Best States for Small Businesses in 2023

If you’re trying to decide where to start your small business, location is certainly an important factor to consider. In great news for bay-state entrepreneurs; Massachusetts was just ranked in the top 5 states for small business startups. Read on to find out more about why Boston is a great choice for small businesses.

Marino & Marino, P.C.  Source: Lendio

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 has been one of the most challenging decades in history for small business owners. The economic impact from 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 faced. 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.

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 cost of living. The availability of business funding, venture capital and local incentive programs were also important factors that impacted the rankings.

Top 5 Best States for Small Businesses

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.

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.

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.

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.

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 at 3%. With low housing costs, business owners find it an attractive location to start and run a small business.

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.

Massachusetts consistently performed in the top tier for business owners, earning it a No. 4 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.