaho, or the Gem State, has the second fastest-growing population in the country. Idaho Commerce’s tagline says: “Undiscovered. Find Your Opportunity.” And in reality, when you look at the exceptionally high startup survival rate of more than 80%, it starts making more sense.

The state offers a vast array of grants and incentives to small business owners. You can find multiple grants for small businesses on The Idaho Commerce website that aim to promote rural and urban communities within the state. These favorable startup conditions make Idaho the tenth best economic climate in the U.S. Industries like food processing, mining, science, and technology are flourishing here. Entrepreneurs can also access a highly-skilled and affordable workforce, with 27.6% of the population graduating from college.

6. Texas

GDP per capita: $62,021

Corporate income tax rate: 0.375% to 0.75% for entities with more than $1,230,000 total revenues only

Value of venture capital: $9.04 billion

College completion rate: 29.9%

Labor supply rank: 10

Startup early survival rate: 79.63%

Economic climate rank: 4

Many people are migrating to Texas from other states. And rightfully so, because the Lone Star State offers some of the best opportunities to small businesses in the country. The key factors that make Texas one of the best states for business owners include:

No corporate or personal income tax. You will have to pay very little corporate income tax, ranging between 0.375% and 0.75% if your revenue exceeds $1,230,000.

Fast-growing industries. Banking, construction, healthcare, real estate, and transportation are booming in Texas, opening new doors for startups.

Talent. Texas is huge and home to more than 14 million highly-skilled and diverse workers with a 29.9% college completion rate.

Good startup environment. With a surge in business startups and around 80% of them still active after one year, the state offers favorable conditions for entrepreneurs. Texas ranks number four on the economic climate index.

7. Minnesota

Minnesota

GDP per capita: $60,478

Corporate income tax rate: 9.8%

Value of venture capital: $1.33 billion

College completion rate: 36.1%

Labor supply rank: 7

Startup early survival rate: 80.13%

Economic climate rank: 16

Venture capital investments in Minnesota startups have grown by 40% since 2019. Currently, the state offers a lot of early-stage funding to startups and a wide network of affordable and skilled labor. These favorable circumstances allow more than 80% of Texas startups to survive the early stages.

Water technology, solar technologies, biofuels, manufacturing, and agriculture are large and growing industries here. The amount of company density per 100,000 people is also increasing rapidly in Minnesota, which fosters the growth of startups and impacts its higher-than-average GDP per capita at $60,478. The state imposes a 9.8% corporate income tax and has 36.1% of its population holding a university degree.

8. Massachusetts

GDP per capita: $75,952

Corporate income tax rate: 8%

Value of venture capital: $35.5 billion

College completion rate: 43.7%

Labor supply rank: 5

Startup early survival rate: 80.53%

Economic climate rank: 5

Not only is Massachusetts the best state to raise a family, but it is also the state with the best business incentives. It receives the country's third highest venture capital investments of $35.5 billion and has the second highest college completion rate (43.7%) and GDP per capita ($75,952) in the U.S.

While labor here is among the most expensive in the country, it can also serve as an advantage to startups. You can recruit highly educated people in finance, IT, tourism, education, and engineering that can help your small business succeed and grow. Massachusetts completes the top five in the economic climate rank with a striking 80.53% early startup survival rate.

9. Oregon

Oregon

GDP per capita: $52,855

Corporate income tax rate: 6.6% to 7.6%

Value of venture capital: $1.58 billion

College completion rate: 33.7%

Labor supply rank: 6

Startup early survival rate: 77.57%

Economic climate rank: 9

Labor supply and a highly favorable economic climate are Oregon's two greatest strengths when opening a new business. As a result, new employer businesses have a high success rate here, which goes hand in hand with the state's fast-growing GDP. Oregon has a $52,855 GDP per capita, ranking the state at number six and nine on the labor supply and economic climate indices, respectively.

Oregon can be an excellent destination for entrepreneurs that want to enter the high-tech market. Moreover, Portland has a thriving startup community, with a variety of small businesses in technology, food businesses, and apparel. The city also offers small business owners numerous training and development programs, including boot camps and mentorship programs, to encourage the emergence of new businesses.

10. Nebraska

GDP per capita: $63,094

Corporate income tax rate: 5.58% to 7.5%

Value of venture capital: $0.32 billion

College completion rate: 31.9%

Labor supply rank: 18

Startup early survival rate: 79.6%

Economic climate rank: 28

The final entry on our list is Nebraska. While it doesn't have the robust startup environment of other top states, this state actually has a lot to offer to small businesses. Nebraska's tax rates (5.58% to 7.5%), educated workforce (31.9% with a college degree), and fast-growing population make it a promising destination for startups.

Healthcare and social assistance are leading small business employment industries in Nebraska. Startups without massive capital can access affordable labor, rent, and other resources at low costs. For instance, you can rent property in cities like Omaha for as low as $97 per square foot.

Sum Up

If you're looking to open a new business somewhere, you should know what to expect in terms of taxes, available workforce, and the general economic climate. This way, you can better optimize and manage your budget and forecast your revenue. We made this ranking to help you familiarize yourself with the startup scene across the United States. Ultimately, Utah is at the top of our ranking, but there are many other states that offer great opportunities for setting up a small business.

Jim Hughes, author at OpenLoans
Director of Content
Look to Jim for advice on budgeting, savings, insurance, stocks, retirement funds, and other topics in personal finance.
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